CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION INDIANA UNIVERSITY HEALTH, INC. AND SUBSIDIARIES AS OF AND FOR THE THREE MONTHS AND YEARS

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION INDIANA UNIVERSITY HEALTH, INC. AND SUBSIDIARIES AS OF AND FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2012 AND 2011

2 TABLE OF CONTENTS Management s Discussion of Financial Performance 1 Consolidated Financial Statements Consolidated Balance Sheets 8 Consolidated Statements of Operations and Changes in Net Assets 10 Consolidated Statements of Cash Flows 13 Page Other Information Special Purpose Combined Balance Sheets Obligated Group and 14 Affiliates Special Purpose Combined Statements of Operations Obligated 16 Group and Affiliates Special Purpose Combined Balance Sheets Obligated Group 17 Special Purpose Combined Statements of Operations Obligated 19 Group Statistical and Other Data 20

3 MANAGEMENT S DISCUSSION OF FINANCIAL PERFORMANCE As of and for the years ended December 31, 2012 and 2011

4 Management s Discussion of Financial Performance As of and for the years ended December 31, 2012 and 2011 The financial-statement information and other data as of and for the years ended December 31, 2012 and 2011 are derived from the audited consolidated financial statements and other records of Indiana University Health, Inc. (Indiana University Health) and subsidiaries (collectively referred to herein as the Indiana University Health System). The consolidated financial statements include all adjustments, consisting of normal recurring and other accruals, which management of the Indiana University Health System considers necessary for a fair presentation of financial position, results of operations and changes in net assets, and cash flows for these periods in conformity with generally accepted accounting principles (GAAP) in the United States. The financial data relating to the Obligated Group and the Obligated Group and Affiliates, as defined in the Indiana University Health Obligated Group Master Trust Indenture, as amended, is provided as supplementary information. The accompanying financial-statement information should be read in conjunction with the audited consolidated financial statements and the notes thereto of Indiana University Health and subsidiaries as of and for the years ended December 31, 2012 and 2011 (not included herein). Nature of Operations The principal operating activities of the Indiana University Health System are conducted at owned facilities or majority-owned or controlled subsidiaries and consist of the following: Downtown Hospitals of the Academic Health Center (Hospital Campuses) Consist of three acute, tertiary and quaternary care, and diagnostic facilities, licensed as a single hospital, which constitutes the principal hospital activities of the academic health center and whose operations are located in the downtown area of Indianapolis, Indiana. These three hospitals, Indiana University Health Methodist Hospital (Methodist Hospital), Indiana University Health University Hospital (University Hospital), and Riley Hospital for Children at Indiana University Health (Riley Hospital) are located on or near the campus of Indiana University-Purdue University in Indianapolis and the Indiana University School of Medicine (the School of Medicine). 1

5 Suburban Facilities (Indiana University Health West Hospital (West), Indiana University Health North Hospital (North) including Indiana University Health Tipton Hospital (Tipton), Indiana University Health Saxony Hospital (Saxony), and Rehabilitation Hospital of Indiana (RHI)) Consist of three acute care hospitals, a critical access hospital, and an acute care rehabilitation hospital located in the western and northern suburban areas of metropolitan Indianapolis, Indiana. Saxony opened on December 1, Saxony operates as a division of the academic health center. RHI was consolidated into operations effective April 9, Statewide Facilities Consist of acute care hospitals and health care systems located in Bedford, Bloomington, Goshen, Hartford City, Knox, Lafayette, LaPorte, Martinsville, Monticello, Muncie, and Paoli, Indiana. Principal hospital subsidiaries include Indiana University Health Bedford Hospital (Bedford), Indiana University Health Arnett Hospital (Arnett), Indiana University Health LaPorte Hospital and subsidiaries (LaPorte) including Indiana University Health Starke (Starke), Indiana University Health Goshen and subsidiaries (Goshen), Indiana University Health Ball Memorial Hospital and subsidiaries (Ball Memorial) including Indiana University Health Blackford (Blackford), Indiana University Health Bloomington Hospital and subsidiaries (Bloomington) including Indiana University Health Paoli (Paoli), Indiana University Health Morgan Hospital (Morgan), and Indiana University Health White Memorial Hospital (White). Morgan and White were consolidated into operations effective July 1, Physician Operations Consist of physician offices and physician-group practices and clinics. Principal subsidiaries or divisions include Indiana University Health Arnett Physicians, Indiana University Health Ball Memorial Physicians, Indiana University Health Southern Indiana Physicians, Indiana University Health LaPorte Physicians, Indiana University Health Goshen Physicians, Indiana University Health Radiology Partners, Inc., Indiana University Health Transplant Institute, and Heart Partners of Indiana, LLC. Additionally, physician operations include Indiana University Health Physicians (IUHP), a nonprofit organization with locations primarily in Indianapolis, Indiana. IUHP was developed by integrating Indiana University Health owned or operated physician practices with newly acquired privately owned physician practices and practice plans of the School of Medicine. IUHP employs all of its physicians and operates as a delivery model that facilitates access, coordinates care, and improves quality, all designed to provide a better health care experience for patients. IUHP was consolidated into operations effective January 1, Ambulatory Care Consists of occupational, personal, and home health care services and outpatient oncology services, which are located throughout the state of Indiana. Principal subsidiaries or divisions include Indiana University Health Occupational Services, Indiana University Health Home Care, and Central Indiana Cancer Centers. Medical Risk Consists of the medical management of health care services of members whose health care coverage is provided by the managed care networks of the 2

6 Indiana University Health System. Foundations - Indiana University Health is the sole corporate member of Methodist Health Foundation, Inc. (Methodist Health Foundation), which aids and supports Methodist Hospital and other programs and areas of Indiana University Health. Ball Memorial is the sole corporate member of Indiana University Ball Memorial Hospital Foundation (BMH Foundation), which aids in carrying out the mission of Ball Memorial. Morgan is the sole corporate member of Indiana University Health Morgan Hospital Foundation (Morgan Foundation), which aids and supports Morgan. RHI is the sole corporate member of Rehabilitation Hospital Foundation (RHI Foundation), which aids and supports RHI. Effective April 1, 2012, Indiana University Health gained control of RHI. The financial position of this entity was consolidated with Indiana University Health effective April 9, 2012 and financial results have been consolidated beginning on that date. Effective January 1, 2012, Indiana University Health gained control of IUHP. The financial position of this entity was consolidated with Indiana University Health effective January 1, 2012 and financial results have been consolidated beginning on that date. Effective July 1, 2011, Indiana University Health acquired, or gained control of, Morgan Hospital and Medical Center, White County Memorial Hospital, Beltway Surgery Center (BSC), and Eagle Highlands Surgery Center (EHSC). The financial position of these four entities was consolidated with Indiana University Health effective July 1, 2011 and financial results have been consolidated beginning on that date. The entities, combined, will herein be referred to as the acquired entities. Additionally, Saxony opened on December 1, Revenue. Total operating revenue of $5,578.3 million for the year ended December 31, 2012 increased 29.0% (or $1,255.7 million) over the prior year. The net increase in net patient service revenue (excluding state disproportionate share revenue (DSH)) of $1,204.8 million for the year ended December 31, 2012 over the prior year reflects the effect of rate increases aggregating approximately 8%, increased volumes for inpatient and outpatient services (see table on next page), increased reimbursement related to the Medicaid Assessment Fee program of $474.2 million and a Medicare settlement of $22.6 million. The consolidation of the acquired entities and Saxony, excluding the increased reimbursement and DSH, accounted for $386.3 million of the change in net patient revenue. During April 2012, the Indiana General Assembly approved a hospital assessment fee program (Medicaid Assessment Fee). Under this program, the Office of Medicaid Policy and Planning (OMPP) will collect an assessment fee from eligible hospitals. The fee will then be used in part to increase reimbursement to eligible hospitals for services provided in both fee-for-service and managed care programs, and as the state share of DSH payments. This program is effective retroactively from July 1, 2011 and will continue through June 30,

7 The table below shows admissions and outpatient visits by Division. As of December 31, 2012, $110.3 million of DSH was recognized, compared to $221.6 million for the prior year. The decrease relates to the implementation of the Medicaid Assessment Fee program. The provision for uncollected patient accounts amounted to $284.9 million for the year ended December 31, 2012 and $255.6 million in the prior year, of which $40.2 million of the increase was related to the acquired entities and Saxony for the year ended December 31, As a percentage of gross patient revenue, the provision for uncollected patient accounts was 2.2% in 2012 and 2.3% This decrease was offset by an increase in charity care of $131.9 million due to a more proactive approach to identifying charity care. Member premium revenue aggregated $150.6 million for the year ended December 31, 2012 and $135.7 million for the prior year. The increase of $14.9 million relates to more members in both Medicaid and Medicare programs. Included in other operating revenue for the year ended December 31, 2012 is a $45.0 million grant received by IUHP. Prior year s other operating revenue includes the equity method loss related to IUHP before consolidation. Expenses. Total operating expenses of $4,977.0 million increased 23.3% (or $939.0 million) over that for the year ended December 31, The acquired entities and Saxony accounted for $560.5 million of the change. 4

8 Salaries, wages, and benefits increased 27.0% (or $552.5 million) to $2,596.3 million, of which $410.7 million related to the acquired entities and Saxony for the year ended December 31, 2012 over the prior year. As of December 31, 2012 the number of full time equivalent (FTE) employees was 29,874 and includes the acquired entities and Saxony. Excluding the addition of the acquired entities and Saxony, salaries, wages, and benefits expense for the year ended December 31, 2012 increased $141.8 million or 7.1% over the prior year due to an increase in FTEs due to the expansion of service lines and general wage increases. Supplies, drugs, purchased services, and other expenses of $1,773.4 million increased 11.1% over that for the prior year ($1,596.7 million), of which $135.3 million of the change related to the acquired entities and Saxony. Fees related to the Medicaid Assessment Fee Program were $179.8 million for the year ended December 31, Health claims to providers expenses of $96.1 million approximated the prior year ($94.1 million). Depreciation expense of $266.9 million increased 5.8% over that for the prior year ($252.3 million). The acquired entities and Saxony accounted for the change. Interest expense of $64.4 million was 25.8% more than the prior year ($51.2 million). The effective interest rate, excluding the impact of interest rate swaps, for the year ended December 31, 2012 was 3.43% (3.15% 2011). Other. For the year ended December 31, 2012, Indiana University Health expensed $52.6 million, compared to $98.5 million in the same period in 2011, related to educational and research support provided to the Indiana University School of Medicine. Investment income amounted to $147.9 million for the year ended December 31, 2012, including $31.6 million of interest and dividend income and $116.3 million of net gains (including unrealized gains) on investments. For the year ended December 31, 2011, investment income aggregated $2.7 million, which included $23.6 million of interest and dividend income and $20.9 million of net losses (including unrealized losses) on investments. Gains on interest rate swaps aggregated $17.1 million for the year ended December 31, 2012, and losses aggregated $73.4 million for the year ended December 31, Operating margin amounted to 9.8% for the year ended December 31, 2012 and 4.3% for the same period in the prior year. Total margin gain, exclusive of gains or losses on interest rate swaps and inherent contribution of acquired entities, was 11.3% for the year ended December 31, 2012, compared to 4.6% in

9 Consolidated Balance Sheet (Compared to year ended December 31, 2011) Consolidated Financial Position. Total cash and investments (which principally consist of cash and cash equivalents, board-designated funds and other investments, donorrestricted funds, and trustee-held funds for construction and debt service) amounted to $2,688.2 million at December 31, 2012 ($2,087.1 million at December 31, 2011). The number of days cash and investments on hand was 217 days at December 31, 2012 (201 days as of December 31, 2011) and reflects the consolidation of Indiana University Health Physicians and reclassification of bad debts and excludes fees associated with the Medicaid Assessment Fee program. The number of days revenue in receivables was 47 days at December 31, 2012 (excluding the increased reimbursement under the Medicaid Assessment Fee program and related receivable), and 49 days at December 31, The number of days expenses in accounts payable, accrued expenses, and certain other current liabilities (excluding fees associated with the Medicaid Assessment Fee program and related liability) was 53 days at December 31, 2012 and Net current assets, or working capital, increased to $633.3 million at December 31, 2012 ($414.1 million at December 31, 2011). Net property and equipment of $2,781.5 million increased $76.4 million from December 31, 2011 reflecting continued investment in facilities and equipment and the addition of acquired entities, offset by depreciation expense for the period. Other amounts for property and equipment are anticipated to be incurred; however these amounts may not be legally required or committed, and are subject to change or authorization by the Board of Directors aggregating approximately $267.1 million at December 31, 2012, which is expected to be financed through operations, contributions, and, where applicable, proceeds from the issuance of tax-exempt bonds. On June 29, 2012, the direct bank loan was renewed and the maturity date was extended from June 30, 2012 to June 30, As of December 31, 2012, the amount outstanding for this loan was $40.9 million, of which $0.9 million was recorded within the current portion of long-term debt. During December 2012, the notes payable to banks was paid off; therefore, there was no balance drawn on the note as of December 31, Unrestricted net assets, or equity, amounted to $3,426.8 million at December 31, 2012 ($2,758.1 million at December 31, 2011) and includes the net unrealized losses on swaps of $165.9 million and $196.6 million at December 31, 2012 and December 31, 2011, respectively. Adjusted Operating Income The table below adjusts operating income for significant one time transactions or significant items that relate to prior years. Management uses these measures internally for planning, forecasting, and evaluating the performance of the Indiana University Health System. Non-GAAP measures should be considered in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Refer to the audited consolidated financial statements and the notes thereto of Indiana University Health and subsidiaries as of and for the years ended December 31, 2012 and 6

10 2011 (not included herein) for additional information on these adjustments. Year Ended December Operating income as reported $ 548,657 $ 186,044 Hospital assessment fee program, net (101,866) DSH (91,534) (3,822) IUHP grant (45,000) Medicare settlement (22,570) Operating income adjusted $ 287,687 $ 182,222 During April 2012, the Indiana General Assembly approved a hospital assessment fee program which was effective retroactively from July 1, The amount above represents what was received for During 2012, DSH was received for state fiscal years 2011 and During 2011, DSH was received for state fiscal year During 2012, IUHP received a one time grant from Indiana University Medical Group Foundation to be used toward physician recruitment and transition for the purpose of expanding access to care to Medicaid and other underserved patient populations. During 2012, a one time settlement was received from the United States Department of Health & Human Services and Centers for Medicare & Medicaid Services related to underpayments for Medicare services dating back several years. 7

11 CONSOLIDATED FINANCIAL STATEMENTS As of and for the three months and years ended December 31, 2012 and 2011

12 Consolidated Balance Sheets (Thousands of Dollars) December 31 December Assets (Audited) (Audited) Current assets: Cash and cash equivalents $ 611,630 $ 403,086 Patient accounts receivable, less allowance for uncollectible accounts of $250,604 and $197,025 in 2012 and 2011, respectively 617, ,933 Other receivables 161,947 87,807 Prepaid expenses 39,741 34,726 Inventories 84,341 82,884 Current portion of trustee-held funds ,430 Total current assets 1,515,708 1,213,866 Assets limited as to use: Board-designated investment funds and other investments 1,967,308 1,528,549 Donor-restricted investment funds 94,975 88,107 Trustee-held funds for construction and debt service, less current portion 13,769 12,929 Total assets limited as to use, less current portion 2,076,052 1,629,585 Property and equipment: Cost of property and equipment in service 5,573,770 5,353,044 Less accumulated depreciation (2,836,763) (2,738,368) 2,737,007 2,614,676 Construction-in-progress 44,467 90,384 Total property and equipment, net 2,781,474 2,705,060 Other assets: Equity interest in unconsolidated subsidiaries 57,819 72,254 Interest in net assets of foundations 12,898 12,251 Unamortized bond issuance costs 7,197 7,558 Goodwill, intangibles, and other assets 224, ,163 Total other assets 302, ,226 Total assets $ 6,675,865 $ 5,834,737 Continued on next page. 8

13 Consolidated Balance Sheets (continued) (Thousands of Dollars) December 31 December Liabilities and net assets (Audited) (Audited) Current liabilities: Accounts payable and accrued expenses $ 380,336 $ 347,133 Accrued salaries, wages, and related liabilities 278, ,184 Accrued health claims 55,593 40,860 Estimated third-party payor allowances 107,552 86,754 Current portion of notes payable to banks - 24,721 Current portion of long-term debt 60, ,131 Total current liabilities 882, ,783 Noncurrent liabilities: Long-term debt, less current portion 1,824,831 1,730,290 Interest rate swaps 165, ,627 Accrued pension obligations 154, ,002 Accrued medical malpractice claims 64,642 57,287 Other 53,955 52,689 Total noncurrent liabilities 2,263,831 2,175,895 Total liabilities 3,146,217 2,975,678 Net assets: Indiana University Health 3,257,945 2,619,481 Noncontrolling interest in subsidiaries 168, ,628 Total unrestricted 3,426,835 2,758,109 Temporarily restricted 36,549 34,761 Permanently restricted 66,264 66,189 Total net assets 3,529,648 2,859,059 Total liabilities and net assets $ 6,675,865 $ 5,834,737 9

14 Year Ended Three Months Ended December 31 December (Audited) (Unaudited) Revenues: Patient service revenue (net of contractuals and discounts) $ 5,449,405 $ 4,326,593 $ 1,399,997 $ 1,102,288 Provision for uncollectible accounts (284,883) (255,554) (43,410) (27,453) Net patient service revenue 5,164,522 4,071,039 1,356,587 1,074,835 Member premium revenue 150, ,692 38,129 32,697 Other revenue 263, ,861 55,056 42,606 Total operating revenues 5,578,276 4,322,592 1,449,772 1,150,138 Expenses: Salaries, wages, and benefits 2,596,349 2,043, , ,599 Supplies, drugs, purchased services, and other 1,773,395 1,596, , ,224 Hospital assessment fee 179,834 34,811 Health claims to providers 96,132 94,059 25,247 23,374 Depreciation and amortization 266, ,293 67,098 64,492 Interest 64,358 51,178 16,386 13,189 Total operating expenses 4,977,009 4,038,043 1,240,689 1,056,878 Operating income before educational and research support 601, , ,272 93,260 Educational and research support to Indiana University (52,610) (98,505) (45,110) (43,305) Total operating income 548, , ,162 49,955 Nonoperating income (losses): Investment income, net 147,902 2,727 28,887 33,458 Gains (losses) on interest rate swaps, net 17,054 (73,441) 7,580 (9,407) Inherent contribution of acquired entities 3,062 48,714 1,335 Gain on acquisition and other 2,200 52,906 (22) 1,441 Total nonoperating income 170,218 30,906 36,445 26,827 Consolidated excess of revenues over expenses 718, , ,607 76,782 Less amounts attributable to noncontrolling interest in subsidiaries 67,377 44,556 22,694 17,284 Excess of revenues over expenses attributable to Indiana University Health and subsidiaries 651, , ,913 59,498 Continued on next page. Indiana University Health, Inc. and subsidiaries Consolidated Statements of Operations and Changes in Net Assets (Thousands of Dollars) 10

15 Consolidated Statements of Operations and Changes in Net Assets (continued) (Thousands of Dollars) Year Ended Year Ended December 31 December (Audited) (Audited) Unrestricted net assets: Total Controlling Noncontrolling Total Controlling Noncontrolling Excess of revenues over expenses $ 718,875 $ 651,498 $ 67,377 $ 216,950 $ 172,394 $ 44,556 Change in pension obligation (28,226) (28,226) (49,887) (49,887) Contributions for capital expenditures 14,690 14,690 8,568 8,568 Distributions to noncontrolling interests (56,663) (56,663) (27,480) (27,480) Issuance of noncontrolling interests related to acquisition 13,556 13,556 Contributions from noncontrolling interests 2,940 2,940 Purchase of noncontrolling interests - (39,294) (26,993) (12,301) Fair value of initial noncontrolling interests in acquired entities 3,601 3,601 74,197-74,197 Sale of member interest to noncontrolling member - 123,090 82,726 40,364 Other (47) 502 (549) (554) (5,330) 4, , ,464 30, , , ,112 Temporarily restricted net assets Change in beneficial interest in net assets of foundations (1,012) (1,012) Contributions 11,275 11,275 1,468 1,468 Investment return 2,921 2, Net assets released from restrictions (13,220) (13,220) (3,096) (3,096) 1,544 1,544 (2,418) (2,418) Permanently restricted net assets: Change in beneficial interest in net assets of foundations Contributions and other Investment return (347) (347) Increase in net assets before contributions of net assets of acquired organizations 670, ,083 30, , , ,112 Contributions of net assets of acquired organizations at April 1, 2012 and July 1, 2011: Temporarily restricted net assets of RHI Temporarily restricted net assets of White Permanently restricted net assets of Morgan Permanently restricted net assets of White Increase in net assets 670, ,327 30, , , ,112 Net assets at beginning of period 2,859,059 2,720, ,628 2,554,522 2,540,006 14,516 Net assets at end of period $ 3,529,648 $ 3,360,758 $ 168,890 $ 2,859,059 $ 2,720,431 $ 138,628 Continued on next page. 11

16 Consolidated Statements of Operations and Changes in Net Assets (continued) (Thousands of Dollars) Three Months Ended Three Months Ended December 31 December (Unaudited) (Unaudited) Unrestricted net assets: Total Controlling Noncontrolling Total Controlling Noncontrolling Excess of revenues over expenses $ 165,607 $ 142,913 $ 22,694 $ 76,782 $ 59,498 $ 17,284 Change in pension obligation (28,226) (28,226) (49,887) (49,887) Contributions for capital expenditures 2,437 2,437 5,925 5,925 Distributions to noncontrolling interests (19,700) (19,700) (16,703) (16,703) Issuance of noncontrolling interests related to acquisition 13,556 13,556 Contributions from noncontrolling interests Purchase of noncontrolling interest (26,712) (18,975) (7,737) Fair value of initial noncontrolling interests in acquired entities 2,498 2,498 Sale of member interest to noncontrolling member - (415) 415 Other (456) , ,697 17,195 (8,004) (4,310) (3,694) Temporarily restricted net assets Change in beneficial interest in net assets of foundations (486) (486) Contributions 3,679 3,679 (919) (919) Investment return 1,948 1, Net assets released from restrictions 3,514 3,514 (1,970) (1,970) 9,330 9,330 (3,057) (3,057) Permanently restricted net assets: Change in beneficial interest in net assets of foundations (5) (5) (1) (1) Contributions and other Investment return (40) (40) (25) (25) Increase in net assets before contributions of net assets of acquired organizations 144, ,002 17,195 (10,988) (7,294) (3,694) Contributions of net assets of acquired organizations at April 1, 2012 and July 1, 2011: Permanently restricted net assets of Morgan (1,760) (1,760) Permanently restricted net assets of White (1,744) (1,744) Increase in net assets 144, ,002 17,195 (12,732) (9,038) (3,694) Net assets at beginning of period 3,385,451 3,233, ,695 2,871,791 2,729, ,322 Net assets at end of period $ 3,529,648 $ 3,360,758 $ 168,890 $ 2,859,059 $ 2,720,431 $ 138,628 12

17 Consolidated Statements of Cash Flows (Thousands of Dollars) Year Ended December 31 Three Months Ended December (Audited) (Unaudited) Operating activities Increase (decrease) in net assets $ 670,345 $ 303,686 $ 144,197 $ (10,988) Adjustments to reconcile increase (decrease) in net assets to net cash provided by (used in) operating activities: Change in fair value of interest rate swaps (32,294) 55,712 (11,616) 5,210 Change in pension liability 28,226 49,887 28,226 49,887 (Income) loss in unconsolidated subsidiaries (3,603) 51,767 (2,264) 18,819 Provision for uncollected patient accounts 284, ,554 43,410 27,453 Issuance of noncontrolling interests and step up to fair value related to acquisitions (17,157) (74,197) (13,556) (2,498) Contributions from noncontrolling interests (2,940) (645) Inherent contribution of acquired entities (3,062) (48,714) (1,335) Gain on consolidation of acquired entities (2,200) (61,411) (846) Depreciation and amortization 266, ,293 67,098 64,492 Amortization of deferred gain on sale of medical office buildings (2,279) (2,275) (570) (569) Loss (gain) on extinguishment of debt 8,491 (600) Restricted contributions (14,839) (2,043) (5,791) 2,758 Purchase of noncontrolling interests 39,294 26,712 Proceeds from the sale of member interest to noncontrolling member (123,090) Distributions to noncontrolling interests 56,663 27,480 19,700 16,703 Trading securities (388,975) (280,457) (163,898) (285,189) Net changes in operating assets and liabilities: Patient accounts receivable (325,917) (303,551) (25,588) (24,669) Other assets (52,772) (42,666) (978) (3,521) Accounts payable and accrued liabilities and other liabilities 18,219 6,708 67,744 36,825 Salaries, wages, and related liabilities 51,797 3,864 51,982 34,445 Deferred state Disproportionate share revenue (119,781) (41,392) Estimated third-party payor allowances 20,407 36,931 6,926 38,470 Net cash provided by (used in) operating activities 551,443 33, ,377 (49,833) Investing activities Acquisition of subsidiaries, net of cash received 5,509 (20,991) (1,945) (1,232) Purchase of property and equipment, net of disposals (218,107) (335,183) (52,243) (119,435) Net cash used in investing activities (212,598) (356,174) (54,188) (120,667) Financing activities Increase (decrease) in restricted net assets 14,839 2,043 5,791 (2,758) Proceeds from tax incremental financing contribution 9,240 9,240 Repayments on long-term debt (66,696) (815,457) (7,763) (129,362) Proceeds from issuance of long-term debt 1,014,054 (6,339) 153,396 Repayments from notes payable under line of credit, net of proceeds (24,721) (45,445) (24,533) (10,036) Contributions from noncontrolling interests 2, Purchase of noncontrolling interests (39,294) (26,712) Proceeds from the sale of members interest to noncontrolling member 123,090 Distributions to noncontrolling interests (56,663) (27,480) (19,700) (16,703) Net cash (used in) provided by financing activities (130,301) 220,751 (51,899) (22,935) Increase (decrease) in cash and cash equivalents 208,544 (101,941) 98,290 (193,435) Cash and cash equivalents at beginning of period 403, , , ,521 Cash and cash equivalents at end of period $ 611,630 $ 403,086 $ 611,630 $ 403,086 13

18 OTHER INFORMATION As of and for the three months and years ended December 31, 2012 and 2011

19 Special Purpose Combined Balance Sheets - Obligated Group and Affiliates (Thousands of Dollars) Assets Current assets: Cash and cash equivalents 520,122 December 31 December (Unaudited) $ $ 294,971 Patient accounts receivable, less allowance 348, ,463 Other receivables 98,802 93,002 Prepaid expenses 26,964 20,300 Inventories 56,275 54,511 Current portion of trustee-held funds ,315 Total current assets 1,051, ,562 Assets limited as to use: Board-designated investment funds and other investments 1,604,535 1,257,536 Property and equipment: Cost of property and equipment in service 3,772,100 3,670,987 Less accumulated depreciation (1,953,938) (1,961,305) 1,818,162 1,709,682 Construction-in-progress 28,635 68,635 Total property and equipment, net 1,846,797 1,778,317 Other assets: Equity interest in unconsolidated subsidiaries 238, ,539 Interest in net assets of foundations 8,504 8,388 Unamortized bond issuance costs 6,012 6,425 Notes receivable and other (principally from related organizations) 664, ,076 Total other assets 918, ,428 Total assets $ 5,420,929 $ 4,810,843 Continued on next page. 14

20 Special Purpose Combined Balance Sheets - Obligated Group and Affiliates (continued) (Thousands of Dollars) Liabilities and net assets Current liabilities: Accounts payable and accrued expenses 547,117 December 31 December (Unaudited) $ $ 436,403 Accrued salaries, wages, and related liabilities 141, ,037 Accrued health claims 51,127 36,872 Estimated third-party payor allowances 34,259 23,374 Current portion of notes payable to banks - 24,721 Current portion of long-term debt 46,516 85,740 Total current liabilities 820, ,147 Noncurrent liabilities: Long-term debt, less current portion 1,682,752 1,593,471 Interest rate swaps 164, ,556 Accrued pension obligations 39,484 42,810 Accrued medical malpractice claims 4,880 4,262 Other 38,672 46,586 Total noncurrent liabilities 1,930,099 1,883,685 Total liabilities 2,750,884 2,608,832 Net assets: Unrestricted 2,652,008 2,178,710 Temporarily restricted 6,603 11,968 Permanently restricted 11,434 11,333 Total net assets 2,670,045 2,202,011 Total liabilities and net assets $ 5,420,929 $ 4,810,843 15

21 Special Purpose Combined Statements of Operations - Obligated Group and Affiliates (Thousands of Dollars) Year Ended Three Months Ended December 31 December Revenues: (Unaudited) (Unaudited) Patient service revenue (net of contractuals and discounts) $ 2,997,843 $ 2,542,243 $ 780,701 $ 636,614 Provision for uncollected patient accounts (107,957) (113,257) (11,246) 5,493 Net patient service revenue 2,889,886 2,428, , ,107 Member premium revenue 139, ,026 35,271 30,739 Other revenue 291, ,264 82,997 61,606 Total operating revenues 3,320,517 2,763, , ,452 Expenses: Salaries, wages, and benefits 1,258,401 1,195, , ,351 Supplies, drugs, purchased services, and other 1,247,844 1,049, , ,153 Health claims to providers 120, ,101 31,515 25,597 Depreciation and amortization 174, ,473 43,906 42,076 Interest 53,985 39,960 14,143 10,584 Total operating expenses 2,855,118 2,561, , ,761 Operating income before educational and research support 465, , ,025 69,691 Educational and research support to Indiana University (52,610) (98,505) (45,110) (43,305) Total operating income 412, , ,915 26,386 Nonoperating income (losses): Investment income, net 123,962 33,081 28,664 24,501 Gains (losses) on interest rate swaps, net 17,004 (73,556) 7,471 (9,435) Other, net 5,262 53,216-1,742 Total nonoperating income 146,228 12,741 36,135 16,808 Excess of revenues over expenses $ 559,017 $ 116,174 $ 145,050 $ 43,194 16

22 Special Purpose Combined Balance Sheets - Obligated Group Assets Current assets: Cash and cash equivalents 482,951 December 31 December (Unaudited) $ $ 268,742 Patient accounts receivable, less allowance 310, ,232 Other receivables 155, ,158 Prepaid expenses 23,167 16,990 Inventories 49,010 48,646 Current portion of trustee-held funds ,315 Total current assets 1,022, ,083 Assets limited as to use: Board-designated investment funds and other investments 1,527,887 1,205,277 Property and equipment: Cost of property and equipment in service 3,542,621 3,459,892 Less accumulated depreciation (1,833,164) (1,851,465) 1,709,457 1,608,427 Construction-in-progress 26,249 60,669 Total property and equipment, net 1,735,706 1,669,096 Other assets: Equity interest in unconsolidated subsidiaries 232, ,094 Unamortized bond issuance costs 6,012 6,425 Notes receivable and other (principally from related organizations) 652, ,996 Total other assets 890, ,515 Total assets $ 5,176,602 $ 4,612,971 Continued on next page. (Thousands of Dollars) 17

23 Special Purpose Combined Balance Sheets - Obligated Group (continued) (Thousands of Dollars) Liabilities and net assets Current liabilities: Accounts payable and accrued expenses 544,951 December 31 December (Unaudited) $ $ 432,118 Accrued salaries, wages, and related liabilities 124, ,451 Accrued health claims 51,126 36,869 Estimated third-party payor allowances 28,758 18,245 Current portion of notes payable to banks 24,721 Current portion of long-term debt 45,817 85,080 Total current liabilities 794, ,484 Noncurrent liabilities: Long-term debt, less current portion 1,678,490 1,588,524 Interest rate swaps 163, ,569 Accrued pension obligations 39,484 42,810 Accrued medical malpractice claims 4,533 3,937 Other 37,988 46,195 Total noncurrent liabilities 1,923,831 1,877,035 Total liabilities 2,718,741 2,575,519 Net assets: Unrestricted 2,448,967 2,023,155 Temporarily restricted 4,000 9,400 Permanently restricted 4,894 4,897 Total net assets 2,457,861 2,037,452 Total liabilities and net assets $ 5,176,602 $ 4,612,971 18

24 Special Purpose Combined Statements of Operations - Obligated Group (Thousands of Dollars) Year Ended Three Months Ended December 31 December Revenues: (Unaudited) (Unaudited) Patient service revenue (net of contractuals and discounts) $ 2,680,747 $ 2,262,164 $ 698,243 $ 564,799 Provision for uncollected patient accounts (81,761) (89,247) (5,797) 11,471 Net patient service revenue 2,598,986 2,172, , ,270 Member premium revenue 139, ,026 35,271 30,739 Other revenue 276, ,380 80,819 61,596 Total operating revenues 3,015,498 2,506, , ,605 Expenses: Salaries, wages, and benefits 1,125,294 1,062, , ,339 Supplies, drugs, purchased services, and other 1,130, , , ,004 Health claims to providers 120, ,276 31,563 25,699 Depreciation and amortization 161, ,951 40,505 38,885 Interest 53,771 39,634 14,069 10,545 Total operating expenses 2,591,225 2,315, , ,472 Operating income before educational and research support 424, , ,046 69,133 Educational and research support to Indiana University (52,610) (98,505) (45,110) (43,305) Total operating income 371,663 92,399 96,936 25,828 Nonoperating income (losses): Investment income, net 115,653 33,477 27,860 21,038 Gains (losses) on interest rate swaps, net 16,993 (73,382) 7,360 (9,556) Other, net 5,262 53,216-1,742 Total nonoperating income 137,908 13,311 35,220 13,224 Excess of revenues over expenses $ 509,571 $ 105,710 $ 132,156 $ 39,052 19

25 Statistical and Other Data As of and for the Three Months and Years Ended December 31, 2012 and 2011 (Except as noted below) For the Year Ended December 31, Description 2012 (4) 2011 Methodist/IU/Riley/Saxony Medical Staff (5) Active Members A-1-A 1,325 1,451 Residents B Other Members C Total Medical Staff 2,699 2,686 Consolidated Number of Available Beds 3,334 3,248 Employees Consolidated FTE employees B-1-A 29,874 26,596 Methodist/IU/Riley/Saxony FTE employees (5) B 10,425 10,535 Obligated Group & Affiliates coverage of Debt Service (dollars in thousands, annualized) Revenues over expenses (1) C-1-A 458, ,367 Depreciation, amortization and interest B 228, ,433 Available to pay debt service C 687, ,800 Actual debt service D 100,251 86,687 Historical debt service coverage ratio Forecast maximum annual debt service E 130, ,106 Available to pay debt service, including swap settlements F 703, ,921 Forecast maximum annual debt service coverage ratio For the Three Months Ended For the Year Ended December 31, December 31, Description 2012 (4) (4) 2011 Consolidated Utilization and Operating Statistics Patient Days 183, , , ,185 Admissions 35,856 35, , ,219 Occupancy Rate (based on available beds) 59.76% 60.30% 56.76% 59.08% Average Length of Stay Surgery Cases IP 8,798 9,105 36,048 36,567 Surgery Cases OP (2) 22,359 20,446 86,214 69,362 Surgery Cases Total (2) 31,157 29, , ,929 Emergency Room Visits 126, , , ,983 Radiological Examinations 309, ,799 1,231,724 1,190,850 Laboratory Tests 6,155,654 5,896,380 24,533,287 22,355,523 Patient Service Revenue Medicare E-1-A 39.55% 38.42% 39.57% 37.94% Medicaid B 17.35% 17.72% 16.91% 17.75% Commercial Insurance C 2.32% 2.31% 2.42% 2.60% HMO / PPO Wellpoint / Anthem D 20.58% 20.79% 20.03% 20.33% Sagamore E 1.22% 1.61% 1.32% 1.89% Other F 12.23% 12.44% 12.21% 11.87% Self Pay and Other G 4.83% 4.32% 5.46% 5.14% Other Governmental H 1.92% 2.39% 2.08% 2.48% Total Patient Service Revenue: % % % % Medicare Case Mix Index, Methodist/IU/Riley/Saxony (3,5) December 31, 2012 (4) December 31, 2011 Bed Complement: Available Methodist/ IU / Riley / Saxony (5) Other System Hospitals Methodist/ IU / Riley Other System Hospitals Medical Surgical F-1-A 860 1,120 H ICU / CCU B I OB / Labor Delivery C J Pediatrics D K Psychiatric E L Long-Term Care F M High-Risk Nursery G N Total Bed Complement 1,518 1,816 1,560 1,688 (1) Adjusted for certain unrealized gains (losses) on investments and unrealized gains (losses) on swaps. (2) Excludes statistics for unconsolidated joint venture surgery centers. (3) Medicare system of classification for DRGs is annually revised effective October 1 of each year. (4) Effective July 1, 2011, the operations of White, Morgan, BSC, and EHSC, effective January 1, 2012, Indiana University Health Physicians, and effective April 1, 2012, the operations of Rehabilitation Hospital of Indiana were consolidated with the operations of Indiana University Health. (5) Saxony, which opened on December 1, 2011, operates as a division of the Academic Health Center. 20