The Johns Hopkins Health System Corporation and Affiliates

Transcription

1 Quarter-End Report The Johns Hopkins Health System Corporation and Affiliates Three and Six Months Ended December 31, 2014 and 2013 UNAUDITED Contact: Ron Werthman Senior Vice President of Finance, Treasurer and Chief Financial Officer The Johns Hopkins Health System and Affiliates 600 N. Wolfe Street Administration Building 101 Baltimore, MD Office (410) Fax (410) February 11, 2015

2 Index Notice to Readers 3 Overview of The Johns Hopkins Health System Corporation and Affiliates 5 Introduction 5 Wholly Owned or Controlled Affiliates 6 Other Partially Owned Affiliates 10 Maryland Health Services Cost Review Commission 10 Hospitals outside the State of Maryland 11 JHHSC and Affiliates Combined Financial Statements 13 Combined Balance Sheets 13 Combined Statements of Operations and Changes in Net Assets 14 Combined Statements of Cash Flows 15 Management s Discussion and Analysis of Combined Operations and Financial Performance 16 Three months ended December 31, 2014 compared to the three months ended December 31, Six months ended December 31, 2014 compared to the six months ended December 31, Liquidity and Capital Resources 20 Combined Key Statistics 22 Inpatient Payor Mix 23 Other Significant Events 24 Combining Financial Statements 25 Page 2 of 30

3 Notice to Readers Forward Looking Information: This quarter-end report may contain disclosures, which contain forward looking statements within the meaning of the Federal securities laws. Forward looking statements include all statements that do not relate solely to historical or current fact and can be identified by the use of words such as expect, anticipate, intend, project, likely, may, might, estimate, and similar words or expressions. These forward looking statements are based on the current plans and expectations of The Johns Hopkins Health System Corporation ( JHHSC ) and its affiliates (the Affiliates ) as of the date of this report and are subject to a number of known and unknown risks and uncertainties inherent in the operation of health care facilities, many of which are beyond JHHSC s and its Affiliates control. Actual actions and results may differ materially from the forward looking statements. JHHSC and its Affiliates disclaim any obligation, and make no promise, to update any such forward looking statements or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward looking statement, whether as a result of changes in underlying factors, to reflect new information, as a result of the occurrence of events or developments or otherwise. Quarter-End Financial and Operating Information: The financial and operating information provided in this quarter-end report have been prepared on the accrual basis of accounting from records maintained by JHHSC and its Affiliates. All transactions have been included in the accounting records for financial reporting information in conformity with accounting principles generally accepted in the United States ( GAAP ). All statistical and financial data in the Combined Statements of Operations and Changes in Net Assets and the Combined Statements of Cash Flows covering the six months ended December 31, 2014 and 2013, and the Combined Balance Sheet as of December 31, 2014, are unaudited. The Combined Balance Sheet as of June 30, 2014, has been extracted from audited financial statements. Accordingly, the data does not include all of the information and footnotes required by GAAP for complete financial statements. These quarter-end financial statements should be read in conjunction with the audited financial statements as of and for the year ended June 30, Non-GAAP Disclosures: Certain financial data and ratios displayed throughout this quarter-end report are calculated using financial measures that are not considered GAAP. For example, ratios utilizing the financial measure EBIDA, operating revenues less operating expenses plus interest, depreciation and amortization, is a non-gaap measure used to calculate operating cash flow margin percentage, which is calculated as EBIDA divided by operating revenues. These financial data and ratios are not intended to conform to GAAP, but are displayed to provide more meaningful analysis. The Johns Hopkins Hospital Endowment Fund, Incorporated: These interim financial statements and all ratios thereto have been prepared excluding the assets of The Johns Hopkins Hospital Endowment Fund, Incorporated ( the Endowment Corporation ). A non-profit Maryland corporation chartered in 1972, the Endowment Corporation was organized for the purpose of holding and managing the endowment and certain other funds for the benefit of JHHSC and its Affiliates. The affairs of the Endowment Corporation are managed by a Board of Trustees that is self-perpetuating. Neither JHHSC, nor any Affiliate holds legal title to any endowment funds. These funds and any net income accruing from their investments Page 3 of 30

4 are used in accordance with any restrictions imposed by donors, or if no restrictions, in accordance with the mission of the Endowment Corporation. The net assets of the Endowment Corporation as of December 31, 2014 and June 30, 2014 were $660.0 million and $668.0 million, respectively. Obligated Group: As of December 31, 2014, The Johns Hopkins Health System Obligated Group ( JHHS Obligated Group ) consists of The Johns Hopkins Hospital ( JHH ), Johns Hopkins Bayview Medical Center, Inc. ( JHBMC ), Suburban Hospital, Inc. ( SHI ), Suburban Hospital Healthcare System, Inc. ( SHHS ), Howard County General Hospital ( HCGH ), Sibley Memorial Hospital ( SMH ), All Children s Hospital, Inc. ( ACH ), and JHHSC. Each JHHS Obligated Group member, as co-obligor and not as guarantor, jointly and severally covenants to pay the principal and interest on all outstanding JHHS Obligated Group obligations, including parity debt. As of December 31, 2014, the total amount of debt outstanding under the JHHS Obligated Group was $1.7 billion. The JHHS Obligated Group granted a security interest in the receipts of JHH, JHBMC, SHI, SHHS, HCGH, SMH, ACH, and JHHSC which shall continuously apply for the entire term on the debt. On November 12, 2014, ACH was admitted as a member of the JHHS Obligated Group. Additional details regarding ACH s admission into the JHHS Obligated Group can found in a Notice of Material Events posted to the Electronic Municipal Market Access ( EMMA ) website on the same date. Page 4 of 30

5 Overview of The Johns Hopkins Health System Corporation and Affiliates Introduction The Johns Hopkins Health System Corporation is a private, non-profit, non-stock membership corporation organized under the laws of the State of Maryland to formulate policy among and provide centralized management for its Affiliates. JHHSC provides certain shared services including purchasing, accounts payable, payroll, legal, finance, marketing, planning, treasury and other functions. JHHSC functions as the parent holding company of its wholly owned or partially owned Affiliates. JHHSC and The Johns Hopkins University ( JHU ) have entered into a collaboration called Johns Hopkins Medicine. Johns Hopkins Medicine provides a vehicle for internal operational coordination among JHHSC, the Affiliates and the JHU School of Medicine ( JHUSOM ). Johns Hopkins Medicine also provides a united voice for external activities. JHHSC and JHU, as distinct yet interdependent corporations, are able to respond in an integrated fashion to opportunities and pressures affecting the medical enterprise. JHHSC and its Affiliates are dedicated to providing the highest quality patient health care in the treatment and prevention of human illness through its wholly owned or partially owned Affiliates described below. JHHSC and its Affiliates offer a full continuum of integrated health care services in settings ranging from primary care physician offices and ambulatory care centers, to sophisticated quaternary patient care and acute care services provided through its six hospitals. All levels of care are offered on an inpatient and outpatient basis, as well as rehabilitation, chronic care, skilled nursing, home care, and home health care services. The medical staffs of the JHHSC hospitals and health care organizations are principally members of the JHUSOM full and part-time faculties, but also include private physicians. JHHSC and its Affiliates are an academically based health system that serves the greater Maryland area, the District of Columbia, the west coast of Florida, and many national and international patients. The separate employers that comprise JHHSC and its Affiliates collectively employ over 28,000 full and part-time employees. The employers within the State of Maryland are, in the aggregate, one of the largest private employers in the State of Maryland. The National Institutes of Health ( NIH ) leases facilities on the JHBMC campus for the National Institute on Drug Abuse and the National Institute on Aging. The NIH has also constructed a research facility on the JHBMC campus. Neither JHHSC nor any of its Affiliates has guaranteed any of the debt issued to finance construction of the NIH facility. Furthermore, NIH has a significant presence on the SHI campus, located in Bethesda across the street from the NIH campus. A number of programs are operated jointly by SHI and the NIH, including programs for cardiac care (interventional cath lab and surgery), stroke, and cardiac imaging. In addition to the research conducted on its East Baltimore campus, the JHUSOM conducts research into many areas including rheumatology, respiratory disease, gerentological illness, and substance abuse on the JHBMC campus (described below). JHHSC s eighteen principal Affiliates are highlighted below. Page 5 of 30

6 Wholly Owned or Controlled Affiliates The Johns Hopkins Hospital JHH is organized as a not-for-profit Maryland corporation that operates a 1,145-licensed bed facility (1082 acute beds, 45 Neonatal Intensive Care bassinets and 18 Comprehensive Inpatient Rehabilitation beds) on the east side of the City of Baltimore. JHH is a worldrenowned academic medical center providing tertiary and quaternary care, which draws patients not only from metropolitan Baltimore and surrounding counties, but also from the four contiguous states and Washington, DC as well as the rest of the United States and over 100 countries. JHH was recognized by U.S. News and World Report as the best hospital in the U.S. for twenty-two of the past twenty-five years. JHH is home to many nationallyrecognized centers including the Brady Urological Institute, the Sidney Kimmel Comprehensive Cancer Center, the Wilmer Eye Institute, the Clayton Heart Center, and the Johns Hopkins Children s Center. The Robert Heyssel Outpatient Center provides high quality ambulatory care services using state-of-the-art diagnostic facilities, imaging equipment, and operating rooms. JHH houses the State s only Pediatric Trauma Center and the State s only Eye Trauma Center. The Sidney Kimmel Comprehensive Cancer Center is one of two centers in Maryland designated by the National Cancer Institute as a Comprehensive Cancer Center and only one of 41 centers designated in the United States. In May 2012, JHH opened the Charlotte R. Bloomberg Children s Center, a Children s Tower housing the State s only dedicated pediatric trauma center, and the Sheikh Zayed Tower, a Cardiovascular and Critical Care Adult Tower. Johns Hopkins Bayview Medical Center, Inc. JHBMC is a not-for-profit Maryland corporation that operates a community based teaching acute hospital and long-term care facility located in southeast Baltimore. Founded in 1773, it is one of the oldest, continuous health care institutions on the east coast. The City of Baltimore transferred ownership to JHHSC in JHBMC s acute hospital has 337 licensed acute beds and 25 Neonatal Intensive Care bassinets. JHBMC offers a broad range of inpatient and outpatient services and is home to one of Maryland s most comprehensive neonatal intensive care units, and an area-wide trauma center that is part of the Maryland statewide emergency medical system. JHBMC services include the center for adult burn treatment, a sleep disorders center, and specialty services including OBGYN, Psychiatry, Neurology, Orthopedics, Urology, and Plastic Surgery. JHBMC also offers a wide variety of nationally recognized post-acute and geriatric programs through its Johns Hopkins Bayview Specialty Hospital Programs that provide specialty hospital medical, ventilator, and rehabilitation services, and the Beacham Ambulatory Care Center that provides outpatient care to geriatric and post-acute patients. JHBMC s post-acute care facilities include 76 licensed special hospital beds, and 9 licensed Comprehensive Inpatient Rehabilitation beds. Howard County General Hospital, Inc. HCGH is a not-for-profit Maryland corporation that has 259 licensed acute beds and 18 Neonatal Intensive Care bassinets operating in this community hospital in Columbia, Maryland. HCGH is the sole provider of inpatient hospital services in Howard County. HCGH offers a full range of acute care inpatient services including general medicine, obstetrics, cardiology, orthopedics, general surgery, infectious diseases, oncology, gynecology, neurology, pediatrics, and psychiatry. HCGH provides critical care services Page 6 of 30

7 and operates a neonatal intensive care unit. HCGH also offers extensive outpatient services including outpatient surgery in a facility located adjacent to the main building, known as the Health Care and Surgery Center ( HCSC ). HCSC features six operating rooms, one minor procedure room, and one cystoscopy suite. Construction of the hospital s new Pavilion, completed in August 2009, and renovations to the existing structure, completed in July 2011, added 43 net inpatient beds eliminating all medical/surgical semi-private rooms. Suburban Hospital, Inc. SHI is a not-for-profit Maryland corporation that operates a 228 bed acute care community hospital located in Bethesda, Maryland, in the southern part of Montgomery County adjacent to Washington, D.C. SHI provides inpatient, ambulatory and ancillary services on both an emergent and scheduled basis. SHI is the county s only trauma center (Level II) and operates as part of the Maryland statewide emergency medical services system. SHI is one of a limited number of cardiac surgery centers in the State. In addition, SHI offers services and specialized programs in Cardiovascular, Emergency Medicine, Neurosurgery, Oncology, Orthopedic, and Psychiatric care. Admitting physicians are primarily practitioners in the local area. SHI is the sole member of Suburban Hospital Foundation, a not-for-profit organization that conducts community outreach activities and raises funds to be used exclusively for charitable, educational, medical and scientific needs of the community, as well as to manage and distribute funds received on behalf of SHI and its related entities. Sibley Memorial Hospital and Subsidiary SMH is a not-for-profit corporation that operates a 318 bed general acute care community hospital located in Northwest Washington, D.C. SMH is a major provider of surgical services, most notably in the areas of obstetrics, gynecology, orthopedics, neurology, otolaryngology, cosmetic, thoracic, urology, and general surgery. SMH s Cancer Center is accredited by the American College of Surgeons Commission on Cancer. In addition to surgical capabilities, SMH offers radiation oncology, chemotherapy, pain management, and rehabilitation services. SMH also operates a 172 unit assisted living residence, Grand Oaks, and The Sibley Renaissance which houses the Center for Rehabilitation Medicine, Sibley Senior Services, skilled nursing care (45 beds), and a residential Alzheimer s unit. SMH is the sole member of The Sibley Memorial Hospital Foundation ( Sibley Foundation ), a not-for-profit organization created to receive, administer, and expend funds for charitable and educational purposes benefiting SMH. The Sibley Foundation began operations in January In March 2012, SMH provided funding for two additional notfor-profit organizations: The Stacy Mark Reed Foundation ( SMRF ) and The Jane Bancroft Robinson Foundation ( JBRF ). SMRF was created to receive, administer and expend funds for charitable, scientific, and educational purposes benefiting SMH. JBRF was created to provide financial support and engage in activities that directly further the exempt purposes of SMH. All Children s Hospital, Inc. ACH is a not-for-profit corporation that operates a 259 bed pediatric specialty care hospital located in St. Petersburg, Florida. Founded in 1926, ACH is a leading pediatric referral center that is dedicated to the advancing treatment, education, research and advocacy for children s health. ACH began operations in its new state-of-the-art hospital facility on January 9, 2010, which includes many disaster preparedness features, including its own Page 7 of 30

8 Central Energy Plant and Hurricane-resistant design. ACH boasts a 97 bed Neonatal Intensive Care Unit, a 28 bed Pediatric Intensive Care Unit, and a 22 bed Cardiovascular Intensive Care Unit. ACH has one of Florida s busiest pediatric heart surgery programs, and is well known for its pediatric heart and bone marrow/stem transplant programs. ACH s childhood cancer program is one of the largest in the southeast. ACH is also a pediatric teaching center for future pediatricians. Johns Hopkins HealthCare LLC ( JHHC ) JHHC is owned 50% by JHHSC and 50% by JHU. JHHSC consolidates the operations of JHHC due to having control. JHHC develops and manages contractual relationships with Medicaid managed care organizations, employers, hospitals, physicians, and other health care providers covering approximately 336,000 enrollees. Services and support include eligibility database management, member-physician services, claims adjudication, care management, client-focused product development and physician/facility network development, and management. Priority Partners Managed Care Organization, Inc. is a 50% JHHC owned joint venture approved by the State of Maryland to operate as an authorized Medicaid managed care organization, and serves approximately 238,000 Medicaid enrollees in Baltimore City and throughout the State. The Maryland Community Health System owns the remaining 50%. A significant amount of the claims paid by JHHC are paid to JHHSC and its affiliates. Johns Hopkins Community Physicians, Inc. ( JHCP ) JHCP is a not-for-profit Maryland corporation. JHCP operates as a multi-specialty physician group with a focus on primary care with a network of 61 practices across 39 locations throughout Maryland, Washington D.C., and Northern Virginia. Specialties include internal medicine, family practice, pediatrics, sports medicine, gynecology/obstetrics, neurology, cardiovascular and cardiothoracic surgery, orthopedic surgery, breast health, colon and rectal surgery, general surgery, vascular surgery, palliative care, cardiology, radiology, podiatry, acupuncture, aesthetic medicine, gastroenterology, rheumatology, and hospital based physicians practicing at SHI, SMH, and HCGH. JHCP also contributes to the tripartite mission of Johns Hopkins Medicine by collaborating with the JHUSOM and the Johns Hopkins School of Public Health in clinical research activity and by partnering with the JHUSOM to offer residency programs in primary care. The Johns Hopkins Medical Services Corporation ( JHMSC ) JHMSC is a not-for-profit Maryland corporation. JHMSC is the contracting entity for the Uniformed Services Family Health Plan ( USFHP ) contract to provide and manage care for military retirees and active duty family members. JHMSC receives a monthly capitation fee for its services, and then pays a sub-capitation fee to JHHC, which is responsible for ensuring all services under the contract are provided. All primary care services are administered through the JHCP provider network; other services are provided through the JHHC provider network. Suburban Hospital Healthcare System, Inc. SHHS is a not-for-profit Maryland corporation established to manage the integrated delivery of health care services in and among the surrounding communities of Montgomery County, Maryland. Through its wholly owned and partially owned taxable and not-for- Page 8 of 30

9 profit affiliates, SHHS operates outpatient surgery centers and other specialty care service centers. All Children s Health System, Inc. ( ACHS ) ACHS is a not-for-profit Florida corporation established to manage the integrated children s health care services in and among the surrounding counties of St. Petersburg, Florida. Through its wholly owned taxable and not-for-profit affiliates, ACHS operates an organization that supports laboratory and clinical pediatric research, a pediatric ambulatory surgical center, pediatric physician practice groups, a home infusion and pharmaceutical services organization, and a physician office building. ACHS also operates the All Children s Hospital Foundation, Inc., established to raise, manage, and hold funds for use by ACHS and ACH. Howard County Health Services, Inc. ( HSI ) HSI is a for-profit entity that holds an investment of 99.3% of the stock in Sleep Services of America ( SSA ), and consolidates SSA s Balance Sheet and Statement of Operations within HSI. SSA provides diagnostic studies for sleep/wake disorders at a number of locations including the Sleep Center located at HCGH. SSA renders a turnkey operation for the Sleep Center that includes in-take, staffing, management, scheduling and physician management. HCGH OB/GYN Associates Series, LLC ( HCGH OBGYN ) HCGH OBGYN is a for-profit Series formed under JH Ventures, LLC, a Delaware limited liability company. HCGH OBGYN provides obstetrics and gynecology services to residents of Howard County, Maryland and surrounding counties. HCGH OBGYN operates its main office located next to HCGH and one in Eldersburg, Maryland. All appropriate births and surgeries are referred to HCGH. Johns Hopkins Medical Management Corporation ( JHMMC ) JHMMC is a Maryland for-profit health care development, management and services corporation that develops, organizes and manages a regional patient delivery system to serve JHUSOM physicians and JHHSC hospitals. JHMMC s comprehensive regional patient care delivery system seeks to provide quality primary and specialty care within the communities it serves, utilizing full and part-time faculty physicians, affiliated community physicians, and other partners. JHMMC oversees facility planning, site selection, and construction of all ancillary JHHSC, Affiliate and JHUSOM sites. JHMMC also operates a temporary staffing agency that provides qualified clinical and administrative temporary staffing needs for JHHSC and Affiliate, and JHUSOM. Ophthalmology Associates, LLC ( OA ) OA is a Maryland limited liability company owned 99.8% by JHHSC and.2% by JHU. OA s multi-specialty surgery center located at Green Spring Station is used to perform ophthalmic, plastic, cosmetic, and pain management procedures utilizing two operating rooms and a procedure room. OA is also home to the Wilmer Laser Vision Center. Physicians using this facility perform vision correcting refractive surgery utilizing state-ofthe-art equipment to perform LASIK surgery. Page 9 of 30

10 Johns Hopkins Employer Health Programs, Inc. ( JHEHP ) JHEHP is a Maryland for-profit corporation that provides administrative services and access to provider networks to self-insured employers. Other Partially Owned Affiliates The following Affiliates are accounted for under the equity method of accounting, with earnings included in the results of JHHSC. Johns Hopkins Home Care Group, Inc. ( JHHCG ) JHHCG is a not-for-profit Maryland corporation owned 50% by JHHSC and 50% by JHU, and has three operating subsidiaries: Johns Hopkins Home Health Services, Inc., Johns Hopkins Pharmaquip, Inc., and Johns Hopkins Pediatrics at Home, Inc. JHHCG serves as a holding company for the operating subsidiaries that provide home health services such as visits by nurses, home health aides, social workers, and physical, occupational, and speech therapists. Johns Hopkins Pharmaquip, Inc. also provides patients with durable medical and respiratory equipment and supplies, home infusion therapy and pharmaceuticals in a home setting in support of and in accordance with the mission of JHHSC, its other Affiliates and JHUSOM. Johns Hopkins Pharmaquip manages the six outpatient discharge pharmacies on the JHH and JHBMC campuses, and owns the outpatient pharmacy in the Medical Pavilion near HCGH. Johns Hopkins Medicine International, LLC ( JHI ) JHI is owned 50% by JHHSC and 50% by JHU, and coordinates activities for over 4,500 international patients annually, as well as facilitating the global development of JHHSC and JHUSOM research, educational and clinical services. Among other initiatives, JHI manages three hospitals in Abu Dhabi, an oncology program in Singapore, and a jointventure in Saudi Arabia Johns Hopkins Aramco Healthcare ( JHAH ). The primary objective of JHAH is to further improve the quality of care and expand the scope of services offered to Saudi Aramco s eligible medical recipients. Following the initial phase, JHAH can make these healthcare services available to non-saudi Aramco patients. Ownership interests in projects undertaken by JHI are generally allocated between JHHSC and JHU on a project-by-project basis. Maryland Health Services Cost Review Commission The State of Maryland has been granted a waiver by the federal government exempting the State from national Medicare and Medicaid reimbursement principles. JHH, JHBMC, HCGH and SHI charges for inpatient as well as outpatient and emergency services performed at the hospitals are regulated by the Commission. JHHS management has made all submissions required by the Commission and believes JHHS is in compliance with Commission requirements. Management believes that the waiver and Commission regulation will remain in effect through December 31, Effective January 1, 2014, with retroactive application to revenues generated by services provided after June 30, 2013, the Commission and the Center for Medicare and Medicaid Services entered into a Global Budget Revenue Agreement ( GBR ). The agreement will remain in effect through December 31, The GBR moves from a Medicare per admission methodology to a per capita population health based methodology. The Page 10 of 30

11 methodology also includes a new waiver test. Under the new waiver test, growth in revenue per capita will be limited to a rate of 3.58% for the State of Maryland in total. The new agreement sets a hospital s revenue base annually under a global budget arrangement, whereby revenue would be fixed regardless of changes in volume and patient mix for Maryland residents. Hospital revenue for Maryland residents receiving care at Maryland hospitals would be subject to this global budget. However, out of state patients receiving care at Maryland hospitals would not be subject to the global budget. The hospital would receive full rate authority for any out of state volume and growth, or would receive less revenue for lower volumes of out of state patients. HCGH has negotiated to include out of state volume within their global budget; therefore, all in state and out of state volumes are subject to their global budget. Under the Commission reimbursement methodology, amounts collected for services to patients under the Medicare and Medicaid programs are computed at approximately 94% of Commission approved charges. Other payors are eligible to receive up to a 2.25% discount on prompt payment of claims. Hospitals outside the State of Maryland SMH operates in the District of Columbia. ACH operates in the State of Florida. SMH and ACH have agreements with third-party payers that provide for payments to each hospital at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered, and adjusted through net patient service revenue in future periods, as final settlements are determined. SMH s inpatient acute care services rendered to Medicare program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, demographic, diagnostic, and other factors. Outpatient hospital services rendered to Medicare beneficiaries are paid at prospectively determined rates based upon procedures performed. Inpatient psychiatric services are paid based on prospectively determined rates. SMH continues to be reimbursed for medical education on a cost based methodology. SMH is reimbursed for cost reimbursable items at a tentative rate with final settlement determined after submission of annual cost reports by SMH and audits thereof by the Medicare fiscal intermediary. SMH's classification of patients under the Medicare program and the appropriateness of their admission are subject to an independent review by a quality improvement organization under contract with SMH. SMH s inpatient services rendered to Medicaid program beneficiaries are reimbursed based on diagnosis related groupings at a predetermined specified rate for each discharge, based on a patient's diagnosis. Outpatient services are reimbursed based upon a fee schedule maintained by the Medical Assistance Administration. SMH inpatient services provided to Blue Cross subscribers are paid at prospectively determined rates per discharge according to a patient classification system that is based on Page 11 of 30

12 clinical, demographic, diagnostic, and other factors. Outpatient services are reimbursed based upon a schedule or other agreed upon discount. Final settlements for inpatient and outpatient services are in accordance with an agreement entered into with Blue Cross requiring SMH to provide services to Blue Cross members at the lowest contracted rate between SMH and any other significant commercial insurance carriers, health maintenance organizations and/or preferred provider organizations. As of July 1, 2013, ACH inpatient services rendered to Medicaid program beneficiaries are reimbursed based on diagnosis related groupings at a predetermined specified rate for each discharge, based on a patient s diagnosis. The rate may be subject to additional outlier payment amounts. ACH s outpatient services rendered to Medicaid program beneficiaries are reimbursed based on allowable costs included in the most recent filed cost report with final settlement determined after submission of the annual cost reports and audits. Prior to July 1, 2013, inpatient services were reimbursed based on allowable costs included in the most recent filed cost report with final settlement determined after submission of the annual cost reports and audits. Retrospective settlements may take several years to finalize. SMH and ACH have also entered into payment agreements with other commercial insurance carriers. The basis for payment to SMH and ACH under these agreements includes prospectively determined rates per discharge, fee schedules, discounts from established charges and prospectively determined daily rates. Page 12 of 30

13 JHHSC and Affiliates Combined Financial Statements Combined Balance Sheets Johns Hopkins Health System Corporation and Affiliates Combined Balance Sheets (in thousands) (Unaudited) Assets December 31, 2014 June 30, 2014 Liabilities and net assets December 31, 2014 June 30, 2014 Current assets: Current liabilities: Cash and cash equivalents $ 586,200 $ 569,702 Current portion of long-term debt and capital leases $ 93,912 $ 98,705 Short-term investments 127, ,905 Accounts payable and accrued liabilities 538, ,398 AWUIL used for current liabilities 6,960 16,282 Medical claims reserve 70,140 74,627 Patient accounts receivable, net of Deferred revenue 77,893 88,561 estimated uncollectibles 516, ,942 Current portion of due to affiliates 4,516 10,110 Due from others - current portion 39,449 35,964 Accrued vacation 65,510 65,385 Due from affiliates 28,488 20,764 Advances from third-party payors 133, ,112 Inventories of supplies 94,319 87,868 Current portion of estimated malpractice costs 229, ,885 Prepaid expenses and other current assets 282, ,880 Total current liabilities 1,213,414 1,223,783 Total current assets 1,682,305 1,650,307 Assets whose use is limited: By long-term debt agreements for: Debt service reserve funds 4,955 4,955 Construction fund 82, ,811 By donors or grantors for: LT debt and capital leases, net of current portion 1,559,164 1,633,116 Future campus development 1,113 1,113 Estimated malpractice costs, net of current portion 128, ,747 Pledges receivable 34,744 28,077 Net pension liability 493, ,835 Other 96,953 95,910 Other long-term liabilities 298, ,054 By Board of Trustees 833, ,216 Total liabilities 3,693,799 3,686,535 Interest in net assets of Howard Hospital Foundation 18,452 13,644 Other 21,215 20,896 Total assets whose use is limited 1,093,011 1,156,622 Investments 1,593,223 1,576,615 Net assets: Property, plant and equipment 4,459,245 4,386,047 Unrestricted 3,517,524 3,501,484 Less: allowance for depreciation and amortization (1,674,352) (1,621,180) Temporarily restricted 183, ,451 Total property, plant, and equipment, net 2,784,893 2,764,867 Permanently restricted 58,100 58,591 Total net assets 3,759,198 3,727,526 Due from affiliates, net of current portion 100,103 90,888 Due from others, net of current portion 2,796 2,796 Other assets 196, ,966 Total assets $ 7,452,997 $ 7,414,061 Total liabilities and net assets $ 7,452,997 $ 7,414,061 Page 13 of 30

14 Combined Statements of Operations and Changes in Net Assets Johns Hopkins Health System Corporation and Affiliates Combined Statements of Operations and Changes in Net Assets (in thousands) (Unaudited) Three months ended Six months ended December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013 Operating revenues: $ 1,248,700 $ 1,168,519 Net patient service revenue before provision for bad debts $ 2,507,118 $ 2,314,583 14,345 40,192 Provision for bad debts 43,457 77,963 1,234,355 1,128,327 Net patient service revenue 2,463,661 2,236, , ,279 Other revenue 269, ,847 17,935 16,371 Investment income 31,680 26,584 1,394 2,072 Net assets released from restrictions used for operations 3,536 3,825 1,392,352 1,267,049 Total operating revenues 2,768,379 2,495,876 Operating expenses: 535, ,604 Salaries, wages and benefits 1,066,649 1,013, , ,609 Purchased services 987, , , ,043 Supplies and other 435, ,098 9,196 12,889 Interest 18,461 24,046 65,729 66,256 Depreciation and amortization 129, ,055 1,327,926 1,221,401 Total operating expenses 2,637,214 2,414,305 64,426 45,648 Income from operations 131,165 81,571 Non-operating revenues and expenses: (6,932) (6,979) Interest expense on swap agreements (13,850) (13,913) (39,575) 23,009 Change in market value of swap agreements (43,912) 38,537 (5,431) 73,497 Realized and unrealized (losses) gains on investments (45,635) 148,361 (8,763) (3,298) Other (12,812) (7,409) 3, ,877 Excess of revenues over expenses before NCI 14, ,147 (10,844) 355 Noncontrolling interests (21,831) (162) (7,119) 132,232 Excess of revenues (under) over expenses (6,875) 246,985 (225) (555) Contributions to affiliates (287) (1,016) - - Change in funded status of defined benefit plans (157) 275 Net assets released from restrictions used for purchase 1, of property, plant and equipment 1,566 3,019 (23) (13) Other (38) (6) 10,844 (355) Noncontrolling interests 21, , ,809 Increase in unrestricted net assets 16, ,419 Changes in temporarily restricted net assets: 5,248 7,928 Gifts, grants and bequests 16,568 15, Net change in Howard Hospital Foundation 4, Net assets released from restrictions used for purchase (1,091) (500) of property, plant, and equipment (1,566) (3,019) (1,394) (2,072) Net assets released from restrictions used for operations (3,536) (3,825) - - Other - - 3,286 5,523 Increase in temporarily restricted net assets 16,123 9,254 Changes in permanently restricted net assets: (134) 503 Gifts, grants and bequests (641) Net change in Howard Hospital Foundation (134) 503 (Decrease) increase in permanently restricted net assets (491) 988 7, ,835 Increase in net assets 31, ,661 3,751,478 3,551,433 Net assets at beginning of period 3,727,526 3,429,607 $ 3,759,198 $ 3,689,268 Net assets at end of period $ 3,759,198 $ 3,689,268 Page 14 of 30

15 Combined Statements of Cash Flows Johns Hopkins Health System Corporation and Affiliates Combined Statements of Cash Flows (in thousands) (Unaudited) Six months ended December 31, 2014 December 31, 2013 Operating activities: Change in net assets: $ 31,672 $ 259,661 Adjustments to reconcile change in net assets to net cash and cash equivalents provided by operating activities: Depreciation and amortization 129, ,521 Provision for bad debts 43,457 77,963 Net realized and changes in unrealized losses (gains) on investments 46,347 (149,074) Changes in market value of swap agreements 43,912 (38,537) Change in funded status of defined benefit plans 157 (275) Restricted contributions and investment income received (5,649) (15,333) Gains on and returns of equity investments (9,405) (6,831) Other operating activities 4,947 (4,272) Change in assets and liabilities: Patient accounts receivable (41,518) (90,678) Inventories of supplies, prepaid expenses and other current assets (9,202) (9,477) Due from affiliates, net (23,823) (7,341) Pledges receivable (6,588) 230 Other assets (29,798) 17,362 Accounts payable, accrued liabilities and accrued vacation 31,367 11,705 Medical claims payable (2,069) (8,922) Deferred revenue (11,256) (61,779) Advances from third-party payors (6,132) (15,690) Accrued/prepaid pension benefit costs 44,883 34,775 Estimated malpractice costs (3,541) 875 Other long-term liabilities 2,103 1,122 Net cash and cash equivalents provided by operating activities 229, ,005 Investing activities: Purchases of property, plant and equipment (156,852) (111,125) (Investment in) return of equity investments, net (340) 628 Purchases of investment securities (1,964,638) (1,811,287) Sales of investment securities 1,985,807 1,469,927 Payments received on Affiliate notes 14,757 19,609 Advances on Affiliate notes (12,912) (15,794) Other investing activites (5,255) (2,063) Net cash and cash equivalents used in investing activities (139,433) (450,105) Financing activities: Proceeds from restricted contributions and investment income received 5,649 15,333 Proceeds from long-term borrowings - 247,000 Repayments of long-term debt (78,747) (36,242) Other financing activities (620) (1,823) Net cash and cash equivalents (used in) provided by financing activities (73,718) 224,268 Increase (decrease) in cash and cash equivalents 16,498 (97,832) Cash and cash equivalents at beginning of period 569, ,493 Cash and cash equivalents at end of period $ 586,200 $ 412,661 Page 15 of 30

16 Management s Discussion and Analysis of Combined Operations and Financial Performance Three months ended December 31, 2014 compared to the three months ended December 31, 2013 Three months ended In thousands (except for ratios) December 31, 2014 December 31, 2013 Change % Operating revenues $ 1,392,352 $ 1,267,049 $ 125, % Income from operations $ 64,426 $ 45,648 $ 18, % Excess of revenues (under) over expenses $ (7,119) $ 132,232 $ (139,351) % EBIDA $ 139,351 $ 124,793 $ 14, % Operating margin percentage 4.6% 3.6% 1.0% 27.8% Total margin percentage -0.5% 10.4% -10.9% % Operating cash flow margin percentage 10.0% 9.8% 0.2% 2.0% Operating revenues for the three months ended December 31, 2014 were $1.392 billion, compared to $1.267 billion for the three months ended December 31, 2013, for a $125.3 million increase, or 9.9%. Income from operations, defined as operating revenues less operating expenses, was $64.4 million for the three months ended December 31, 2014 compared to $45.6 million for the three months ended December 31, 2013, for a $18.8 million increase, or 41.1%. Excess of revenues under expenses was ($7.1) million for the three months ended December 31, 2014, compared to excess of revenues over expenses of $132.2 million for the three months ended December 31, Excess of revenues (under) over expenses includes income from operations and several non-operating revenues and expenses that significantly affect the volatility of this key performance indicator. Non-operating revenues and expenses include interest expense on swap agreements, change in market value of swap agreements, realized and unrealized gains (losses) on investments classified as trading, and noncontrolling interests. EBIDA, defined as income from operations plus interest, depreciation and amortization, was $139.4 million for the three months ended December 31, 2014 compared to $124.8 million for the three months ended December 31, Interest, depreciation and amortization expenses that are excluded from EBIDA amounted to $74.9 million and $79.1 million for the three months ended December 31, 2014 and 2013, respectively. Operating margin percentage, defined as operating revenues less operating expenses divided by operating revenues, was 4.6% and 3.6% for the three months ended December 31, 2014 and 2013, respectively. Operating margin percentage was higher for the three months ended December 31, 2014 compared to the three months ended December 31, 2013 as income from operations was higher. Total margin percentage, defined as excess of revenues (under) over expenses divided by operating revenues, was (0.5%) and 10.4% for the three months ended December 31, 2014 and 2013, respectively. Total margin is affected by interest expense on swap agreements, the change in market value of swap agreements, realized and unrealized Page 16 of 30

17 gains (losses) on investments classified as trading, and noncontrolling interests. Operating cash flow margin percentage, defined as EBIDA divided by operating revenues, was 10.0% and 9.8% for the three months ended December 31, 2014 and 2013, respectively. Operating cash flow margin percentage was higher as EBIDA was higher. Six months ended December 31, 2014 compared to the six months ended December 31, 2013 Six months ended In thousands (except for ratios) December 31, 2014 December 31, 2013 Change % Operating revenues $ 2,768,379 $ 2,495,876 $ 272, % Income from operations $ 131,165 $ 81,571 $ 49, % Excess of revenues (under) over expenses $ (6,875) $ 246,985 $ (253,860) % EBIDA $ 279,167 $ 237,672 $ 41, % Operating margin percentage 4.7% 3.3% 1.4% 42.4% Total margin percentage -0.2% 9.9% -10.1% % Operating cash flow margin percentage 10.1% 9.5% 0.6% 6.3% Operating revenues for the six months ended December 31, 2014 were $2.768 billion, compared to $2.496 billion for the six months ended December 31, 2013, for a $272.5 million increase, or 10.9%. Net patient service revenues, before provision for bad debts, increased $192.5 million principally due to the following: an increase in JHHC revenue due to increased rates and enrollment accounting for approximately $166.6 million, and an increase in hospital revenues, accounting for approximately $26.0 million, driven by rates and the HSCRC update factor under the GBR model. Hospital volumes were fairly flat for the six months ended December 31, 2014 compared to the six months ended December 31, 2013 as increased outpatient revenues at the hospitals outside the state of Maryland were offset by a decrease in out-of-state revenues for the Maryland hospitals. Other revenues increased $40.7 million principally due to an increase in discharge pharmacy and other ancillary revenues. Provision for bad debts, displayed as a deduction to arrive at net patient service revenue decreased ($34.5) million. Provision for bad debts as a percentage of net patient service revenues, excluding JHHC s managed care revenues, decreased to 2.24% from 4.14% for the six months ended December 31, 2014 and 2013, respectively, primarily due to the impact of the Affordable Care Act and Medicaid expansion. JHHSC determines an account to be a bad debt if a patient has the ability to pay, but is not willing to pay. JHHSC estimates the amount of bad debts at the time of service. Patients who meet certain charity care criteria are those who do not have the means to pay, and are provided care without charge, or at amounts less than established rates. These patients are identified based on information obtained from the patients and may be recorded at the time of service, or upon subsequent analysis. From period to period, the amount of bad debts and charity care can differ based on final assessment of criteria. Income from operations was $131.2 million and $81.6 million for the six months ended December 31, 2014 and 2013, respectively. The increase of $49.6 million was primarily attributable to JHHC s and the combined hospitals increased profitability. Page 17 of 30

18 Operating expenses were $2.637 billion and $2.414 billion for the six months ended December 31, 2014 and 2013, respectively. The operating expense increase of $222.9 million is composed of the following: Salaries, wages and benefits increased $52.8 million. Salaries and wages have increased due to market-driven wage increases at certain affiliates, while other affiliates have experienced increases in FTEs. The increases in FTEs have also increased benefit costs. Further, benefits costs include higher pension expense for the six months ended December 31, Purchased services increased $118.2 million. The most significant portion of the purchased services increase was due to JHHC experiencing growth in its cost of care from both Priority Partners and USFHP contracts due to growth in enrollment. Additionally, temporary labor, physician services, and corporate service center costs were all higher. Supplies and other increased $60.0 million principally due to increased pharmaceutical costs and medical surgical supplies (orthopedic implants, joints, hips, knees) as inpatient admissions, emergency room visits, outpatient visits, and surgical volumes have increased. Interest expense related directly to the debt instruments is recorded in the operating section, and net settlement interest expense related to the swap agreements is presented in the nonoperating section of the Combined Statements of Operations and Changes in Net Assets. Interest expense included in the operating section was $18.5 million and $24.0 million for the six months ended December 31, 2014 and 2013, respectively. Net settlement interest expense on the swap agreements was virtually the same at $13.9 million for the six months ended December 31, 2014 and Depreciation and amortization decreased $2.5 million due to the timing of routine purchases of property and equipment placed in service over the past year. There are many construction projects under way that will not begin to be depreciated until they are placed in service. JHH, JHBMC, HCGH, SHI, and ACH combined have entered into twelve fixed payor interest rate swap agreements. The notional amount of all twelve swap agreements totals $759.3 million as of December 31, Each of the swap agreements pays a fixed annual rate ranging from % to 3.946%, in return for the receipt of a floating rate of interest based on the one-month LIBOR (one tranche at 68% of LIBOR, eight tranches at 67% of LIBOR, two tranches at 62.2% of LIBOR plus 0.27%, and one tranche at 61.8% of LIBOR plus 0.25%). The value of the swap agreements are adjusted to market value monthly based upon quotations from market makers. The net settlements of interest expense and the change in market value, if any, are each recorded in the Combined Statements of Operations below income from operations as a separate component of excess of revenues (under) over expenses. The total amount recorded due to changes in the market value of the swap agreements was a loss of ($43.9) million for the six months ended December 31, 2014, compared to a gain of $38.5 million for the six months ended December 31, The volatility in the market value of these swap agreements is dependent on changes in long-term interest rates. The market value of the swap agreements will increase as long-term interest rates increase, and decrease as long-term interest rates decrease. Additionally, each swap agreement has certain collateral thresholds whereby, on a daily basis, if the market value of a swap agreement declines such that its devaluation exceeds the threshold, cash must be Page 18 of 30

19 deposited with the swap counterparty for the difference between the threshold amount and the market value. Collateral is exchanged on a daily basis depending on the market value. The collateral is recorded as an other long-term asset on the Balance Sheets and cannot be used by JHHSC for operations. All cash deposited as collateral earns interest that inures to JHHSC. As of December 31, 2014 and June 30, 2014, there was a total of $110.3 million and $80.3 million, respectively, deposited as collateral with one swap counterparty. Excess of revenues under expenses was ($6.9) million for the six months ended December 31, 2014, compared to excess of revenues over expenses of $247.0 million for the six months ended December 31, Excess of revenues (under) over expenses includes operating revenues and several non-operating revenues and expenses below income from operations that significantly affect the volatility of this key performance indicator. Income from operations increased $49.6 million as described above. The change in market value of the swap agreements was ($82.4) million lower as described above. Realized and unrealized gains (losses) on investments classified as trading were ($194.0) million lower as the broader investment markets performed less favorably in the six months ended December 31, 2014 compared to the prior year. Noncontrolling interests and other decreased ($27.1) million for the six months ended December 31, 2014 compared to the prior year. Noncontrolling interests represent the minority shareholders portions of income from consolidated joint ventures where JHHSC has control. EBIDA was $279.2 million for the six months ended December 31, 2014 compared to $237.7 million for the six months ended December 31, The increase of $41.5 million in EBIDA was principally due to the increase in operating income of $49.6 million described above. Operating margin percentage was 4.7% and 3.3% for the six months ended December 31, 2014 and 2013, respectively. Operating margin percentage increased for the six months ended December 31, 2014 compared to the six months ended December 31, 2013 as income from operations increased at a faster rate than operating revenues. Total margin percentage was (0.2%) and 9.9% for the six months ended December 31, 2014 and 2013, respectively. Total margin is affected by interest expense on swap agreements, the change in market value of swap agreements, realized and unrealized gains (losses) on investments classified as trading, and noncontrolling interests. Operating cash flow margin percentage was 10.1% and 9.5% for the six months ended December 31, 2014 and 2013, respectively. Operating cash flow margin percentage increased as EBIDA increased at a faster rate than operating revenues. Page 19 of 30