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Agenda 03/23/2010 Item #16F 3 Agenda Item No. 16F3 March 23, 2010 Page 1 of 36 EXECUTIVE SUMMARY Recommendation to approve a Certificate of Public Convenience and Necessity for NCH Healthcare System for non-emergency ambulance service and approve a Budget Amendment recognizing and appropriating the $250 annual renewal fee. OBJECTIVE: Board of County Commissioners approve a Certificate of Public Convenience and Necessity for NCH Healthcare System, authorization for the Chairman to execute the permit and certificate; and approval of a Budget Amendment to recognize and appropriate the $250 annual renewal fee. CONSIDERATIONS: NCH Healthcare Systems currently operates non-emergency ambulance transport under a Certificate of Public Convenience and Necessity. Collier County Ordinance No. 2004-12, as amended requires that NCH Healthcare Systems annually renew its original Certificate of Public Convenience and Necessity and pay a $250 fee. Further, the renewal certificate may be approved routinely by the Board of County Commissioners upon advice of the Administrator. The Administrator recommends renewal of the Certificate of Public Convenience and Necessity. FISCAL IMPACT: $250 to be recognized and appropriated by Budget Amendment to Emergency Medical Services Fund 490 for FYI O. LEGAL CONSIDERATIONS: This item has been reviewed and approved by the County Attorney's Office and is legally sufficient-JBW. GROWTH MANAGEMENT IMPACT: There is no Growth Management Impact associated with this action. RECOMMENDATION: That the Board of County Commissioners: l. Approve the Certificate of Public Convenience and Necessity for the NCH Healthcare System; 2. Authorize the Chairman to execute the Permit and Certificate; and, 3. Approve a Budget Amendment to recognize and appropriate the $250 annual renewal fee. PREPARED BY: Artie Bay, Supervisor - Accounting, Emergency Medical Services Item Number: Item Summary: Meeting Date: Agenda Item No. 16F3 March 23, 2010 Page 2 of 36 COLLIER COUNTY BOARD OF COUNTY COMMISSIONERS 16F3 Recommendation to approve a Certificate of Public Convenience and Necessity for NCH Healthcare System for non-emergency ambulance service and approve a Budget Amendment recognizing and appropriating the $250 annual renewal fee. 3/23/2010 9:00:00 AM Date Prepared By Artie Bay Bureau of Emergency Services Senior Administrative Assistant EMS 3/10/2010 12:52:31 PM Date Approved By Jennifer White County Attorney Assistant County Attorney County Attorney 3/11/20108:57 AM Date Approved By Jeff Page Bureau of Emergency Services Chief ~ Emergency Medical Services EMS Operations 3/11/20109:08 AM Approved By Date Dan E. Summers Bureau of Emergency Services and Emergency Management Director of Emergency Services Bureau of Emergency Services and Emergency Management 3/11/20109:48 AM Approved By Date OM B Coordinator County Manager's Office Office of Management & BUdget 3/11/20104:24 PM Date Approved By Sherry Pryor Office of Management & Budget Managementl Budget Analyst, Senior Office of Management & Budget 3/12120109:58 AM Approved By Date Jeff Klatzkow County Attorney 3/12/20102:23 PM Date Approved By Mark Isackson Office of Management & Budget Management/Budget Analyst, Senior Office of Management & Budget 3/13/201010:29 AM Agenda Item No. 16F3 March 23, 2010 COLLIER COUNTY FLORIDA Renewal of Class "8" COPCN Name of Service: NCH Ambulance Services Name of Owner: NCH Healthcare Svstem Principle Address of Service: 2157 Pine Ridlle Road. Naples, Florida Business Telephone: (239) 513.7080 Description of Service: Intrafacilitv and out of countv transDort for the NCH Healthcare Svstem Number of Ambulances: 3 Ground Units: NCH will ooerate no less than one (I) and up to three (3) Ground Units on immediate call at all times, See attachment for description of vehicles. This permit, as provided by Ordinance No. 2004.12, as amended shall allow the above named Ambulance Servicc to operation intrafacility and out of county transports for a fee or charge for the following area(s): Collier County until the expiration date hereon, except that this pelmit may be revoked by the Board of County Commissioners of Collier County at any time the service named herein shall fail to comply with any local, state or federal laws or regulation application to the provisions of Emergency Medical Services. Issued and approved this __ day of ,2010 A TIEST: DWIGHT E. BROCK, CLERK BOARD OF COUNTY COMMISSIONERS COLLIER COUNTY, FLORIDA Deputy Clerk Fred W. Coyle, Chairman Approved as to form and legal sufficiency: ~ 'f) ~ \ivJa... Assistan ounty Attorney I I NCH Downtown Naples Hospital 3S0 Seventh Street N. Naples, F134102 (239) 436-S000 NCH Agenda Item No. 16F3 March 23, 2010 Page 5 of 36 NCH North Naples Hospital 11190 Healthpark 8lvd. Naples, FL34110 .... (239) SS2-7000 .>,=",111<-- ____ Healthcare System March 1,2010 FlEC[!VEO Dan Summers, Director Bureau of Emergency Services 8075 Lely Cultural Parkway, Ste. 445 Naples, FL 34113 k'::\:~ a l:!\ i~1 i:lv1EHOENCY MANAGEMENT Subject: Renewal of Certificate of Public Convenience and Necessity for NCH Healthcare System Ambulance Services Department. Dear Mr. Summers, Pursuant to Collier County Ordinance 2004- 12, please acccpt the following inf01111ation for the renewal of the required celtificate for 2010. 1. The name, age and address of the owner of the ambulance or ALS provider, or if the owner is a corporation, then the directors of the corporation and all ofthe stockholders holding more than 25 percent of the outstanding shares. For governmcntal units, this information shall be supplied for members of [he governing body. ATTACHMENT A 2. The boundaries of the territory desired to be served. NCH Ambulance Services provides the NCH Hcalthcare System with intcr-facility and out of cOlmty ambulance transports. 3. The Humber and bricf description of the ambulances or other vehicles the applicant will have available. The NCH Ambulance Serviccs opcratcs three state licensed ALS ambulances. 4. The address of thc intcnded headquarters and any substations. 2157 Pine Ridge Road, Naples, FL 5. The training and cxperience of applicant. ATTACHMENT B 6. The names and addresses of three Collier County residents who will act as references for the applicant. ..... ;V !:D~G~M~~ ~ B~B~~~I~k~: Top 5% in the Nation for Overall Clinical EXGcllr;nGe FOllr ConseGutivc Ynars www.NCHmd.org Agenda Item No. 16F3 March 23, 2010 Page 6 of 36 Mr. Carl Westman, Chainnan NCH Healthcare System P.O. Box 413029 Naples, FL 34101 (239) 436-5100 Mr. Joseph I Perkovich, 1 sl Vice Chairman NCH Healthcare System P.O. Box 413029 Naples, FL 34101 (239) 436-5100 Mr. Edwin J. Stedem, Secretaryrrreasurer NCH Healthcare System P.O. Box 413029 Naples, FL 34101 (239) 436-5100 7. A schedule of rates which the service intends to charge. ATTACHMENT C 8. Such other peliinent information as the administrator may require. Application for Vehicle Pell11it(s) - ATTACHMENT D Celiificate of Liability Insurance - ATTACHMENT E 9. An application orrenewal fee of $250.00. ATTACHMENT F 10. Financial data including assets and liabilities of !lle operator. A schedule of all debts encumbering any equipment shall be included. ATTACHMENT G Thank you for your attention in this mattcr. Please call me if you need any additional information or have any questions about this renewal. Sincerely, ;f~ Kevin D. Cooper Chief of Staff NCH CORPORATE OFFICERS 2009-2010 Agenda Item No. 16F3 March 23, 2010 Page 7 of 36 Carl E. Westman Chairman DOB: 12/12/43 SSN: 267-72-7421 Vicki D. Hale Chief Financial Officer DOB: 4/30/61 SSN: 430-39-6269 Joseph 1. Perkovich 1st Vice Chairman DOB: 9/11/57 SSN: 274-60-0454 Brian C. G. Settle Chief Human Resources Officer DOB: 4/6/56 SSN: 350-38-6279 Edwin J. Stedem SecretaryfTreasurer DOB: 10/7/36 SSN: 287-38-7224 Michele Thoman Chief Nursing & Clinical Officer DOB: 10/30/68 SSN: 518-80-7714 Allen S. Weiss, M.D. President & CEO DOB: 8/5/47 SSN: 180-36-0018 Susan B. Wolff Chief Information Officer DOB: 12/12/46 SSN: 044-38-1899 Kevin D. Cooper General Counsel/Chief of Staff DOB: 5/18/63 SSN: 009-52-7984 Beth Martin Assistant Secretary DOB: 11/18/69 SSN: 219-74-4157 Gail A. Dolan CWef Operations Officer North Naples Hospital DOB: 6/26/54 SSN: 097-40-1166 Phillip C. Dutcher Chief Operations Officer NCH Healthcare System DOB: 9/22/50 SSN: 367-56-5310 Aurora Estevez, MD Chief Medical Officer DOB: 7/20/63 SSN: 266-79-3523 ATTACHMENT A ..., __ _ . --~AIi: Agenda Item No. 16F3 NON EIlERGENCV TRAHSPOO Fax;239-513-7192 . Feb 25 2010 1~gf~"A''''~ :1 J.. \0 H i ...- 1 0 "' \'I? ]~ := ~~ ~ ~ .ilI 0 en 1-;- ~ W d ~ .lil 0 (/) 1 ~ ! 0. WW ... r t; .8 c( fI)(/) ~ . ~ ~ z ] C ~~~ ~ . j:! 0 ... ~ [/} z !! 0 0 .g.$ ) 0 1 w- =: ~ ...J :r:fa~ u. b~ j!~ - u..:E~ ;z; e ~.~.ll ~ 0> a.. ;:It ~tJ !E~~ ~ : e ww~ 8z l ~ U. 2C)..J . .e 0 t-ffiQ ~ U:;;j ~ ~ O::::e1Ll ... 11' .~ fwo ;:l., J:J ~u.; < ... ;z; I en o~ I- D:' ~ ~l 0 55 0: ~ ::;) -"~ In ~~ 'II [2f ~ .;11'1) .~~ f "il'" ~ ~l 1 s f-.J .~ 1< ~ :! ~ c l .. " . ATTACHMENTB . "_-__'_"'0_ ~~a__",,_"_~ Charge Number Description 2800100 Non Emergency Transport Mileage 2800704 Basic Life Support - Non Emergency 2800407 Advanced Life Support - Non Emergency 2800308 Advanced Life Support. Level II n/a Non Emergency Wheel Chair Van Agenda Item No. 16F3 March 23, 2010 Page 9 of 36 Price $6.00 per number of miles driven $656.00 $669.00 $764.00 no charge ATTACHMENT C ~ S:!r;;- ~l=:' "':E <g~~ ~~ga O<<.~s:; ri;O)<[I) -, <<.!ZU> O~e<<:' !:J~O~ ~~~$ 1.fi~~~ o~~ oi2 <c.. w< :5 IX! ~ tl '0 ." '0 ';: <( g Il c... " '" .S '" 1j~(f I- ~ ..; ;~ ;: ~ ~~ tiA !!:~ - ~ ~I~ ~ t I lulv c:; AC . Ii ~ ~~ &Icr ~ ~r:" l'1! ~ '" ~ t'! ~~ ., ~ )l ~.. V11~ .~ l/) V -f!.l ~. .. . 80>. ~ ~ '" z ~ '< g .. ~ -NM ...'" ....... oo'" =:= ~!? ::;~ ~ 25 Ul ..; U ~ Ul > trl ~ ~ IOO/lOOd meSO'OI O~Oll Jen ATTACHMENTD Agenda Item No. 16F3 March 23, 2010 Page 10 of 36 U ,!! al ~ at ! ~ Ii! . ..: ~~l ~'U t!;fs 1i- .;..~ ~h (rf ~1i 1!-S di.s ~H rn ~ 11 ~ ri!~ l.ll .~ ~ lh ~'~'i' 'li ~.I! i1~l;; "'5" ll... ~ ~ l!~ ~fij.'" 't~j! '5... '5 " oS.! !! ih H ..&.~ jj -u- l~f -g-i/'S ",..J!. ~~.... ~'n~ 1 t'~ a -l! 'tc- , - 'R'.!; ~ "'-Ii .~ ,5 *-.: ~ij~~ .511."..: q.s~ t t::l.. f3 "'0 l~'li ~ l!"[~ 1= !id~ ~:j'~,['/ ~~ at;! ~ ... OJ tQ N :s . 9 '" OJ 1 1 g 1 ] ~ ... 'l ~! $l~1 ..!l~ -j~ ...~ a:! ",0 ~: ::~ ~i ~ " ~ i ..; ! s::: ,,:;c ~.. 'O~ .~ oJ.. ....'" la - .. ~:2 '1 ~... ,.. If ~ i ""~ ~~ ~~ .5 I ,2 t .. ] .!l e .a R .S " oS -s .it ~ '1 .S 'll Ii ~ Jl ~ ~~ ~" S.., <t ~ :&1 ~ j~ II 0 q ~~ ~~1 l1i.. ..... o v::B ~'i :l.ll i~ z?> Oil '" =-~ ~ .S ~lS t"" :a .... . 0 er~ ] ~ Co - .Jl 1S NOll ElIERGENCV TMliSPOR Fax:239-513-7192 Agenda Item No. 16F3 Fob 25 2010 1~"f!e w,~~ ~ ~Il & CERTIFICATE OF LIABILITY INSURANCE ~ag.. 1 Qt 2 I ""'''I''''''''''t/'tY lO/02/20U .""'"",,,. 877-945-7378 THIS C"'UlFlCATI; IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THa CERTIFICATE Will h Xn~\IrAClc. Se.rv~a:... of Georgia, IaCl. ~lOLDI!R. THIS CI!RTlflCA TI! DOES NOT AMEND, EXTeND OR 2' Cent.u:}" 1:11....4. ~.LTER THE COVERAGE AFFORDED 8Y THI! POLICIES BELOW. P. o. BOX '051U H".h\"ille, n n;U~~5191 INSURERS AFFORDINB COVEItAGe NA!Cl' ..tlJRS> !fa llealt:J1c.re s,..t_.... Iuo. JNSJJPBtk rb. cba.I:l:.z:o Oa): '1u l':a..\lXUl.Oe. e_"'paa.y 2"11-001 PO JloX 41302' 1""-'""'8: a.t:tll., 1'he~e.i. Gu.at 1(..pl.... Flt 34101 1N$'H\m.0: IN!IIR!R D: I INS,....." COVERAGI!S 'IllE POl.ICIEll OF IHSu"-'Nee USTe:o es"ow HAW eEEN ISSUEO 'TO THE INSUlIlm HAAlEO ABOVE FOil THE POIJCY PERIOl> INDICATED. H01'WrTIISTANOING AIN IIe<lUIREMENr. TEAAl Oil CONOmOH OF J\1f'{ COHTAACT Oil OnJER OOCUMENT WIlllIlESPECT 'TO WIIICH THIS CEllnFIC>.TS MAY BE ISSUED Oil ~MF~:~~~a).~~\';tr~~~~~?re:~IE~I8Jg~~~g~~:s SUeJECT TO AIL THETEllMS, EXCUlSIONSANO CONOmONS OF SUCH YDiIiiI me:oplHlURA.Nee I POUCYNuMaeR u...... ! r!-.........UAllIlnY I I l!.o\Ctl~C! is ! r- ~ew.oo<e.w.u",~tlY : 0 s , t-'- C\..Arr~Mo\De 0 oecUf\: MS> EX!' I"""" ........., s i I "MSOf\l..I.LI.~I/'UJf\" S ~A~TE S n=A~AP~l: PRooUcrS..COI.IPIC'AGG , i Ai ~-"UAeIUTY P81082UA9 34 .COJ'-09 110/1/2009 10/1/2010 C(f.I8IJmD S~LIMT S 1,000,000 I .z. H<YAI/lQ I If"~"') AU. OWH'eO ,,1JtOS I BODlL'c'lttlURY S SCHEDlJlEDAVT05 1lV""",,) [.x HJR;:OA.VTOS BCDlLY1NJt.RY , ~ t.(N.O~A.UTOS (1'00_ :$ I ! PRl)PEkTYOA.'MGE :. . (P'erlOdrJl'1Q ~QE~= .AVTOCN.Y~&:A.A.OCtDmr II _AlJT() OlHSRlIi&/< ..WX; S ! AUTO ONLY: /000 , nSS/UMBRQ.I..\UA8lJtY ~ooeuRI\eNCB S ~ = 0 ct.'IMS'MO' ! AGGIll<""" S I s R OEDUC1191.E S I_ON S s I-~- liiI'ii{1!nlH;.1 ;v.!B' AHD~twm..rrY y ELEAOiACCfDBIT S -~~cvnv. 1~EXCl.U:>EOl [j l!..LDt~I::-EA=UII"'I.C71EE. $ ~eecdbe~n~~ I Ii.l.DfSl!A.!lf-POUCYUMrf : S <met : i OE3CRIP11ON OPClPPAlIOKS/l..0C0l\1lONSfVlOHIa.eJfexcuJSlOHCA.DDl;t)I!n'!NDORSI1iIllBNT IarECW.PROUIII~ ClORTlFlCATG HOLDER CAI/CELLATION SHOOLDAltY OfllfE!.ABO'&DQJr;:PJBED POUa"e. ~ B~1)fe6lPlRA.1JON ~Tl! '1'HI!!Il2Or, 1M5 J8SUIlttG DWRER. wu... ~VOR TO NAIr.. 2.L DAYS v.wnc.H NOllCE TDlHE CPTlPlCATI! KOl.bEi"t(.Me)TOlMIi LEFT, GUT F'IVIRE TO DO to.stW.J. ~ NO OBlDATlQN OR L.IA&NJlY Of ~ to:ND UPON 1llE 1NS~ m: ~ Oft NC!K .1I.e.lthca.ra $ys;e8Jll11, Iae:. "'_A11lIEO. Attu. Ke.vin Coo~er P.O. :Box 41302.9 !rrr:r^~ lI1aplo-sl FL 34.J.01 ACORD 26 (2009101) Col) -')A?~~.d1 "'..., .~01,>O':ll f"....Y'...1-17Ucu:;.nQ '" 10"_'M~ ACOIID CORPORATION. All right. rosowed. ATTACHMENT E NCH Healthcare System, Inc. Consolidated Financial Statements September 30, 2009 and 2008 ATTACHMENT G Agenda Item No. 16F3 March 23, 2010 Page 12 of 36 NCH Healthcare System, Inc, Index September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 13 of 36 Pagels) Report of Independent Certified Public Accountants .............................................................................1 Consolidated Financial Statements Consolidated Balance Sheets ................................ ..... .... ........... ...... ......................... ............................. ... 2-3 Consolidated Statements of Operations .......................................................................................................4 Consolidated Statements of Changes in Net Assets .................................................................................... 5 Consolidated Statements of Cash Flows ...................................................................................................... 6 Notes to Consolidated Financial Statements...................,...................................................................... 7-22 Agenda Item No. 16F3 March 23, 2010 Page 14 of 36 Report of Independent Certified Public Accountants To the Board of Trustees of NCH Healthcare System, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in net assets, and of cash flows present fairly, In all material respects, the financial posillon of NCH Healthcare System, Inc. (the "System") at September 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted In the United States of America. These financial statements are the responsibility of the System's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentallon. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, the System adopted the authoritative guidance for fair value measurements on October 1, 2008. 7,w.a~~~ ;t;fP ------- ..... January 15, 2010 NCH Healthcare System, Inc, Consolidated Balance Sheets September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 15 of 36 Assets Current assets Cash and cash equivalents Investments Due from patients and others, net of allowance for estimated uncollectbles of approximately $29,620,000 in 2009 and $22,578,000 in 2008 Assets iimited as to use Inventories Other current assets Total current assets Assets limited as to use Self-insurance fund Board-designated assets Assets held by trustee under bond indentures Less: Assets Iimiied as to use that are required for current liabilities Investments in partnerships Property and equipment, net of accumulated depreciation Long-term investments Bond issuH costs Other assets Total assets 2009 2008 $ 42,333,169 $ 52,428.452 54,178,929 44,971,931 52,343,809 55,218,355 15,563,050 16,693,448 8,366,268 8,095,794 6,792,116 9,726,054 179,577,341 187,134,034 13,126,612 16,929,091 91,446,890 66,383,910 11,187,504 11,050,406 115,761,006 94,363,407 (15,563,050) ( 16,693.448) 100,197,956 77,669,959 983,321 2,229,257 243,499,969 252.461,100 8,636,174 8,888,029 1,943,162 2,111,108 11,761,570 6,722,105 $ 546,599,493 $ 537,215,592 2 The accompanying notes are an integral part of these consolidated financial statements. NCH Healthcare System, Inc. Consolidated Balance Sheets, continued September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 16 of 36 Liabilities and Net Assets Current liabilities Current portion of long-term debt Current portion of estimated self-insurance liabilities Accounts payable Accrued expenses Accrued Interest Estimated third-party payor settlements Total current liabilities Long-term debt, excluding current portion Estimated self-insurance liabilities, excluding current portion Other liabilities Total liabilities Commitments and contingencies Net assets Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets 2009 $ 8.617,145 4,375,546 18,719,676 28,955,591 2,608,657 8,570,190 71,846,805 106,609,935 8,751,066 6,011,244 193,219,050 334,631,841 7,847,139 10,901,463 353,380,443 $ 546,599,493 2008 $ 8,243,239 5,643,042 15,867,711 26,596,349 2,762,409 6,930,190 66,042,940 115,135,092 11,286,049 4,695.467 197,159,548 322,477,864 6,414,353 11,163,827 340,056,044 $ 537,215,592 3 The accompanying notes are an integral part of these consolidated financial statements. NCH Healthcare System, Inc. Consolidated Statements of Operations Years Ended September 30, 2009 and 2008 Unrestricted revenues Net patient service revenue Other revenue Total revenues Expenses Salaries and wages Employee benefits Supplies and other expenses Purchased services Depreciation and amortization Interest expense Provision for bad debts Total expenses Operating income (loss) Other income Investment income Unrestricted charitable contributions Disposition of assets, net Excess of revenues over expenses Change in net unrealized gains on other than trading securities Net assets released from restrictions Increase in unrestricted net assets Agenda Item No. 16F3 March 23, 2010 Page 17 of 36 2009 2008 $ 441,247,460 $ 441.708,161 15,062,111 14,697,983 456,309,571 456,406,144 170,945,691 176,790,445 35,037,815 35,578,517 136,084,796 141,287,985 30,995,876 34,830,518 27,407,999 25,664,302 5,951,781 6,353,078 49,728,161 49,450,030 456,152,119 469,954,875 157,452 (13,548,731) 3,561,773 5,680,940 3,218,676 7,671,201 (314,874) 24,005,666 6,623,027 23,809,076 3,079,206 (3,604,007) 2,451,744 5,234,307 $ 12,153,977 $ 25,439,376 4 The accompanying notes are an integral part of these consolidated financial statements. Agenda Item No. 16F3 March 23, 2010 NCH Healthcare System, Inc, Page 18 of 36 Consolidated Statements of Changes in Net Assets Years Ended September 30, 2009 and 2008 Temporarily Permanently Unrestricted Restricted Restricted Total Net assets at September 30, 2007 $ 297,038,488 $ 9,313,391 $ 12,826,573 $ 319,178,452 Excess of revenues over expenses 23,809,076 23,809,076 Change In net unrealized gains on other than trading securities (3,604,007) (2,648,730) (6,252,737) Restricted gifts and bequests 2,849,135 (504,685) 2,344,450 Income from restricted investments 976,803 976,803 Net assets released from restrictions 5,234,307 (5,748,173) 513,866 Change in net assets 25,439,376 (2,899,038) (1,662,746) 20,877,592 Net assets at September 30, 2008 322,477,884 6.414,353 11,163,827 340,056,044 Excess of revenues Over expenses 6,623,027 6,623,027 Change in net unrealized losses on other than trading securities 3,079,206 113,422 3,192,628 Restricted gifts and bequests 3,724,530 (10,509) 3,714,021 .Loss from restricted Investments (205,277) (205,277) Net assets released from restrictions 2,451,744 (2,291,744) (160,000) Change in net assets 12,153,977 1,432,786 (262,384 ) 13,324,399 Net assets at September 30, 2009 $ 334,631,841 $ 7,847,139 $ 10,901,463 $ 353,380,443 The accompanying notes are an integral part of these consolidated financial statements. 5 NCH Healthcare System, Inc. Consolidated Statements of Cash Flows Years Ended September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 19 of 36 Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Restricted gifts and bequests Change in net unrealized gains on other than trading securities Income (Loss) from restricted investments Depreciation and amortization Provision for bad debts Loss (gain) on disposal of property and equipment Changes in assets and liabilities Increase in due from patients and others Increase in inventories Decrease in other current assets Increase (decrease) in accounts payable Increase (decrease) in accrued expenses Decrease in accrued interest (Decrease) increase in estimated self-insurance liabilities Increase (decrease) in estimated third-party payor settlements Increase (decrease) in other liabilities Net cash provided by (used in) operating activities Cash flows from investing activities Purchases of property and equipment Proceeds from the sales of property and equipment (Purchases) proceeds of investments, net (Increase) decrease in other assets (Increase) decrease in assets limited as to use Decrease in investment in partnerships Net cash (used in) provided by investing activities Cash flows from financing activities Restricted gifts and bequests Income from restricted investments Repayment of long-term debt Net cash used in financing activities (Decrease) increase in cash and cash equivalents Cash and cash equivalents Beginning of year End of year Supplemental disclosure of cash flow information Cash paid during the year for interest Noncash write-off of property and equipment 2009 2008 $ 13,324,399 $ 20,877,592 (3,714,021) (2,344,450) (3,192,628) 6,252,737 205,277 (976,803) 27,407,999 25,664,302 49,728,161 49,450,030 314,874 (20,992,550) (46,853,615) (49,846,993) (270,474) (527,582) 2,933,938 201,905 2,851,965 (5,652,011 ) 2,359,242 (27,935,308) (153,752) (113,881) (3,802,479) 3,440,513 1,640,000 (797,501) 1,315,777 (481,869) 44,094,663 (3,781,869) (18,490,043) (21,586,593) 23,775 19,842,973 (5,762,515) 2,158,655 (5,075,005) 3,166,902 (21,397,599) 13,021,467 1,245,936 2,145,278 (49,455,451) 18,748,682 3,714,021 2,344,450 (205,277) 976,803 (8,243,239) (7,888,748) (4,734,495) (4,567,495) (10,095,283) 10,399,318 52,428,452 42,029,134 $ 42,333,169 $ 52,428,452 $ 6,105,533 $ 6,499,662 2,520,773 6 The accompanying notes are an integral part of these consolidated financial statements. NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 3D. 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 20 of 36 1. Summary of Significant Accounting Policies Organization The NCH Heallhcare System, Inc. (the "System") was incorporated as a 501 (c)(3) not-for-profit parent holding corporation in 1983 under a plan of reorganization to better serve the community's health care needs and to provide management with greater flexibility In providing services.. The System maintains the legal right to select trustees of Its not-for-profit subsidiaries for approval by the subsidiaries' respective corporate memberships and to elect all the directors of its proprietary subsidiaries. In addition, the System maintains the right to approve (1) the operating and capital budgets, (2) all amendments to the bylaws and articles of incorporation, and (3) all long-term debt obligations and requests for certificates of need for all of the subsidiaries. The System owns 100% of the outstanding stock of Its proprietary enterprise subsidiaries. The System's companies and the consolidated financial statements consist of the following entities: Naples Community Hospital, Inc. (the "Hospital"), a not-for-profit corporation located in Collier County, Florida, consists of two hospitals with 681 beds. The Downtown Naples Hospital Campus is a 420-bed acute care facility and North Naples Hospital Campus is a 261-bed acute care facility. The Hospital also has a blood center and various other outpatient centers located throughout the community. The Hospital is a wholly owned subsidiary of the NCH Healthcare System, Inc. (the "System"), a not-for-profit corporation. The majority of the System's Board of Trustees also serve on the Board of Trustees of the Hospital. Marco Island Hospital, Inc. d/b/a Marco Healthcare Center ("MIH"), a not-for-profit corporation, operates an urgent care center and medical office building on Marco Island. Florida. Community Home Services, Inc., a not-far-profit corporation, operated Lifeline emergency response services and provided durable medical equipment. The durable medical equipment business was sold in March 2007 and Lifeline was sold in September 2008. Collier Health Care, Inc. (CHCI), a not-for-profit corporation, owns and leases healthcare facilities in Naples and Immokalee, Florida. CHCI also operates Children's Medical Services, a program serving chronically ill and special needs children under Title V and the Florida KidCare Program through Title XXI. NCHMD, Inc. d/b/a S.w. Florida Hematology and Oncology Specialists, a not-for-profit corporation, provided services to patients with cancer and blood disorders. NCHMD, Inc. d/b/a S.W. Florida Hematology and Oncology Specialists was closed January 2008. 7 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 21 of 36 Health Resources Corporation ("HRC"), a for-profit holding company which consists of the following proprietary subsidiaries: (i) Community Imaging, Inc. ("CII") was formed to operate as a partner in the operation of diagnostic imaging centers. ClI's 50% partnership Interest In Naples Diagnostic Imaging Center, Ltd. ("NDIC") is accounted for using the equity method of accounting. In conjunction with the issuance of long-term debt for the construction and equipping of NDtC facilities, the System has provided an unconditional guarantee to pay 50% of the obllgatlons related to this debt should NDIC default. As of September 30, 2009 and 2008, total long-term debt outstanding at NDIC was $3,340,518 and $4,111,187, respectively. (i1) Ambulatory Surgical Care Center, Inc. ("ASCC") owns a 15% interest In Naples Day Surgery ("NDS"), a non-affiliated limited liability company which operates Iwo ambulatory surgery centers In Collier County, Florida. (iii) Community Home Care, Inc. owns a 49% interest in Kokua Healing Arts, Inc., an established private duty home health agency headquartered in Naples, Florida. (Iv) Counseling and Employee Assistance Program, Inc. ("CEAP") provided employee essistance services, such as individual and family counseling, to NCH affiliates and other local companies. CEAP was closed December 31, 2008. The System also owns a 50% interest in Bonita Community Health Center ("BCHC"), a not-for- profit organization. BCHC operates an urgent care center, an ambulatory surgical care center, a diagnostic imaging centar and an outpatient rehabilitation center in Estero, Florida. Additionally, BCHC leases office space to physicians and other healthcare providers. The investment in BCHC is accounted for using the equity method. In conjunction with the Issuance of long-term debt for the construction and equipping of the BCHC facility, the System has provided an unconditional guarantee to pay 50% of the obligations related to this debt should BCHC default. As of September 30, 2009 and 2008, total long-term debt outstanding at BCHC was $25,951,094 and $26,540,918, respectively. The System also owns a 50% interest in Naples Physician Hospital Organization d/bla Community Health Partners ("CHP"), a not-for-profit taxable entlty under the laws of the State of Florida. CHP contracts with various employers and other third-party payors for the provision of healthcare services by CHP members. The investment in CHP Is accounted for using the equity method. Basis of Presentation These consolidated financial statements, which are presented on the accrual basis of accounting, have been prepared to focus on the System as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions. This has been accomplished by classification of net assets and transactions into three classes of net assets - permanently restricted, temporarily restricted or unrestricted as follows: Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the System. Generally, the donor of these assets permits the System to use all or part of the income earned on related investments for general or specific purposes. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that will eventually be met by actions of the System and/or the passage of time. Unrestricted net assets Net assets generated from operations, unrestricted donations, and the satisfaction or tapse of temporary restrictions. These are not subject to donor-imposed stipulations. 8 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 22 of 36 Principles of Consolidation The consolidated financial statements include the accounts of the System. All significant intercompany amounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents Include investments in highly liquid debt instruments with original maturities of three months or less at date of purchase but exclude amounts whose use is limited by self-insurance programs, board designation or arrangements under trust agreements. Investments and Investment Income Investments in equity securities with readily determinable fair values and all investments In debt securities are measured at fair value in the consolidated balance sheets. Investment income or loss (Including realized gains and losses on investmenls, interest and dividends) is Included in Investment income unless income or 1055 is restricted by donor or law. Unrealized gains and losses on investments are excluded from the excess of revenues over expenses unless the investments are trading securities. All of the System's investments are classified as available for sale securities. Inventories Inventories consist of operating supplies and are stated at the lower of cost or market, on a first-in, first-out basis. Assets Limited as to Use Assets limited as to use primarily include assets required by state insurance laws to fund claims in the System's self-insurance programs, assets set aside by the Board of Trustees primarily for capital replacement, and assets held by trustee under bond indenture agreements. Amounts required to meet currenlliabilities of the System have been classified as current assets. Assets limited as to use are carried on the consolidaled balance sheets at fair value based upon quoted market prices. Donor Receivables Donations to be received in the future that are held in irrevocable trusts are reported at net present value. Pledges to make future donations are reported at net present value, net of an allowance for estimated uncollectible pledges. Donor receivables are classified as other assets in the consolidated balance sheets. Gifts are reported as either temporarily or permanently restricted if they are received with donor stipulations thai limit the use of the donated assets. When a stipulated time restriction ends or purpose restriction is satisfied, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statements of operations as net assets released from restrictions. Donor-restricted contributions whose restrictions are met within the same year as received are reported as unrestricted contributions in the accompanying consolidated financial statements. 9 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda item No. 16F3 March 23, 2010 Page 23 of 36 Property and Equipment Property and equipment are recorded at cost or if donated, at fair market value at date of donation. Property and equipment donated for operations are recorded as additions to unrestricted net assets. Major asset classifications and useful lives are generally in accordance with those recommended by the American Hospital Association. Depreciation is provided over the estimated useful life of each class of depreciable assets, which range from 3 to 40 years, and is computed on the straight-line method. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed and any resulting gain or loss is included in other revenue. Bond Issue Costs Bond issue costs are amortized over the life of the related bonds using the straight-line method, which approximates the effective interest method. Estimated Self.lnsurance Liabilities The provision for estimated self-insured medical malpractice claims, workers' compensation claims and health and dental claims includes estimates of the ultimate costs for both reported claims and claims incurred but not reported. Health and dental claim provisions are Included with accrued expenses. The provisions for medical malpractice claims and workers' compensation claims have been actuarially determined. Excess of Revenues Over Expenses The consolidated statements of operations include excess of revenues over expenses. Changes in unrestricted net assets which are excluded from excess of revenues over expenses, consistent with industry practice, include unrealized gains and losses on investments other than trading securities and assets released from donor restrictions in accordance with stipulations of the gift. Net Patient Service Revenue The System has agreements with third-party payors that provide for payments to the System at amounts different from its established rates. Payment arrangements include prospectively determined rates on the basis of per discharge, per procedure, per capita (capitation), reimbursed cost, discounted charges, and per diem. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, Including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Charity Care The System provides care without charge or at amounts less than its established rates to patients who meet specific criteria under the State's charity care guidelines. Because the System does not pursue collection of accounts determined to qualify as charity care, these amounts are not reported as revenue. Income Taxes The System and all of its not-for-profit subsidiaries are exempt from federal income taxes under Section 501 (a) of the Internal Revenue Code (the "Code") as organizations described in Section 501 (c)(3) of the Code, and are exempt from federal income taxes on related income pursuant to Section 501 (a) of the Code. The System and all of its not-for-profit subsidiaries do not have significant unrelated business income; however, such status is subject to final determination upon examination of the related income tax returns by the appropriate taxing authorities. The System's for-profit subsidiaries are subject to income tax. 10 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 24 of 36 Accounting for Derivative Instruments The System uses derivative financial instruments for the purpose of managing their exposure to adverse fluctuations in interest rates. While these instruments are subject to fluctuations in value, such fluctuations are generally offset by the change in value of the underlying exposures being hedged. The System does not enter into any derivative financial instruments for trading purposes. The System records all of their derivative instruments in the consolidated balance sheets at fair value. Although these derivative instruments are used for risk management purposes, the System does not meet the criteria to quality for hedge accounting and, therefore, the changes In fair value are recorded in the consolidated statements of operations as interest expense. Fair Value Measurements Effective October 1, 2008, the first day of the System's fiscal year 2009. the System adopted the authoritative guidance for fair value measurements and the fair value option for financial assets and financial liabilities. The System did not record an adjustment to net assets as a result of the adoption of the guidance for fair value measurements, and the adoption did not have a material effect on the System's results of operations. The guidance for the fair value option for financial assets and financial liabilities provides companies the irrevocable option to measure many financial assets and liabilities at fair value with changes in fair value recognized in earnings. The System has not elected to measure any financial assets or liabilities at fair value that were not previously required to be measured at fair value. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the System. Unobservable inputs are inputs that reflect the System's assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 1 assets consist of money market funds, equity mutual and exchange-traded funds, equity securities and U.S. Treasury securities as they are traded In an active market with sufficient volume and frequency of transactions. Level 1 liability is associated with the System's deferred compensation plan. Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the Instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments In markets with sufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, induding market interest rate curves, referenced credit spreads and pre-payment rates. Level 2 assets and liabilities consist of certain marketable debt instruments and derivative contracts whose values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Marketable debt instrumenls in this category include government-related securities, corporate bonds and notes, and preferred securities. 11 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 25 of 36 Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the System's own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants. Level 3 assets primarily consist of certain marketable debt instruments whose values are determined using inputs that are both unobservable and significant to the values of the instruments being measured, including marketable debt Instruments that are priced using indicative prices that the System is unable to corroborate with observable market quotes. The System does not have any level 3 financial instruments as of September 30, 2009. The following table presents the System's fair value hierarchy for assets and liabilities measured at fair value on September 30, 2009: Level 1 Level 2 Level 3 Total Assets Cash $ 10,389,893 $ 31 ,943,276 $ $ 42,333,169 Current investments 48,179,895 5,999,034 54,178,929 Assets limited as to use 58,003,421 57,757,585 115,761,006 Long-term investments 8,345,493 290,681 8,636,174 Other assets (1) 493,033 493,033 Totai assets measured at fair value $125,411,735 $ 95,990,576 $ $ 221,402,311 Liabilities Other liabilities (1) $ 493,033 $ $ $ 493,033 Total liabilities measured at fair value $ 493,033 $ $ $ 493,033 (1) Comprised of the System's deferred compensation plan assets and related liabilities which are invested in equity mutual funds. Reclassifications Certain reclassifications have been made to the consolidated financial statements of the prior period in order to conform to the current period presentation. These reclassifications had no effect on excess of revenues over expenses, changes in net assets, or net assets. 12 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 26 of 36 2. Third-Party Payers The System has agreements with third-party payers that provide for payment to the System at amounts different from its established rates. A summary of the basis of payments from the System's primary third-party payors follows: Medicare Most inpatient and outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates. These rates vary according to a patient classification system that Is based on clinical, diagnostic, and other factors. Psychiatric services are currenlly paid on a prospective basis. During 2008, psychiatric services were paid based on a blended prospective and cost based methodology. Some outpatient services continue to be paid based upon a cost reimbursement methodology. The System is reimbursed for cost reimbursable items at a tentative interim rate with final selllement determined after submission of annual cost reports by the System which are subsequenlly audited by the Medicare fiscal intermediary. The System's Medicare cost reports have been filed for all years through September 30, 2008 and have been audited and final settlements determined by the Medicare intermediary for all years through September 30, 2007. Retroactive adjustments for cost report settlements are accrued on an estimated basis in the period when the related services are rendered and adjusted In future periods when final selllements are determined. The System has recorded a reserve for potential claim adjustments due to the Medicare Recovery Audit Contractor ("RAC") Demonstration project and permanent RAC program. The three-year demonstration project contract ended March 30, 2008. The permanent RAC program began in 2009 and includes claims paid beginning October 1, 2007. During 2009, the System recognized an additional $4.5 million in patient service revenue for the 2008 disproportionate share ("DSH") add-on payments from Medicare. No Medicare DSH add-on payments were recognized for 2009 based upon historical accounting practices. This Is consistent with the System's policy to recognize DSH revenue where there is certainty thai the System will meet the eligibility to receive DSH payments. Medicaid Inpatient and outpatient services (except for laboratory and pathology services paid by fee schedule) rendered to Medicaid program beneficiaries are reimbursed under a cost reimbursement methodology. Reimbursable cost is determined in accordance with the principles of reimbursement established by the Florida Tille XIX Hospital Reimbursement Plan, supplemented by the Medicare Principles of Reimbursement. The interim rates are tentatively established for each hospital, subject to cost ceilings with exceptions. The System is reimbursed at a tentative Interim rate with final settlement determined after the intermediary audit of the combined Medicare and Medicaid cost report. Retroactive adjustments for interim rate changes anticipated after the intermediary audit of the cost report are accrued on an estimated basis In the period when final settlements are determined. The System's Medicaid interim rates are based on the Medicare/Medicaid unaudited cost reports for the year ended September 30, 2008. 13 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 27 of 36 Laws and regulations governing the Medicare and Medicaid Programs are complex and subject to interpretation. The System believes that it is in compliance with all applicable laws and regulations. Compliance with such laws and regulations can be subject to audits, claims, inquiries and Investigations from government authorities and agencies that occur in the ordinary course of business. Current audits, claims, Inquiries, and Investigations and their ultimate resolutions, individually or in the aggregate, are not expected to have a material adverse effect on the System's business, financial condition, results of operations, or cash flows. The System's classification of patients and the appropriateness of their care are subject to review by the fiscal intermediaries administering the Medicare and Medicaid programs. Other The System has also entered into payment arrangements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations. The basis for payment to the System under these arrangements includes prospectively determined rates per discharge, per diem, per capita (capitation), discounts from established charges, and prospectively determined rates per procedure for outpatient services. Some of these arrangements provide for review of paid claims for compliance with the terms of the contract and result in retroactive settlement with third parties. Retroactive adjustments for other third party claims are recorded in the period when final settlement is determined. 3. Net Patient Service Revenue Net patient service revenue was the following for the years ended September 30, 2009 and 2008: 2009 2008 Gross patient service revenue Less: Medicare and Medicaid allowances Other discounts and allowances $ 1,333,238,770 (713,868,618) (178,122,692) (891,991,310) $ 441,247,460 $1,278,109,750 (639,870,371 ) (196,531,218) (836,401,589) $ 441,708,161 Net patient service revenue 4. Uncompensated Care Uncompensated care represents either charges foregone or charges in excess of payment received for services provided to patients who are not covered under contracts with third-party payors. The major components of uncompensated care are categorized as charity, welfare, and bad debts. Charity care represents services and supplies furnished at no charge to patients who have qualified under the income criteria promulgated by the State of Florida. Patients who would otherwise be deemed as charity care can sometimes qualify under the Collier County Welfare Program. Payments under the County Welfare Program are limited by the amount appropriated by the County. 14 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 28 of 36 During the year ended September 30, 2008, the System participated in the Trailblazers Section 1011 Federal Program that compensates healthcare providers for emergency services rendered to undocumented illegal aliens who have no other means to pay their bills. Patients were pre- screened to determine if they meet criteria for the program that only reimburses for initial emergency and stabilization treatment. Payments were received on a quarterly basis and the System was reimbursed a percentage of Medicare rates for inpatients and outpatients. The Trailblazers program was considered welfare and the difference between charges and the expected payment was included in net patient service revenue in the consolidated statements of operations. The funds for this program were exhausted as of September 30, 2008. Finally, bad debts represent charges deemed uncollectible due to either (a) a patient's inability to qualify as charity, welfare, or Medicaid, yet clear financial indications exist that demonstrate an inability to pay, or (b) a patient's refusal to pay for services provided and the System's decision to cease further collection efforts. Uncompensated care for the years ended September 30, 2009 and 2008 was as follows: 2009 Charily care - charges foregone, based on established rates Welfare - difference between established rates and reimbursement received Total charity care and welfare Bad debts - charges deemed uncollectible Total uncompensated care Estimated cost of providing uncompensated care $ 47,174,266 1,322,927 48,497,193 49,728,161 $ 98,225,354 $ 28,829,141 2008 $ 45,969,917 12,627,712 58,597,629 49,450,030 $ 108,047,659 $ 34,305,133 5. Temporarily and Permanently Restricted Net Assets The System applied the adjusted expenses as a percent of revenues to the charity, welfare and bad debt charges written off to determine an estimated cost of uncompansated care. Temporarily restricted net assets are available for the following purposes at September 30, 2009 and 2008: 2009 Health care services Building construction and purchase of equipment Indigent care and education $ 7,442,856 404,283 $ 7,847,139 Permanently restricted net assets at September 30, 2009 and 2008 are restricted to: 2009 Investments to be held in perpetuity, the income from which is expendable to support health care services 2008 $ 6,086,377 327,976 $ 6,414,353 2008 $ 10,901,463 $ 11,163,827 15 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 29 of 36 6. Due from Patients and Others Amounts due from patients and others is net of uncollectible accounts for bad debts and contractual allowances under third-party payor arrangements. Medicare and Medicaid represent approximately 54% and 53% of amounts due from patients and others as of September 30, 2009 and 2008, respectively. The credit risk for other receivables is limited due to the large number of insurance and managed care companies and other payors that provide payments for services. These receivables are reported net of an estimated allowance for uncollectible accounts in the accompanying consolidated financial statements. 2009 2008 Assets limited as to use Self-insurance fund Cash and cash equivalents $ 6,731,833 $ 6,127,911 U.S. government and agency securities 3,380,204 4,449,453 Corporate bonds 3,014,575 6,351,727 13,126,612 16,929,091 Board-designated assets Cash and cash equivalents 58,012,414 39,506,799 U.S. government and agency securities 10,281,892 3,358,766 Corporate bonds 16,807,530 17,521,851 Common stock 6,345,054 5,996,494 91,446,890 66,383,910 Assets held by trustee under bond Indentures U.S. government and agency securities 11,187,504 11,046,726 Interest receivable 3,680 11,187,504 11,050,406 Total assets limited as to use $115,761,006 $ 94,363,407 2009 2008 7, Assets Limited as to Use and Investments The composition of assets limited as 10 use and investments are stated at fair value at September 30, 2009 and 2008, and are set forth in the followin9 table: Investments Cash and cash equivalents U.S. government and agency securities Corporate bonds Preferred stock Common stock $ 7,585,290 26,541,063 22,904,667 41,060 5,743,023 62,815,103 (54,178,929) $ 8,636,174 Less: Amount included in current assets Long-term investments 16 $ 5,367,769 18,379,369 24,072,332 36,500 6,003,990 53,859,960 (44,971,931 ) $ 8,888,029 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 30 of 36 Investment income and gains (losses) from unrestricted cash, assets limited as to use, and investments are comprised of the following for the years ended September 30, 2009 and 2008: Interest income and realized gains and losses on sale of investments Change in unrealized gains on other than tradin9 securities 8. Property and Equipment 2009 $ 3,561,773 $ 3,079,206 2008 $ 5,680,940 $ (3,604,007) Property and equipment and accumulated depreciation and amortization consist of the following at September 30, 2009 and 2008: Land Land improvements Buildings Fixed equipment Movable equipment Rental apartments Leasehold improvements Plant expansion in progress Less: Accumulated depreciation and amortization 2009 $ 15,068,254 6,568,345 282,032,551 45,466,655 164,201,745 857,813 6,709,484 5,879,800 526,784,647 (283,284,678) $ 243,499,969 2008 $ 15,068,254 6,239,123 278,099,520 45,172,885 151,509,977 857,813 7,321,148 9,771,538 514,040,258 (261,579,158) $ 252,461,100 Depreciation expense was approximately $27,113,000 and $25,262,000 for the years ended September 30, 2009 and 2008, respectively. The plant expansion in progress at September 30, 2009 included the construction costs of various projects, which management estimates will cost an additional $11,237,000 to complete. It Is expected that the majority of these projects will be completed in 2010. 17 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 31 of 36 9. Long-Term Debt The System was obligated under long-term debt as follows at September 30, 2009 and 2008: City of Naples. Florida, Hospital Refunding Revenue Bonds, Series 1993 (payable by the Hospital under an agreement with the City of Naples), consisting of $3,830,000 of term bonds due October 1, 2009, interest payable ennually at 5.25%; $8,285,000 of term bonds due October 1, 2011, Interest payable annually at 5.375%: $11,045,000 of term bonds due October 1,2014, interest payable annually at 5.25%; $10,700,000 of term bonds due October 1,2019, Interest payable annually at 5.00%; and $0 of serial bonds due from October 1, 1994 to 2007, interest payable annually at rates of 2.70% to 5.10%. City of Naples, Florida, Hospital Revenue Bonds, Series 1996 (payable by the Hospital under an agreement with the City of Naples), consisting of $1,040,000 of serial bonds with varying interest rates (from 4.00% to 5.125%) maturing through October 1,2009; $9,085,000 term bonds, Interest payable annually at 5.5%, maturing October 1,2016; and $20.585,000 term bonds interest payable annually at 5.5%, maturing October 1, 2026. Collier County Industrial Development Authorily Healthcare Facilities Revenue Bonds, Series 2002 (payable by the System under an agreement with Collier County) consisting of $9,865,000 serial bonds wllh interest at rates ranging from 2.60% to 3.97% during the year ended September 30, 2009, maturing November 1,2022. Collier County Industrial Development Authority Healthcare Facitities Revenue Bonds, Series 2004 (payable by the Hospital under an agreement with Collier County) consisting of $38,000,000 serial bonds wllh Interest at 4.65% at September 30,2009, maturing September 30, 2019. GE Capital Public Finance, inc. (payable by the Hospital under an agreement wllh Collier County) consisting of $4,021 ,794 note wllh Interest at 3.79% at September 30, 2009, maturing January 1, 2011. Total long-term debt Less: Unamortized original issue discount Less: Current maturities 18 2009 $ 33,860,000 30,710,000 9,865,000 38,000,000 4,021,794 116,456,794 (1,229,714) (8,617,145) $106,609,935 2008 $ 37,505,000 31,700,000 10,390,OOO 38,000,000 7,105,034 124,700,034 (1,321,703) (8,243,239) $115,135,092 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 32 of 36 The agreements underlying the bond issues described above contain covenants which provide for, among other things, the maintenance of certain ratios, conditions for additional indebtedness and the transferability of funds. The System was in compliance with all covenants for the years ended September 30, 2009 and 2008. The bonds are collateralized by all revenue, accounts receivable, contract rights and general intangibles of the System and by the money and securities held in the funds end accounts established under the applicable indentures. The Series 2004 Bonds are collateralized by a mortgage on the North Naples Campus. Payment of principal and interest on the Series 1993 and Series 1996 Bonds is guaranteed by municipal bond insurance. The Series 2002 and Series 2004 Bonds are backed by direct pay letters of credit with separate financial institutions which expire on November 15, 2012 and October 15, 2013, respectively. At September 30, 2009, the System has an $8,000,000 line of credit with a financial institution. There were no draws during 2009 and 2008. Borrowings under the line of credit bear interest at UBOR plus .55%. The line of credit expires on September 29,2010. The approximate aggregate principal maturities and sinking fund requirements on long-term debt in each of Ihe next five years and thereafter are as follows: Years Ending 2010 2011 2012 2013 2014 Thereafter $ 8,617,145 6,524,649 6,000,000 6,320,000 6,640,000 82,355,000 $116,456,794 Long-Term Debt The fair value of the long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the System for debt of the same remaining maturilies. The carrying amounts and fair values of the System's long-term debt at September 30, 2009 and 2008 are as follows: 2009 2008 Carrying Amount Fair Value C arryln g Amount Fair Value Long-term debt $115,227,080 $116,132,455 $123,378,331 $123,271,893 10. Self-Insured Claims The System's Board of Trustees etected to self-insure its professional liability, workers' compensalion, and employee health programs. For 2009 and 2008 professional liability, the System had a $3,000,000 per claim self-Insured retention. To pay claims in excess of the sell-Insured relention, the System purchased an excess professionalliabiJity policy (claims-made basis). 19 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 33 of 36 Losses from asserted claims and from unasserted claims identified under the System's Incident reporting system are accrued based on estimates that incorporate the System's past experience, as well as other considerations including the nature of each claim or incident and relevant trend factors and incidents that may have occurred but that have not been identified under the incident reporting system. Total expenses under this program were $3,193,056 and $6,463,861 during the years ended September 30, 2009 and 2008, respectively, and are included in supplies and other expenses in the consolidated statements of operation. As of September 30, 2009 and 2008, the System had accrued $10,210,534 and $14,013,279, respectively, which, in the opinion of management, based on historical experience and current actuarial analyses, is sufficient to cover reported claims and claims incurred but not reported. The accrued professional liability has been discounted at a rate of 5% in 2009 and 2008. The discount on the accrual professional liability was approximately $1,583,000 and $1,864,000 at September 30, 2009 and 2008, respectively. For 2009 and 2008 workers' compensation, the System had a $500,000 per claim self-insured retention. To pay claims in excess of its self-insured retention, the System purchased an excess liability policy (occurrence-basis). Total expenses under this program were $1,717,283 and $1,711,190 during the years ended September 30,2009 and 2008, respectively and are included in supplies and other expenses in the consolidated statement of operations. As of September 30, 2009 and 2008, the System had accrued $2,916,078 and $2,915,812, respectively, which, in the opinion of management, based on historical experience and current actuarial analyses, is sufficient to cover reported claims and claims incurred but not reported. The accrued workers' compensation reserve has been discounted at a rate of 5% in 2009 and 2008. The discount on the accrued workers' compensation was approximately $714,000 and $736,000 at September 30,2009 and 2008, respectively. For 2009 and 2008 empioyee health coverage, the System had a $250,000 per claim self-insured retention. The plan calls for a lifetime maximum of $2,000,000 and $1,500,000, respectively, per covered life. As of September 30, 2009 and 2008, the System had accrued $6,786,285 and $6,334,955, respectively, which, in the opinion of management based on historical experience, is sufficient to cover reported claims and claims incurred but not reported. Due to the short-term nature of these claims, the reserve is included in accrued expenses and has not been discounted. The System is involved in litigation arising from the ordinary course of business. In the opinion of management and counsel, these matters will be resolved without a material adverse effect to the System's financial position, results of operations or cash fiows. 11. Defined Contribution Plan The System has a 401 (k) plan (the "Plan") subject to the provisions of ERISA in which the System, at Its discretion, contributes 2% of base compensation for each participant. The System makes an additional contribution of 50% of employee contributions up to a maximum System contribution of 2% of base compensation. The System's contributions, net of forfeitures, for the years ended September 30, 2009 and 2008 were approximately $5,943,000 and $6,113,000, respectively. 20 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 3D, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 34 of 36 12. Related Party Transactions Two members of the Board are employed as Senior Vice-Presidents at financial Institutions with which the System conducts business. One physician member of the Board serves as an elected medical staff department chair and medical staff officer and was paid a stipend for serving in these positions. This physician member of the Board also participated in the medical staff ER call rotation and as a result of participating in the ER call rotation was paid a per diem fee for coverage provided in accordance with the estabiished per diem fee schedule. Two physician members of the Board are partners in the ER Physician group that provides physician and medical director services in the NCH System facilities pursuant to an exclusive contract. The ER group is paid a monthly stipend for providing those services. Another physician member of the Board is a partner in the Cardiac Surgical group that has an exclusive contract to provide physician, perfusion and medical director services for the NCH System's Cardiac Surgical program. The Cardiac Surgical group is paid a monthly stipend for providing those services. One member of the Board is employed by the NCH System as a Registered Nurse. One member of the Board is employed by the NCH System in the engineering department. One member of the Board is employed by the NCH System in the IT department. One physician member of the Board serves as chair of the credentials committee and was paid a stipend for serving in that position. One member of the Board is a partner in a law firm that provides services to the NCH Healthcare System. 13. Leases The System leases buildings and equipment under operating leases. Rent expense for the years ended September 30,2009 and 2008 approximated $2,977,000 and $3,159,000, respectively. The future minimum lease payments under operating leases at september 30,2009 are approximately as foilows: Years Ending 2010 2011 2012 2013 2014 $ 1,907,000 1,118,000 924,000 533,000 $ 4,482,000 14. Concentrations of Credit Risk Financial instruments which potentially subject the System to concentrations of credit risk consist principally of cash and cash equivalents, investments, and assets limited as to use. The System places its cash and cash equivalents with what management beiieves to be high credit quality financial institutions. Included in cash and cash equivalents are bank deposits, certificates of deposit and other short-term Investments in the amount of approximately $42,333,000 and $52,428,000 as of September 30, 2009 and 2008, respectively. The System's assets limited as to use and investments include U.S. government and agency securities, corporate bonds, preferred stock and common stock which are subject to market risk. The System limits the amount of credit exposure to anyone company or financial institution by diversifying its investments. The fair value of assets limited as to use and other investments is estimated based on quoted market prices for those or similar investments. 21 NCH Healthcare System, Inc. Notes to Consolidated Financial Statements September 30, 2009 and 2008 Agenda Item No. 16F3 March 23, 2010 Page 35 of 36 15. Disposition of Assets On April 7, 2008, 21st Century Oncology, Inc., a Florida corporation, entered into an Asset Purchase Agreement with NCH Healthcare System, Inc. to purchase 100% of the assets of NCH's Regional Cancer Institute, an out-patient radiation oncology service. As a part of this sale, the System recorded a gain, net of closing costs, of approximately $20,629,000. The net gain was included in the disposition of assets in the consolidated statements of operations. 16. SUbsequent Events The System has performed a review of subsequent events through January 25, 2010, the date the financial statements were issued, and concluded there were no events or transactions that occurred during this period thai required recognition or disclosure. 22 A'ITACHMENTF cJ 2'; ::i w ~ tI) w a:: ~ J: ~-~ ~ o u ~ 0:: o o z Iji li~ L. :t: J: U Z II Agenda Item No. 16F3 March 23, 2010 Page 36 of 36 . o o o III '" ~ g .