The Johns Hopkins Health System Corporation and Affiliates

Transcription

1 Year-End Report The Johns Hopkins Health System Corporation and Affiliates Three and Twelve Months Ended June 30, 2012 and 2011 UNAUDITED Contact: Ron Werthman 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) August 27, 2012

2 Index Notice to Readers 3 Overview of The Johns Hopkins Health System Corporation and Affiliates 5 Introduction 5 Wholly Owned or Controlled Principal Affiliates 6 Other Principal 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 June 30, 2012 compared to the three months ended June 30, Twelve months ended June 30, 2012 compared to the twelve months ended June 30, Liquidity and Capital Resources 20 Combined Key Statistics 22 Inpatient Payor Mix 23 Other Significant Events 24 Supplementary Combining Financial Statements 27 Page 2 of 34

3 Notice to Readers Forward Looking Information: This year-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 healthcare 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. Year-End Financial and Operating Information: The financial and operating information provided in this year-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 covering the three month and twelve month periods ended June 30, 2012 and 2011, and the Combined Balance Sheets as of June 30, 2012 and 2011, are unaudited, or have been extracted from audited financial statements. Accordingly, the data does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Due to the nature of the business of JHHSC and Affiliates, the interim results of operations are not necessarily indicative of results to be expected for a full year. These year-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 year-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 Page 3 of 34

4 title to any endowment funds. These funds and any net income accruing from their investments 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 June 30, 2012 and 2011 were $543.4 million and $553.2 million, respectively. Obligated Groups: The Johns Hopkins Health System Obligated Group ( JHHS Obligated Group ) consists of The Johns Hopkins Hospital, Johns Hopkins Bayview Medical Center, Inc., Suburban Hospital, Inc. ( SHI ), Suburban Hospital Healthcare System, Inc. ( SHHS ), and Howard County General Hospital ( HCGH ). HCGH joined the in May 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 June 30, 2012, the total amount of debt outstanding under the JHHS Obligated Group was $1.1 billion. The JHHS Obligated Group granted a security interest in the receipts of JHH, JHBMC, SHI, SHHS, and HCGH which shall continuously apply for the entire term on the debt. Sibley Memorial Hospital Obligated Group ( SMH Obligated Group ) consists of Sibley Memorial Hospital and the Stacy Mark Reed Foundation. The SMH Obligated Group as the obligor and not as guarantor, jointly and severally covenants to pay the principal and interest on all outstanding SMH Obligated Group obligations. As of June 30, 2012, the total amount of debt outstanding under the SMH Obligated Group was $112.4 million. All Children s Hospital Obligated Group ( ACH Obligated Group ) consists of All Children s Hospital, Inc. The ACH Obligated Group as the obligor and not as guarantor, jointly and severally covenants to pay the principal and interest on all outstanding ACH Obligated Group obligations. As of June 30, 2012, the total amount of debt outstanding under the ACH Obligated Group was $220.6 million. Comparability of Sibley Memorial Hospital and Subsidiary Effective November 1, 2010, JHHSC became the sole member of Sibley Memorial Hospital and Subsidiary ( SMH ). No consideration was given for this transaction that was accounted for under the acquisition method of accounting, meaning JHHS began consolidating SMH s results of operations as of November 1, SMH s results of operations and cash flows contained in this year-end report are for the three months and twelve months ended June 30, 2012, and the three months and eight months ended June 30, 2011, and consequently the year-to-date results are not comparative. Comparability of All Children s Hospital, Inc. and All Children s Health System Effective April 1, 2011, JHHSC became the sole member of All Children s Hospital, Inc. ( ACH ) and All Children s Health System, Inc. ( ACHS ). No consideration was given for these transactions that were accounted for under the acquisition method of accounting, meaning JHHS began consolidating ACH and ACHS results of operations as of April 1, ACH and ACHS results of operations and cash flows contained in this year-end report are for the three months and twelve months ended June 30, 2012, and the three months ended June 30, 2011, and consequently the year-to-date results are not comparative. Page 4 of 34

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, legal, finance, marketing, planning, treasury and other functions. JHHSC functions as the parent holding company of its wholly owned or controlled 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 now 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 the principal system affiliates described below. JHHSC and its Affiliates offer a full continuum of integrated health 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 parttime 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 26,000 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. 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 Johns Hopkins Bayview campus (described below). The National Institutes of Health ( NIH ) leases facilities on the Johns Hopkins Bayview campus for the National Institute on Drug Abuse and the National Institute on Aging. The NIH has constructed a new research facility on the Johns Hopkins Bayview 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 Suburban Hospital campus, located in Bethesda across the street from the NIH campus. A number of programs are operated jointly by Suburban Hospital and the NIH, including programs for cardiac care (interventional cath lab and surgery), stroke, and cardiac imaging. JHHSC s eighteen principal Affiliates are highlighted below. Page 5 of 34

6 Wholly Owned or Controlled Principal Affiliates The Johns Hopkins Hospital ( JHH ) JHH is organized as a not-for-profit Maryland corporation that operates a 1,051-licensed bed facility (992 acute beds, 45 Neonatal Intensive Care bassinets and 14 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-one consecutive years through 2011, and 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 the only center in Maryland designated by the National Cancer Institute as a Comprehensive Cancer Center and only one of 39 centers so designated in the United States. In April 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 ) 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 348 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 are 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 Care Center that provides long-term care, sub-acute care, chronic medical, ventilator, rehabilitation services, and outpatient care to geriatric and post-acute patients. JHBMC s long-term care facilities include 80 licensed skilled nursing beds, 76 licensed chronic hospital care beds, and 9 licensed Comprehensive Inpatient Rehabilitation beds. Howard County General Hospital, Inc. ( HCGH ) HCGH is a not-for-profit Maryland corporation that has 249 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 the 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 and operates a Page 6 of 34

7 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 Center for Ambulatory Surgery ( TCAS ). TCAS features six operating rooms, one minor procedure room, and one cystoscopy suite. Within the last five years HCGH completed the expansion of its adult and pediatric emergency services, as well as its labor and delivery, neonatal intensive care, and prenatal units - all to improve access and meet growing community demand. Construction of its new Pavilion was completed in August 2009, with inpatient renovations to the existing structure completed in July Suburban Hospital Inc. ( SHI ) SHI is a not-for-profit Maryland corporation that operates a 233 bed acute care 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 ) 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, and a residential Alzheimer s unit. SMH is the sole member of The Sibley Memorial Hospital Foundation ( Sibley Foundation ), a notfor-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 not-for-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 of 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 ) 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 Page 7 of 34

8 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 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 with JHHSC consolidating the operations of JHHC due to having control of JHHC. JHHC develops and manages contractual relationships with Medicaid managed care organizations, employers, hospitals, physicians, and other health care providers covering approximately 313,000 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 222,000 Medicaid enrollees in Baltimore City and throughout the State. The Maryland Community Health System owns the remaining 50%. 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 58 practices across 34 locations throughout Maryland and Washington D.C. Specialties include internal medicine, family practice, pediatrics, 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 Johns Hopkins School of Medicine and the Johns Hopkins School of Public Health in clinical research activity and by partnering with the Johns Hopkins School of Medicine 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 Johns Hopkins HealthCare LLC (see above), 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 ) SHHS is a not-for-profit Maryland corporation established to manage the integrated delivery of healthcare services in and among the surrounding communities of Montgomery Page 8 of 34

9 County, Maryland. Through its wholly owned and partially owned taxable and not-forprofit affiliates, SHHS also 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 healthcare 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 a foundation 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 organized as a holding company that solely recognizes investment income resulting from its ownership of approximately 24.3% of the stock in Sleep Services of America ( SSA ). 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 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 an office located next to HCGH and one 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, Affiliate and JHUSOM sites. Ophthalmology Associates, LLC ( OA ) OA is a limited liability company owned 99.7% by JHHSC,.2% by JHU, and 0.1% by private physicians. 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-of-the-art equipment to perform LASIK surgery. Page 9 of 34

10 Johns Hopkins Employer Health Programs, Inc. ( JHEHP ) JHEHP is a for-profit corporation that provides administrative services and access to provider networks to self-insured employers. Other Principal Affiliates The following Affiliates are accounted for under the equity method of accounting, which earnings are 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 and 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 at HCGH. Johns Hopkins Medicine International, LLC ( JHI ) JHI is owned 50% by JHHSC and 50% by JHU, and coordinates activities for over 9,200 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 is contemplating undertaking the management of additional hospitals. Ownership interests in projects undertaken by JHI are generally allocated between JHHSC and JHU on a projectby-project basis. Maryland Health Services Cost Review Commission JHH, JHBMC, HCGH, and SHI hospital charges are subject to review and approval by the Maryland Health Services Cost Review Commission ( Commission or HSCRC ). The HSCRC is a state agency created by law in 1971 in order to control the growth in hospital costs and set reasonable rates for hospital services in Maryland. The HSCRC is an all-payor system whereby charges established by the HSCRC must be paid by all classes of payors (commercial insurance, Medicaid, Medicare, self pay and all other payors). No contractual discounts are allowed in Maryland except those approved by the HSCRC. The Medicaid and Medicare programs currently receive a 6% discount from approved hospital charges and this is the highest discount approved for any payor in Maryland. In Maryland, payors that provide current financing equal to the average amount of outstanding charges for bills from the end of the regular billing period and discharged patients are entitled to a discount of 2.0%. Payors that provide current financing equal to the average amount of outstanding charges for discharged patients plus the average daily charges times the average length of stay are entitled to a discount of 2.25%. Patients and payors are entitled to a 2.0% discount if payment is provided on or before the date of discharge, and 1% of payment if made within 30 days of discharge. Inpatient charges for Page 10 of 34

11 hospitals in Maryland are controlled under a Charge Per Case methodology that establishes a charge per admission cap for each hospital in Maryland. The hospital specific Charge Per Case is adjusted annually by the HSCRC to reflect cost inflation plus an adjustment factor for changes in the hospital s Case Mix Index. The Case Mix Index reflects the severity of patient care treated at each hospital. Currently in Maryland the Case Mix Index is measured based on the All-Payor Refined DRG methodology (APR). Certain highly tertiary inpatient cases such as solid organ transplants, bone marrow transplants, and certain oncology cases are treated as exclusions from the Charge Per Case methodology. These highly tertiary inpatient cases are paid for based on the departmental unit rates established by the HSCRC, and the hospital is paid on a pass through basis for all patient care delivered for these specified cases. The individual department rates established by the HSCRC are also the basis for payments of all hospital related outpatient care. On an annual basis, usually effective July 1 of each year, the HSCRC adjusts hospital rates in Maryland for both the inpatient Charge Per Case and the departmental unit rates by an Update Factor that is intended to update rates for hospital based cost inflation and other adjustment factors that the commission deems necessary. In addition to the HSCRC annual rate update, JHH s annual approved rate authority will increase by approximately $26.6 million for capital costs related to the opening of the new clinical buildings. In fiscal 2011, the HSCRC implemented a new methodology to establish a charge per visit ( CPV ) for certain types of outpatient services. The hospital specific CPV is adjusted annually to reflect cost inflation and is also adjusted for changes in case mix. This methodology is primarily focused on ambulatory surgery procedures, medical clinic visits and emergency room visits. The methodology also includes other types of outpatient services including infusion procedures, therapies, mental health and major radiology procedures. Certain types of visits such as radiation therapy, psychiatric day hospital and certain types of recurring visits will be treated as exclusions under this methodology. In March 2012, the HSCRC voted to suspend the CPV methodology for fiscal The HSCRC has not yet provided a timeline for the establishment of a replacement methodology. 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 the 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 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. Page 11 of 34

12 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 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. ACH inpatient and outpatient services are reimbursed based on allowable costs included in the most recent filed cost report with final settlement determined after submission of annual cost reports and audits. Retrospective settlements may take several years to finalize. 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 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. 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 34

13 JHHSC and Affiliates Combined Financial Statements Combined Balance Sheets Johns Hopkins Health System Corporation and Affiliates Combined Balance Sheets (in thousands) (Unaudited) Assets June 30, 2012 June 30, 2011 Liabilities and net assets June 30, 2012 June 30, 2011 Current assets: Current liabilities: Cash and cash equivalents $ 384,814 $ 406,717 Current portion of long-term debt and capital leases $ 287,181 $ 144,598 Short-term investments 37, ,456 Accounts payable and accrued liabilities 463, ,720 AWUIL used for current liabilities 20,762 26,933 Medical claims reserve 80,524 75,549 Patient accounts receivable, net of Deferred revenue 65, estimated uncollectibles 430, ,495 Current portion of due to affiliates 3,445 4,577 Due from others - current portion 72,356 57,372 Accrued vacation 62,629 58,198 Due from affiliates 28,505 6,112 Advances from third-party payors 132, ,585 Inventories of supplies 78,170 68,105 Current portion of estimated malpractice costs 38,580 8,941 Prepaid expenses and other current assets 77,402 37,436 Total current liabilities 1,133, ,410 Total current assets 1,129,988 1,109,626 Assets whose use is limited: By long-term debt agreements for: Debt service reserve funds 4,955 4,953 Construction fund - 1,713 By donors or grantors for: LT debt and capital leases, net of current portion 1,165,792 1,337,158 Future campus development 644 7,516 Estimated malpractice costs, net of current portion 120,251 92,024 Pledges receivable 26,622 33,672 Net pension liability 545, ,445 Other 83,966 75,994 Other long-term liabilities 339, ,512 By Board of Trustees 695, ,493 Total liabilities 3,305,447 2,789,549 Malpractice funding arrangement - 24,161 Interest in net assets of Howard Hospital Foundation 13,228 14,439 Other 19,965 18,938 Total assets whose use is limited 845, ,879 Investments 1,106,792 1,501,464 Net assets: Property, plant and equipment 4,167,276 3,850,892 Unrestricted 2,667,923 2,513,523 Less: allowance for depreciation and amortization (1,314,015) (1,172,782) Temporarily restricted 151, ,638 Total property, plant, and equipment, net 2,853,261 2,678,110 Permanently restricted 52,337 50,610 Total net assets 2,871,952 3,157,771 Due from affiliates, net of current portion 10,925 2,082 Due from others, net of current portion 4,796 5,796 Net pension asset - 2,742 Other assets 226,342 88,621 Total assets $ 6,177,399 $ 5,947,320 Total liabilities and net assets $ 6,177,399 $ 5,947,320 Page 13 of 34

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 Twelve months ended June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011 Operating revenues: $ 1,078,933 $ 1,028,228 Net patient service revenue $ 4,294,941 $ 3,719, ,814 94,796 Other revenue 400, ,989 12,152 15,797 Investment income 56,388 47,109 3,292 1,758 Net assets released from restrictions used for operations 8,729 4,283 1,196,191 1,140,579 Total operating revenues 4,760,674 4,097,336 Operating expenses: 479, ,127 Salaries, wages and benefits 1,884,254 1,561, , ,929 Purchased services 1,621,131 1,458, , ,274 Supplies and other 687, ,576 8,169 7,321 Interest 28,384 24,461 25,022 21,603 Provision for bad debts 116,103 92,591 64,226 49,791 Depreciation and amortization 215, ,778 1,157,577 1,088,045 Total operating expenses 4,552,206 3,881,573 38,614 52,534 Income from operations 208, ,763 Non-operating revenues and expenses: (6,962) (7,043) Interest expense on swap agreements (27,891) (25,471) (52,745) (18,900) Change in market value of swap agreements (142,770) 26,002 (50,001) 30,938 Realized and unrealized gains on investments (26,297) 73, ,988 Contribution received in donation of SMH, ACH and ACHS - 1,250,152 (7,276) (1,955) Other (17,609) (3,014) (78,370) 613,562 Excess of revenues over expenses (exp over revs) before NCI (6,099) 1,537,181 (1,924) (3,281) Noncontrolling interests (15,880) (15,826) (80,294) 610,281 Excess of revenues over expenses (expenses over revenues) (21,979) 1,521,355 (5,019) (9,790) Contributions to affiliates (7,954) (10,746) (318) - Other (449) - - (30,133) Changes in unrealized gains on investments - 6,556 (284,591) 68,885 Change in funded status of defined benefit plans (284,303) 68,630 Net assets released from restrictions used for purchase 449,117 3,003 of property, plant and equipment 453,205 8,560 1,924 3,288 Noncontrolling interests 15,880 15,562 80, ,534 Increase in unrestricted net assets 154,400 1,609,917 Changes in temporarily restricted net assets: 11,979 13,874 Gifts, grants and bequests 36,366 81,603 (1,258) (81) Net change in Howard Hospital Foundation (1,261) 542 Net assets released from restrictions used for purchase (449,117) (3,003) of property, plant, and equipment (453,205) (8,560) (3,292) (1,758) Net assets released from restrictions used for operations (8,729) (4,283) - 81,793 Contribution received in donation of SMH, ACH and ACHS - 95,895 (2,000) - Other (15,117) - (443,688) 90,825 (Decrease) increase in temporarily restricted net assets (441,946) 165,197 Changes in permanently restricted net assets: 1, Gifts, grants and bequests 1, ,803 Contribution received in donation of SMH, ACH and ACHS - 33,064 1,193 20,954 Increase in permanently restricted net assets 1,727 33,333 (361,676) 757,313 (Decrease) increase net assets (285,819) 1,808,447 3,233,628 2,400,458 Net assets at beginning of period 3,157,771 1,349,324 $ 2,871,952 $ 3,157,771 Net assets at end of period $ 2,871,952 $ 3,157,771 Page 14 of 34

15 Combined Statements of Cash Flows Johns Hopkins Health System Corporation and Affiliates Combined Statements of Cash Flows (in thousands) (Unaudited) Twelve months ended June 30, 2012 June 30, 2011 Operating activities: Change in net assets: $ (285,819) $ 1,808,447 Adjustments to reconcile change in net assets to net cash and cash equivalents provided by (used in) operating activities: Depreciation and amortization 217, ,056 Provision for bad debts 116,103 92,591 Net realized and changes in unrealized gains on investments 23,980 (87,100) Changes in market value of swap agreements 142,770 (26,002) Change in funded status of defined benefit plans 284,303 (68,630) Increase in net assets from SMH acquisition - (1,379,111) Restricted contributions and investment income received (44,700) (73,183) Gains on and returns of equity investments (9,142) (15,745) Other operating activities (657) 15,056 Change in assets and liabilities: Patient accounts receivable (180,954) (160,665) Inventories of supplies, prepaid expenses and other current assets (21,298) 4,021 Due from affiliates, net (3,618) (1,445) Pledges receivable 7,001 (1,798) Other assets (95,172) 12,982 Accounts payable, accrued liabilities and accrued vacation 33,345 16,726 Medical claims payable 8,586 7,433 Deferred revenue 65,115 (55,237) Advances from third-party payors 19,452 (5,980) Accrued/prepaid pension benefit costs (47,162) 7,281 Estimated malpractice costs (12,447) 6,880 Other long-term liabilities 3,693 14,189 Net cash and cash equivalents provided by operating activities 220, ,766 Investing activities: Purchases of property, plant and equipment (405,122) (289,522) Return of equity investments 3,188 1,855 Purchases of investment securities (2,353,816) (2,496,888) Sales of investment securities 2,533,350 2,359,681 Cash acquired from acquisition of SMH, ACH and ACHS - 119,471 Other investing activites (8,358) (9,714) Net cash and cash equivalents used in investing activities (230,758) (315,117) Financing activities: Proceeds from restricted contributions and investment income received 44,700 73,183 Proceeds from long-term borrowings 407,794 - Repayments of long-term debt (437,376) (28,101) Proceeds (advances) on Affiliate notes (27,558) - Other financing activities Net cash and cash equivalents (used in) provided by financing activities (12,000) 45,871 Decrease in cash and cash equivalents (21,903) 5,520 Cash and cash equivalents at beginning of period 406, ,197 Cash and cash equivalents at end of period $ 384,814 $ 406,717 Page 15 of 34

16 Management s Discussion and Analysis of Combined Operations and Financial Performance Three months ended June 30, 2012 compared to the three months ended June 30, 2011 Three months ended In thousands (except for ratios) June 30, 2012 June 30, 2011 Change % Operating revenues $ 1,196,191 $ 1,140,579 $ 55, % Income from operations $ 38,614 $ 52,534 $ (13,920) -26.5% Excess of revenues over expenses (expenses over revenues) $ (80,294) $ 610,281 $ (690,575) % EBIDA $ 111,009 $ 109,646 $ 1, % Operating margin percentage 3.2% 4.6% -1.4% -30.4% Total margin percentage -6.7% 53.5% -60.2% % Operating cash flow margin percentage 9.3% 9.6% -0.3% -3.1% Note that SMH, ACH and ACHS are included for the three months ended June 30, 2012 and Operating revenues for the three months ended June 30, 2012 were $1.2 billion, compared to $1.1 billion for the three months ended June 30, Operating revenues increased by $55.6 million, or 4.9%, quarter over quarter. Income from operations, defined as operating revenues less operating expenses, was $38.6 million for the three months ended June 30, 2012 compared to $52.5 million for the three months ended June 30, Excess of expenses over revenues was ($80.3) million for the three months ended June 30, 2012, compared to excess of revenues over expenses of $610.3 million for the three months ended June 30, 2011, or a ($690.6) million decrease. Excess of revenues 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, noncontrolling interests, and contributions received in donation of ACH and ACHS. EBIDA, defined as income from operations plus interest, depreciation and amortization, was $111.0 million for the three months ended June 30, 2012 compared to $109.6 million for the three months ended June 30, The increase of $1.4 million in EBIDA was principally due to an increase in operating revenues. Interest, depreciation and amortization expenses that are excluded from EBIDA amounted to $72.4 million and $57.1 million for the three months ended June 30, 2012 and 2011, respectively. Page 16 of 34

17 Operating margin percentage, defined as operating revenues less operating expenses divided by operating revenues, decreased to 3.2% for the three months ended June 30, 2012, from 4.6% for the three months ended June 30, Operating margin percentage decreased for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 as income from operations decreased and operating revenues increased. Total margin percentage, defined as excess of revenues over expenses divided by operating revenues, decreased to -6.7% for the three months ended June 30, 2012, from 53.5% for the three months ended June 30, 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, noncontrolling interests, and contributions received in donation of ACH and ACHS. Operating cash flow margin percentage, defined as EBIDA divided by operating revenues, was 9.3% for the three months ended June 30, 2012 and 9.6% for the three months ended June 30, Operating cash flow margin percentage decreased as EBIDA increased at a slower rate than operating revenues. Twelve months ended June 30, 2012 compared to the twelve months ended June 30, 2011 Twelve months ended In thousands (except for ratios) June 30, 2012 June 30, 2011 (1) Change % Operating revenues $ 4,760,674 $ 4,097,336 $ 663, % Income from operations $ 208,468 $ 215,763 $ (7,295) -3.4% Excess of revenues over expenses (expenses ove revenues) $ (21,979) $ 1,521,355 $ (1,543,334) % EBIDA $ 452,004 $ 400,002 $ 52, % Operating margin percentage 4.4% 5.3% -0.9% -17.0% Total margin percentage -0.5% 37.1% -37.6% % Operating cash flow margin percentage 9.5% 9.8% -0.3% -3.1% (1) Includes SMH for the eight months ended June 30, 2011, and ACH and ACHS for the three months ended June 30, Note that SMH, ACH and ACHS are included for the twelve months ended June 30, SMH s 2011 results include the eight months ended June 30, 2011, and are not comparable. ACH and ACHS 2011 results include the three months ended June 30, 2011, and are not comparable. Operating revenues for the twelve months ended June 30, 2012 were $4.761 billion, compared to $4.097 billion for the twelve months ended June 30, Operating revenues increased by $663.3 million, or 16.2%, twelve months over twelve months. Net patient service revenues increased $575.0 million principally due to the following: An increase in outpatient volumes accounting for approximately $94.5 million; increased rates due to the HSCRC Update Factor accounting for approximately $42.0 million; an increase in inpatient volumes accounting for approximately $14.6 million; an increase in casemix accounting for approximately $13.5 million; an increase in revenues generated from JHHC s managed care division of approximately $48.9 million, net of eliminations, and an increase in net patient service revenues due to the acquisitions of SMH, ACH and ACHS of $373.6 million that are not comparable to June Other revenues increased $74.6 million due to increased discharge pharmacies and other ancillary revenues, the receipt of the initial Medicaid EHR (meaningful use) incentive payments, and includes $43.4 million of SMH, ACH, and ACHS Page 17 of 34

18 activity that is not comparable to June Investment income increased $9.3 million as dividends and interest earned on cash balances increased marginally, and includes $7.0 million of SMH and ACH activity that is not comparable to June Income from operations was $208.5 million for the twelve months ended June 30, 2012 compared to $215.8 million for the twelve months ended June 30, The ($7.3) million decrease was primarily attributable to ($24.3) million lower income earned from the managed care division due to slower membership growth and revenue rate cuts, and ($7.4) million lower earnings from the four hospitals existing on June 30, 2011, offset by $21.6 million income earned from SMH, ACH and ACHS that is not comparable to June Operating expenses were $4.552 billion and $3.882 billion for the twelve months ended June 30, 2012 and 2011, respectively. The operating expense increase of $670.6 million is composed of the following: Salaries, wages and benefits increased $323.2 million, principally due to the addition of $236.7 million of SMH, ACH and ACHS salaries and benefits. Excluding SMH, ACH and ACHS, salaries were higher due to an increase in FTEs principally due to hiring and training employees for the new JHH building openings in May 2012 and the various new initiates underway across JHHS. Modest inflationary increases and increased benefits including, medical, workers compensation, and tuition benefit costs due to the higher FTEs. Purchased services increased $163.0 million, principally due to the addition of $66.6 million of SMH, ACH, and ACHS purchased services, plus $54.7 increased medical claims expenses, net of eliminations, related to the managed care division as Priority Partners enrollment has risen driving the cost of care higher. The existing hospitals and other affiliates had increased operating costs and expenses such as purchased labor, utilities, and professional fees principally due to the new JHH building openings in May Supplies and other increased $101.6 million, principally due to the addition of $59.3 million of SMH, ACH and ACHS supplies. Excluding SMH, ACH and ACHS, supplies were higher due to increased outpatient clinic, Emergency Department and surgical volumes having impact on pharmaceuticals and surgical supplies. 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. Interest expense included in the operating section increased by $3.9 million. SMH, ACH and ACHS added $6.9 million of interest expense in fiscal Excluding SMH, ACH and ACHS, interest expense decreased as interest rates on variable rate debt decreased during the twelve months ended June 30, 2012 compared to June 30, 2011 due to lower interest rates. Net settlement interest expense on the swap agreements increased by $2.4 million due to the addition of $2.5 million in ACH net settlement interest expense. Excluding ACH, the swap counterparty receipts, which are based on the one-month LIBOR, and the fixed rate payments were virtually the same during fiscal 2012 and Page 18 of 34