990 return oforganization exemptfromincometax990s.foundationcenter.org/990_pdf_archive/620/... ·...
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l efile GRAPHIC p rint - DO NOT PROCESS As Filed Data - DLN: 93493316039773
Form990 Return of Organization Exempt From Income Tax OMB No 1545-0047
Under section 501 (c), 527, or 4947( a)(1) of the Internal Revenue Code ( except black lung2012benefit trust or private foundation)
Department of the Treasury
Internal Revenue Service 1-The organization may have to use a copy of this return to satisfy state reporting requirements
A For the 2012 calendar year, or tax year beginning 01-01-2012 , 2012, and ending 12-31-2012
B Check if applicableC Name of organization D Employer identification number
Methodist Medical CenterF Address change 62-0636239
Doing Business AsF Name change
1 Initial return Number and street (or P 0 box if mail is not delivered to street address) Room/suite E Telephone number1420 Centerpoint Blvd Bldg C
F_ Terminated(865)374-6864
-( Amended return City or town, state or country, and ZIP + 4Knoxville, TN 379321960
1 Application pending G Gross receipts $ 195,621,674
F Name and address of principal officer H(a) Is this a group return forAnthony L Spezia affiliates? fl Yes F No100 Ft Sanders W BlvdKnoxville,TN 37922 H(b) Are all affiliates included? 1 Yes (- No
If "No," attach a list (see instructions)I Tax-exempt status F 501(c)(3) 1 501(c) ( ) I (insert no ) (- 4947(a)(1) or F_ 527
H(c) Group exemption number 0-J Website : 1- http //www mmcoakridge com
K Form of organization F Corporation 1 Trust F_ Association (- Other 0- L Year of formation 1959 M State of legal domicile TN
Summary
1 Briefly describe the organization's mission or most significant activitiesMethodist Medical Center is a 301-bed full service, acute care hospital located in Oak Ridge, Tennessee It is a member of theCovenant Health system
w
2 Check this box if the organization discontinued its operations or disposed of more than 25% of its net assets
3 Number of voting members of the governing body (Part VI, line 1a) . . . . . . . 3 22of:' 4 Number of independent voting members of the governing body (Part VI, line 1 b) . . . . 4 18
5 Total number of individuals employed in calendar year 2012 (Part V, line 2a) . 5 1,335
6 Total number of volunteers (estimate if necessary) 6 239
7aTotal unrelated business revenue from Part VIII, column (C), line 12 . . . . . . . 7a 92,154
b Net unrelated business taxable income from Form 990-T, line 34 . . . . . . . 7b 0
Prior Year Current Year
8 Contributions and grants (Part VIII, line 1h) . 338,843 259,046
9 Program service revenue (Part V I I I , l i n e 2g) . . . . . . . . 180,076,014 188,328,514
N 10 Investment income (Part VIII, column (A), lines 3, 4, and 7d ) . . . 2,069,750 3,031,828
11 Other revenue (Part VIII, column (A), lines 5, 6d, 8c, 9c, 10c, and 11e) 823,816 1,327,812
12 Total revenue-add lines 8 through 11 (must equal Part VIII, column (A), line12) . . . . . . . . . . . . . . . . . . 183,308,423 192,947,200
13 Grants and similar amounts paid (Part IX, column (A), lines 1-3 ) . 92,001 41,815
14 Benefits paid to or for members (Part IX, column (A), line 4) . 0 0
15 Salaries, other compensation, employee benefits (Part IX, column (A), lines5-10) 68,704,881 63,929,130
16a Professional fundraising fees (Part IX, column (A), line 11e) 0 0
LLJb Total fundraising expenses (Part IX, column (D), line 25) 0-0
17 Other expenses (Part IX, column (A), lines h1a-11d, 11f-24e) . . . . 118,553,204 128,598,677
18 Total expenses Add lines 13-17 (must equal Part IX, column (A), line 25) 187,350,086 192,569,622
19 Revenue less expenses Subtract line 18 from line 12 . -4,041,663 377,578
Beginning of CurrentEnd of Year
Year
20 Total assets (Part X, line 16) . . . . . . . . . . . . 190,559,810 196,802,743
% 21 Total liabilities (Part X, line 26) . . . . . . . . . . . . 28,829,392 31,923,610
ZLL 22 Net assets or fund balances Subtract line 21 from line 20 161,730,418 164,879,133
lijaW Signature Block
Under penalties of perjury, I declare that I have examined this return, includinmy knowledge and belief, it is true, correct, and complete Declaration of prepspreparer has any knowledge
SignSignature of officer
Here JOHN T GEPPI EVP/CFO
Type or print name and title
Print/Type preparer's name Preparers signatureSelf Prepared
PaidFirm's name 0-
Pre pare rUse Only Firm's address 1-
May the IRS discuss this return with the preparer shown above? (see instructs
For Paperwork Reduction Act Notice, see the separate instructions.
Form 990 (2012) Page 2
Statement of Program Service AccomplishmentsCheck if Schedule 0 contains a response to any question in this Part III .F
1 Briefly describe the organization's mission
See Schedule 0 Methodist Medical Center provides quality healthcare, in alignment with Covenant Health's mission to serve the communityby improving the quality of life through better health regardless of a patient's ability to pay
2 Did the organization undertake any significant program services during the year which were not listed onthe prior Form 990 or 990-EZ? . . . . . . . . . . . . . . . . . . . . . . fl Yes F No
If"Yes,"describe these new services on Schedule 0
3 Did the organization cease conducting, or make significant changes in how it conducts, any programservices? . . . . . . . . . . . . . . . . . . . . . . . . . . . . F Yes F7 No
If"Yes,"describe these changes on Schedule 0
4 Describe the organization's program service accomplishments for each of its three largest program services, as measured byexpenses Section 501(c)(3) and 501(c)(4) organizations are required to report the amount of grants and allocations to others,the total expenses, and revenue, if any, for each program service reported
4a (Code ) (Expenses $ 34,699,988 including grants of $ ) (Revenue $ 32,197,926
Surgical Services See Schedule 0 Surgical Services Expenses - $34,699,988, Revenue - $32,197,926In 2012, surgeons at Methodist Medical Center performedprocedures on 7327 patients in several surgical specialty areas, including neurology, neurosurgery, and vascular surgery Under the clinical leadership of a board-certified neurosurgeon with a doctorate in neuroscience/anatomy, Methodist Medical Center's neurosurgery staff is committed to restoring quality of life to the fullestextent possible Surgery is performed on patients with malignant, benign and metastatic brain tumors, aneurysms and malformations of the blood vessels, headand spinal injuries, herniated discs, epilepsy, and other conditions of the head, neck and back Sophisticated imaging tools such as Methodist Medical Center's3Tesla MRI provide detailed views of the central nervous system However, images of the brain, spinal cord, nerves and muscles alone are not always enoughwhen medical problems occur The medical centers neurodiagnostic services include a full-range of studies including EEGs, somatosensory and visual response tests,and nerve conduction and transcranial Doppler studies These tests allow physicians to gather more data to better diagnose and treat problems such as stroke,Parkinson's disease, Alzheimer's, cerebral palsy, brain tumors, spinal cord function, headaches, vision loss, and other conditions Vascular surgeons at Methodistperform procedures throughout the body to remove blockages in arteries, bypass diseased arteries, and replace vascular areas weakened by aneurysms Examplesinclude life-saving surgery for patients with carotid artery disease or inadequate blood flow to the kidneys or digestive organs, angiography, prosthetic grafts,balloon angioplasty, stents and stent-grafts Prostate cancer is the second highest cause of cancer-related deaths in men Fortunately, the robotic surgical system atMethodist is striving to reduce this statistic by making robotic prostatectomy for localized prostate cancer available in East Tennessee Urologists at Methodistprimarily perform three robotic procedures using the surgical robot, radical prostatectomy for prostate cancer, radical cystoprostatectomy for bladder cancer, andpartical nephrectomy for kidney cancer
4b (Code ) ( Expenses $ 30,964,742 including grants of $ (Revenue $ 30 ,363,494 )
Cardiovascular Services See Schedule 0 Cardiac Services Expenses - $30,964,742, Revenue - $30,363,494 Methodist Medical Center offers a complete continuumof heart care beginning with prevention efforts such as education, exercise programs, diet and stress management, early detection, diagnosis, treatment andrehabilitation, and advanced new treatments The hospital treated 11,826 cardiac patients in 2012 Methodist Medical Center offers the full continuum of heart-related care and service Urgent Care - One of the first chest pain centers in the area - Average door-to-balloon times under 65 minutes (compared to nationalgoal of 90 minutes) - 2012 Platinum Performance Award from American College of Cardiology ACTION Registry for urgent heart care that is 25 minutes faster thanthe national benchmark - First hospital in the area to implement a hypothermia protocol which lowers a patient's body temperature after cardiac arrest to reduce therisk of brain damage Diagnostic - Echocardiography lab - Cardiac stress lab - 64-slice CT which can capture images of the heart and coronary arteries in as little asfive heartbeats Surgical Procedures - All open-heart procedures including multi-vessel coronary artery bypass - Endoscopic vein harvesting - Minimally invasiveprocedure for treatment of arterial fibrillation Interventional - Cardiac catherization lab - Electrophysiology services - Minimally invasive transradial procedures whichare currently utilized by only 5% of medical centers nationwide Cardiac Rehabilitation - Cardiac rehab in Methodist Medical Center's 5000 square foot facility offersan individualized plan of monitored exercise and education in a medically supervised environment Methodist Medical Centers highly trained cardiologists, nursesand technicians combine their extensive skills with the latest technology in the areas of bypass surgery, procedures involving pacemakers, drug-eluting stents andcardiac defibrillators, angioplasty and emergency treatment They also perform echocardiograms, electrocardiograms and stress tests Telemetry monitoring isavailable for critical patients, and cardiac rehabilitation services, therapy, dietary consultation, and congestive heart failure education classes are also provided at thefacility In addition, the facility offers heart screenings to the community and promotes cardiac education and wellness through community health fairs and seminarsThe organization's goal is to provide excellent care to an increasing number of cardiac patients in its service area, as well as to promote cardiac education andwellness through community health fairs and educational seminars
4c (Code ) ( Expenses $ 23,636,119 including grants of $ (Revenue $ 22 ,597,539 )
Orthopedic Services See Schedule 0 Orthopedic Services Expenses - $23,636,119, Revenue - $22,597,539 Methodist Medical Center's board-certified orthopedicsurgeons are skilled in diagnosing and treating bone, muscle and joint disorders Specialty areas include total hip and knee replacement, spinal surgeries, fractures,complex rotator cuff/shoulder repairs, and hand reconstruction The hospital treated 5,485 orthopedic surgery patients in 2012 Using a series of best practiceguidelines and standard orders, the staff treats patients efficiently and provides the best opportunity for optimal outcomes Intense inpatient rehabilitation beginsafter surgery in a group setting It is one way of maximizing the patient's chance for a full recovery Outpatient therapy may be continued at Methodist TherapyCenter, which offers advanced physical, speech, and occupational therapies for both adults and children The therapy staff specializes in treating a variety oforthopedic, neurological, and medical problems, with an emphasis on helping individuals overcome disability caused by disease, injury, developmental abnormality,or amputation The physical therapy staff at Methodist Medical Center provides care for orthopedic, neurological, and medical rehabilitation of individuals with neck,lower back, arm and leg injuries, sports and overuse injuries, arthritis, stroke, brain injury, and post-amputation needs Specialty programs include sportsmedicine, wound/burn care, and aquatic therapy
(Code ) (Expenses $ 98,153,232 including grants of $ 41,815 ) (Revenue $ 103,344,145 )
As a full-service acute care, regional medical center, Methodist Medical Center treats patients across a broad spectrum of medical specialties in addition to thosehighlighted above
4d Other program services (Describe in Schedule 0 )
(Expenses $ 98,153,232 including grants of $ 41,815 ) (Revenue $ 103,344,145 )
4e Total program service expenses 0- 187,454,081
Form 990 (2012)
Form 990 (2012) Page 3
Checklist of Required Schedules
Yes No
1 Is the organization described in section 501(c)(3) or4947(a)(1) (other than a private foundation)? If "Yes," Yes
complete Schedule As . . . . . . . . . . . . . . . . . . . . . . . 1
2 Is the organization required to complete Schedule B, Schedule of Contributors (see instructions)? 2 Yes
3 Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to Nocandidates for public office? If "Yes,"complete Schedule C, Part I . . . . . . . . . . 3
4 Section 501 ( c)(3) organizations . Did the organization engage in lobbying activities, or have a section 501(h) Noelection in effect during the tax year? If "Yes,"complete Schedule C, Part II . . . . . . . 4
5 Is the organization a section 501 (c)(4), 501 (c)(5), or 501(c)(6) organization that receives membership dues,assessments, or similar amounts as defined in Revenue Procedure 98-19? If "Yes," complete Schedule C,Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 N o
6 Did the organization maintain any donor advised funds or any similar funds or accounts for which donors have theright to provide advice on the distribution or investment of amounts in such funds or accounts? If "Yes,"complete
Schedule D, Part Is . . . . . . . . . . . . . . . . . . . . . . 6 N o
7 Did the organization receive or hold a conservation easement, including easements to preserve open space,No
the environment, historic land areas, or historic structures? If "Yes,"complete Schedule D, Part II . . 7
8 Did the organization maintain collections of works of art, historical treasures, or other similar assets? If "Yes,"
complete Schedule D, Part III . . . . . . . . . . . . . . . . . . . . 8 N o
9 Did the organization report an amount in Part X, line 21 for escrow or custodial account liability, serve as acustodian for amounts not listed in Part X, or provide credit counseling, debt management, credit repair, or debt
negotiation services? If "Yes,"complete Schedule D, Part IV . . . . . . . . . . . . 9 No
10 Did the organization, directly or through a related organization, hold assets in temporarily restricted endowments, 10 Yespermanent endowments, or quasi-endowments? If "Yes,"complete Schedule D, Part V .
11 If the organization's answer to any of the following questions is "Yes," then complete Schedule D, Parts VI, VII,VIII, IX, or X as applicable
a Did the organization report an amount for land, buildings, and equipment in Part X, line 10?
If "Yes,"complete Schedule D, Part VI.19 . . . . . . . . . . . . . . . . . . . lla Yes
b Did the organization report an amount for investments-other securities in Part X, line 12 that is 5% or more ofNo
its total assets reported in Part X, line 16? If "Yes, "complete Schedule D, Part VIAN . llb
c Did the organization report an amount for investments-program related in Part X, line 13 that is 5% or more of
its total assets reported in Part X, line 16? If "Yes, "complete Schedule D, PartVIII95 . . . . . . llc No
d Did the organization report an amount for other assets in Part X, line 15 that is 5% or more of its total assetsNo
reported in Part X, line 16? If "Yes," complete Schedule D, PartIX'S . . . . . . . . . . . lid
e Did the organization report an amount for other liabilities in Part X line 25? If "Yes " complete Schedule D Part XSII
, , ,lle Yes
f Did the organization's separate or consolidated financial statements for the tax year include a footnote thatf
addresses the organization's liability for uncertain tax positions under FIN 48 (ASC 740)? If "Yes,"completell Yes
Schedule D, Part
X95
. . . . . . . . . . . . . . . . . . . . . . . . .
12a Did the organization obtain separate, independent audited financial statements for the tax year?
If "Yes,"complete Schedule D, Parts XI and XII . . . . . . . . . . . . . . . . . 12a N o
b Was the organization included in consolidated, independent audited financial statements for the tax year? If12b Yes
"Yes,"and if the organization answered "No" to line 12a, then completing Schedule D, Parts XI and XII is optional
13 Is the organization a school described in section 170(b)(1)(A)(ii)? If "Yes, "complete Schedule E13 No
14a Did the organization maintain an office, employees, or agents outside of the United States? . 14a No
b Did the organization have aggregate revenues or expenses of more than $10,000 from grantmaking, fundraising,business, investment, and program service activities outside the United States, or aggregate foreign investmentsvalued at $100,000 or more? If "Yes, "complete Schedule F, Parts I and IV . . . . . . . . 14b No
15 Did the organization report on Part IX, column (A), line 3, more than $5,000 of grants or assistance to anyorganization or entity located outside the United States? If "Yes," complete Schedule F, Parts II and IV 15 No
16 Did the organization report on Part IX, column (A), line 3, more than $5,000 of aggregate grants or assistance toindividuals located outside the United States? If "Yes," complete Schedule F, Parts III and IV . . 16 No
17 Did the organization report a total of more than $15,000 of expenses for professional fundraising services on Part 17 NoIX, column (A), lines 6 and 11 e? If "Yes," complete Schedule G, Part I (see instructions) . . . .
18 Did the organization report more than $15,000 total of fundraising event gross income and contributions on PartVIII, lines 1c and 8a? If "Yes, "complete Schedule G, PartII . . . . . . . . . . . . 18 No
19 Did the organization report more than $15,000 of gross income from gaming activities on Part VIII, line 9a? If 19 No"Yes,"complete Schedule G, Part III . . . . . . . . . . . . . . . . . . .
20a Did the organization operate one or more hospital facilities? If "Yes,"completeScheduleH . . 19 20a Yes
b If"Yes" to line 20a, did the organization attach a copy of its audited financial statements to this return? 1520b Yes
Form 990 (2012)
Form 990 (2012) Page 4
Checklist of Required Schedules (continued)
21 Did the organization report more than $5,000 of grants and other assistance to any government or organization in 21 Yes
the United States on Part IX, column (A), line 1? If "Yes," complete Schedule I, Parts I and II . . .
22 Did the organization report more than $5,000 of grants and other assistance to individuals in the United States 22on Part IX, column (A), line 2? If "Yes, "complete Schedule I, Parts I and III . . . . . . . .
Yes
23 Did the organization answer "Yes" to Part VII, Section A, line 3,4, or 5 about compensation of the organization'scurrent and former officers, directors, trustees, key employees, and highest compensated employees? If "Yes," 23 Yes
complete Schedule J . . . . . . . . . . . . . . . . . . . . . .
24a Did the organization have a tax-exempt bond issue with an outstanding principal amount of more than $100,000as of the last day of the year, that was issued after December 31, 2002? If"Yes," answer lines 24b through 24dand complete Schedule K. If "No,"go to line 25 . . . . . . . . . . . . . . . . 24a N o
b Did the organization invest any proceeds of tax-exempt bonds beyond a temporary period exception? . 24b
c Did the organization maintain an escrow account other than a refunding escrow at any time during the yearto defease any tax-exempt bonds? . 24c
d Did the organization act as an "on behalf of" issuer for bonds outstanding at any time during the year? 24d
25a Section 501(c)( 3) and 501 ( c)(4) organizations . Did the organization engage in an excess benefit transaction witha disqualified person during the year? If "Yes," complete Schedule L, Part I . . . . . . . 25a No
b Is the organization aware that it engaged in an excess benefit transaction with a disqualified person in a prioryear, and that the transaction has not been reported on any of the organization's prior Forms 990 or 990-EZ? If 25b No
"Yes,"complete Schedule L, Part I . . . . . . . . . . . . . . . . . . .
26 Was a loan to or by a current or former officer, director, trustee, key employee, highest compensated employee, odisqualified person outstanding as of the end of the organization's tax year? If "Yes," complete Schedule L, 26 NoPart II . . . . . . . . . . . . . . . . . . . . . . . . . .
27 Did the organization provide a grant or other assistance to an officer, director, trustee, key employee, substantialcontributor or employee thereof, a grant selection committee member, or to a 35% controlled entity or family 27 No
member of any of these persons? If "Yes,"complete Schedule L, Part III . . . . . . . . .
28 Was the organization a party to a business transaction with one of the following parties (see Schedule L, Part IVinstructions for applicable filing thresholds, conditions, and exceptions)
a A current or former officer, director, trustee, or key employee? If "Yes,"complete Schedule L, PartIV . . . . . . . . . . . . . . . . . . . . . . . . . 28a No
b A family member of a current or former officer, director, trustee, or key employee? If "Yes,"complete Schedule L, Part IV . . . . . . . . . . . . . . . . . . . . 28b No
c A n entity of which a current or former officer, director, trustee, or key employee (or a family member thereof) wasan officer, director, trustee, or direct or indirect owner? If "Yes,"complete Schedule L, Part IV . . 28c No
29 Did the organization receive more than $25,000 in non-cash contributions? If "Yes,"completeScheduleM 29 No
30 Did the organization receive contributions of art, historical treasures, or other similar assets, or qualifiedconservation contributions? If "Yes, "complete Schedule M . . . . . . . . . . . . . 30 No
31 Did the organization liquidate, terminate, or dissolve and cease operations? If "Yes," complete Schedule N,Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 N o
32 Did the organization sell, exchange, dispose of, or transfer more than 25% of its net assets? If "Yes, " completeSchedule N, Part II . . . . . . . . . . . . . . . . . . . . . . 32 N o
33 Did the organization own 100% of an entity disregarded as separate from the organization under Regulations
sections 301 770 1-2 and 301 770 1-3? If "Yes," complete Schedule R, Part I . . . . . . . 33 Yes
34 Was the organization related to any tax-exempt or taxable entity? If "Yes, "complete Schedule R, Part II, III, orIV,
and Part V, line 1 . . . . . . . . . . . . . . . . . . . . . . . t 34 Yes
35a Did the organization have a controlled entity within the meaning of section 512(b)(13)?35a Yes
b If'Yes'to line 35a, did the organization receive any payment from or engage in any transaction with a controlled
entity within the meaning of section 512 (b)(13 )? If "Yes,"complete Schedule R, Part V, line 2 . . . 35b Yes
36 Section 501(c)( 3) organizations . Did the organization make any transfers to an exempt non-charitable related
organization? If "Yes,"complete Schedule R, Part V, line 2 . . . . . . . . . . . . . 36 No
37 Did the organization conduct more than 5% of its activities through an entity that is not a related organization
and that is treated as a partnership for federal income tax purposes? If "Yes," complete Schedule R, Part VI 37 No
38 Did the organization complete Schedule 0 and provide explanations in Schedule 0 for Part VI, lines 1 lb and 19?Note . All Form 990 filers are required to complete Schedule 0 . . . . . . . . . . 38 Yes
Form 990 (2012)
Form 990 (2012) Page 5
MEW-Statements Regarding Other IRS Filings and Tax Compliance
Check if Schedule 0 contains a res p onse to an y q uestion in this Part V (-
Yes No
la Enter the number reported in Box 3 of Form 1096 Enter -0- if not applicable . la 198
b Enter the number of Forms W-2G included in line la Enter-0- if not applicable lb 0
c Did the organization comply with backup withholding rules for reportable payments to vendors and reportablegaming (gambling) winnings to prize winners? . . . . . . . . . . . . . . . . . 1c Yes
2a Enter the number of employees reported on Form W-3, Transmittal of Wage andTax Statements, filed for the calendar year ending with or within the year coveredby this return . . . . . . . . . . . . . . . . . 2a 1,335
b If at least one is reported on line 2a, did the organization file all required federal employment tax returns?2b Yes
Note . If the sum of lines la and 2a is greater than 250, you may be required to e-file (see instructions)
3a Did the organization have unrelated business gross income of $ 1,000 or more during the year? . . 3a Yes
b If "Yes," has it filed a Form 990-T for this year? If "No,"provide an explanation in Schedule 0 . . . . 3b Yes
4a At any time during the calendar year, did the organization have an interest in, or a signature or other authorityover, a financial account in a foreign country (such as a bank account, securities account, or other financialaccount)? . . . . . . . . . . . . . . . . . . . . . . . . . . 4a
b If "Yes," enter the name of the foreign country 0-See instructions for filing requirements for Form TD F 90-22 1, Report of Foreign Bank and Financial Accounts
5a Was the organization a party to a prohibited tax shelter transaction at any time during the tax year? . .
b Did any taxable party notify the organization that it was or is a party to a prohibited tax shelter transaction?
c If"Yes,"to line 5a or 5b, did the organization file Form 8886-T?
6a Does the organization have annual gross receipts that are normally greater than $100,000, and did theorganization solicit any contributions that were not tax deductible as charitable contributions? . .
b If "Yes," did the organization include with every solicitation an express statement that such contributions or giftswere not tax deductible? .
7 Organizations that may receive deductible contributions under section 170(c).
a Did the organization receive a payment in excess of $75 made partly as a contribution and partly for goods andservices provided to the payor? .
b If "Yes," did the organization notify the donor of the value of the goods or services provided? . .
c Did the organization sell, exchange, or otherwise dispose of tangible personal property for which it was required tofile Form 82827 .
d If "Yes," indicate the number of Forms 8282 filed during the year 7d
e Did the organization receive any funds, directly or indirectly, to pay premiums on a personal benefitcontract? .
f Did the organization, during the year, pay premiums, directly or indirectly, on a personal benefit contract?
g If the organization received a contribution of qualified intellectual property, did the organization file Form 8899 asrequired? .
h If the organization received a contribution of cars, boats, airplanes, or other vehicles, did the organization file aForm 1098-C? .
8 Sponsoring organizations maintaining donor advised funds and section 509(a )( 3) supporting organizations. Didthe supporting organization, or a donor advised fund maintained by a sponsoring organization, have excessbusiness holdings at any time during the year? .
9 Sponsoring organizations maintaining donor advised funds.
a Did the organization make any taxable distributions under section 4966? . .
b Did the organization make a distribution to a donor, donor advisor, or related person? . .
10 Section 501(c)( 7) organizations. Enter
a Initiation fees and capital contributions included on Part VIII, line 12 . 10a
b Gross receipts, included on Form 990, Part VIII, line 12, for public use of club 10bfacilities
11 Section 501(c)( 12) organizations. Enter
a Gross income from members or shareholders . . . . . . . . 11a
b Gross income from other sources (Do not net amounts due or paid to other sourcesagainst amounts due or received from them ) . . . . . . . . . 11b
12a Section 4947( a)(1) non-exempt charitable trusts. Is the organization filing Form 990 in lieu of Form 1041?
b If "Yes," enter the amount of tax-exempt interest received or accrued during theyear . . . . . . . . . . . . . . . . . . . 12b
13 Section 501(c)( 29) qualified nonprofit health insurance issuers.
a Is the organization licensed to issue qualified health plans in more than one state?Note . See the instructions for additional information the organization must report on Schedule 0
b Enter the amount of reserves the organization is required to maintain by the statesin which the organization is licensed to issue qualified health plans 13b
c Enter the amount of reserves on hand 13c
5a
5b
5c
6a
6b
7a
7b
7c
7e
7f
7g
7h
8
9a
9b
12a
13a
No
No
No
No
No
No
No
No
14a Did the organization receive any payments for indoor tanning services during the tax year? . . . 14a No
b If "Yes," has it filed a Form 720 to report these payments? If "No,"provide an explanation in Schedule 0 . 14b
Form 990 (2012)
Form 990 ( 2012) Page 6
Lam Governance , Management, and Disclosure For each "Yes"response to lines 2 through 7b below, and for a"No" response to lines 8a, 8b, or 10b below, describe the circumstances, processes, or changes in Schedule 0.See instructions.Check if Schedule 0 contains a response to any question in this Part VI .F
Section A. Governing Body and Management
la Enter the number of voting members of the governing body at the end of the taxla 22
year
If there are material differences in voting rights among members of the governingbody, or if the governing body delegated broad authority to an executive committeeor similar committee, explain in Schedule 0
b Enter the number of voting members included in line la, above, who areindependent . . . . . . . . . . . . . . . . . lb 18
2 Did any officer, director, trustee, or key employee have a family relationship or a business relationship with anyother officer, director, trustee, or key employee?
3 Did the organization delegate control over management duties customarily performed by or under the directsupervision of officers, directors or trustees, or key employees to a management company or other person?
4 Did the organization make any significant changes to its governing documents since the prior Form 990 wasfiled?
5 Did the organization become aware during the year of a significant diversion of the organization's assets?
6 Did the organization have members or stockholders?
7a Did the organization have members, stockholders, or other persons who had the power to elect or appoint one ormore members of the governing body? . .
b Are any governance decisions of the organization reserved to (or subject to approval by) members, stockholders,or persons other than the governing body?
8 Did the organization contemporaneously document the meetings held or written actions undertaken during theyear by the following
a The governing body?
b Each committee with authority to act on behalf of the governing body?
9 Is there any officer, director, trustee, or key employee listed in Part VII, Section A, who cannot be reached at theorganization 's mailing address? If "Yes,"provide the names and addresses in Schedule 0 . . . . . . . 1 9 1 Yes
Section B. Policies ( This Section B requests information about p olicies not required b y the Internal Revenue Code.)Yes No
10a Did the organization have local chapters, branches, or affiliates? 10a No
b If"Yes," did the organization have written policies and procedures governing the activities of such chapters,affiliates, and branches to ensure their operations are consistent with the organization's exempt purposes? 10b
11a Has the organization provided a complete copy of this Form 990 to all members of its governing body before filingthe form? . . . . . . . . . . . . . . . . . . . . . . . . . . . 11a Yes
b Describe in Schedule 0 the process, if any, used by the organization to review this Form 990
12a Did the organization have a written conflict of interest policy? If "No,"go to line 13 . 12a Yes
b Were officers, directors, or trustees, and key employees required to disclose annually interests that could giverise to conflicts? . . . . . . . . . . . . . . . . . . . . . . . . . 12b Yes
c Did the organization regularly and consistently monitor and enforce compliance with the policy? If "Yes,"describein Schedule 0 how this was done . 12c Yes
13 Did the organization have a written whistleblower policy? 13 Yes
14 Did the organization have a written document retention and destruction policy? . 14 Yes
15 Did the process for determining compensation of the following persons include a review and approval byindependent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?
a The organization's CEO, Executive Director, or top management official 15a Yes
b Other officers or key employees of the organization 15b Yes
If "Yes" to line 15a or 15b, describe the process in Schedule 0 (see instructions)
16a Did the organization invest in, contribute assets to, or participate in a joint venture or similar arrangement with ataxable entity during the year? 16a Yes
b If "Yes," did the organization follow a written policy or procedure requiring the organization to evaluate itsparticipation in joint venture arrangements under applicable federal tax law, and take steps to safeguard theorganization's exempt status with respect to such arrangements? . . . . . . . . . . 16b No
Section C. Disclosure
17 List the States with which a copy of this Form 990 is required to be filed-
18 Section 6104 requires an organization to make its Form 1023 (or 1024 if applicable), 990, and 990-T (501(c)(3 )s only) available for public inspection Indicate how you made these available Check all that apply
fl Own website F Another's website 17 Upon request fl Other (explain in Schedule O )
19 Describe in Schedule 0 whether (and if so, how), the organization made its governing documents, conflict ofinterest policy, and financial statements available to the public during the tax year
20 State the name, physical address, and telephone number of the person who possesses the books and records of the organization-Nancy Beck 1420 Centerpoint Blvd Bldg C Knoxville, TN (865) 374-6864
Yes I No
2 No
3 No
4 No
5 No
6 No
7a N o
7b No
8a Yes
8b Yes
Form 990 (2012)
Form 990 (2012) Page 7
Compensation of Officers, Directors,Trustees , Key Employees, Highest CompensatedEmployees , and Independent ContractorsCheck if Schedule 0 contains a response to any question in this Part VII .(-
Section A. Officers, Directors, Trustees, Kev Employees, and Highest Compensated Employees
la Complete this table for all persons required to be listed Report compensation for the calendar year ending with or within the organization'stax year* List all of the organization's current officers, directors, trustees (whether individuals or organizations), regardless of amount
of compensation Enter-0- in columns (D), (E), and (F) if no compensation was paid
* List all of the organization's current key employees, if any See instructions for definition of "key employee "
* List the organization's five current highest compensated employees (other than an officer, director, trustee or key employee)who received reportable compensation (Box 5 of Form W-2 and/or Box 7 of Form 1099-MISC) of more than $100,000 from theorganization and any related organizations
* List all of the organization's former officers, key employees, or highest compensated employees who received more than $100,000of reportable compensation from the organization and any related organizations
* List all of the organization 's former directors or trustees that received, in the capacity as a former director or trustee of theorganization, more than $10,000 of reportable compensation from the organization and any related organizations
List persons in the following order individual trustees or directors, institutional trustees, officers, key employees, highestcompensated employees, and former such persons
1 Check this box if neither the organization nor any related organization compensated any current officer, director, or trustee
(A) (B) (C) (D) ( E) (F)Name and Title Average Position (do not check Reportable Reportable Estimated
hours per more than one box, unless compensation compensation amount ofweek (list person is both an officer from the from related otherany hours and a director/trustee) organization organizations compensationfor related 5 0 = T (W- 2/1099- (W- 2/1099- from theorganizations CL :1 2 fD ado a MISC) MISC) organization
below m (D art, and relateddotted line) S
_Q V organizations
(1) Anthony L Spezia 0 00X X 0 1,526,847 230,374
President & CEO 50 00
(2) Gerald Boyd 0 00X 0 679 0
Director 1 00
(3) Dr Richard Brinner 0 00X 0 1,291 0
Director 1 00
(4) Dr Mitchell Dickson 0 00X 0 1,914 0
Director 1 00
(5) Pamela P Fansler 0 00X 0 0 0
Director 1 00
(6) James Fitzsimmons 0 00X 0 1,742 0
Director 1 00
(7) Kimberly Greene 0 00X 0 937 0
Director 1 00
(8) Wayne Heatherly 0 00X 0 752 0
Director 1 00
(9) Jim Johnson Jr 0 00X 0 1,642 0
Director 1 00
(10) Karla Lane 0 00X 0 924 0
Director 1 00
(11) Eddie Mannis 0 00X 0 0 0
Director 1 00
(12) Larry Mauldin 0 00X 0 834 0
Director 1 00
(13) Dr Joseph Metcalf 0 00X 0 15,603 0
Director 3 00
(14) George Miller 0 00X 0 978 0
Director 1 00
(15) Alvin Nance 0 00X 0 966 0
Director 1 00
(16) Linda Ogle 0 00X 0 0 0
Director 1 00
(17) Mitchell Steenrod 0 00X 0 805 0
Director 1 00
Form 990 (2012)
Form 990 (2012) Page 8
Section A. Officers, Directors , Trustees , Key Employees, and Highest Compensated Employees (continued)
(A) (B) (C) (D) (E) (F)Name and Title Average Position (do not check Reportable Reportable Estimated
hours per more than one box, unless compensation compensation amount of otherweek (list person is both an officer from the from related compensationany hours and a director/trustee) organization organizations from thefor related - 5 0 = T (W- 2/1099- (W- 2/1099- organizationorganizations c fD ado a MISC) MISC) and related
belowm5 (D U_
art, organizationsdotted line) u Q a,
4 rD 0
(18) Carl Storms 0 00X 0 1,641 0
Director 1 00
(19) Joseph E Sutter 0 00X 0 1,313 0
Director 1 00
(20) Richard Swanson 0 00X 0 0 0
Director 1 00
(21) Joe Ben Turner 0 00X 0 783 0
Director 1 00
(22) David Verble 0 00X 0 958 0
Director 1 00
(23) John T Geppi 0 00X 0 673,095 27,138
EVP / CFO 50 00
(24) Michael R Belbeck Jr 50 00X 0 386,592 34,819
President & CAO 0 00
(25) Julie G Utterback 50 00X 153,252 0 31,229
VP - Financial Services 0 00
(26) Susan K Harris 50 00X 157,645 0 20,418
VP - Chief Nursing Officer 0 00
(27) Connie B Martin 50 00X 115,749 0 19,516
VP - Support Services 0 00
(28) Stephen E Ellis MD 40 00X 209,875 0 26,397
Medical Director 0 00
(29) Shane West 50 00X 183,325 0 28,042
Senior Medical Physicist 0 00
lb Sub-Total . . . . . . . . . . . . . . . .
c Total from continuation sheets to Part VII, Section A . . . .
d Total ( add lines lb and 1c) . . . . . . . . . . . . 0- 819,846 2,620,296 417,933
Total number of individuals (including but not limited to those listed above) who received more than$100,000 of reportable compensation from the organization-5
No
Did the organization list any former officer, director or trustee, key employee, or highest compensated employee
on line la? If "Yes," complete Schedule Jfor such individual . . . . . . . . . . . . . 3 No
4 For any individual listed on line la, is the sum of reportable compensation and other compensation from theorganization and related organizations greater than $150,0007 If "Yes," complete Schedule -7 for such
individual . . . . . . . . . . . . . . . . . . . . . . . . . . .
Did any person listed on line la receive or accrue compensation from any unrelated organization or individual for
services rendered to the organization? If "Yes,"complete Schedule J for such person . . . . . . . 5 No
Section B. Independent Contractors
1 Complete this table for your five highest compensated independent contractors that received more than $100,000 ofcompensation from the organization Report compensation for the calendar year ending with or within the organization's tax year
(A)Name and business address
(B)Description of services
(C)Compensation
Cardinal Health 1330 Enclave Parkway Houston TX 77077 Pharmacy Management 9,408,451
Sodexo Inc & Affiliates POBox 536922 Atlanta GA 303536922 Cafeteria Management 1,919,255
SE Emergency Physicians 1431 Centerpoint Blvd Ste 100 Knoxville TN 37932 Hospitalist Services 1,819,187
GE Healthcare PO Box 402076 Atlanta GA303842076 Maintenance & Service Contracts 1,716,864
Medic Regional Blood Center 1601 Ailor Avenue Knoxville TN 379216702 Blood Processing 1,276,887
2 Total number of independent contractors (including but not limited to those listed above) who received more than$100,000 of compensation from the organization 0-24
Form 990 (2012)
Form 990 (2012) Page 9
Statement of RevenueCheck if Schedule 0 contains a response to any question in this Part VIII F
(A) (B) (C) (D)Total revenue Related or Unrelated Revenue
exempt business excluded fromfunction revenue tax underrevenue sections
512, 513, or514
la Federated campaigns . laZ
b Membership dues . . . . lb6- 0
0 E c Fundraising events . . . . 1c
d Related organizations . ld 217,880
tJ'E e Government grants (contributions) le 37,166
V f All other contributions, gifts, grants, and if 4,000^ similar amounts not included above
g Noncash contributions included in lines 7,744la-If $
h Total . Add lines la-1f . 259,04610-
Business Code
2a Medical Services 622110 187,257,669 187,257,669
a2 b Rental Inc - Affiliate 531120 751,642 751,642
C Community Health 900099 319,203 319,203
d
e
f All other program service revenue
g Total . Add lines 2a-2f . . . . . . . 0- 188,328,514
3 Investment income (including dividends, interest,and other similar amounts) . 10- 3,028,803 3,028,803
4 Income from investment of tax-exempt bond proceeds • . 0-
5 Royalties . . . . . . . . . . . 0-
(i) Real (ii) Personal
6a Gross rents 2,457,167
b Less rental 2,674,474expenses
c Rental income -217,307or (loss)
d Net rental inco me or (loss) . lim- -217,307 92,154 -309,461
(i) Securities (ii) Other
7a Gross amountfrom sales of 3,025assets otherthan inventory
b Less cost orother basis and 0sales expenses
c Gain or (loss) 3,025
d Net gain or (loss) . lim- 3,025 3,025
8a Gross income from fundraisingW events (not including
$
of contributions reported on line 1c)See Part IV, line 18
a
s b Less direct expenses . b
c Net income or (loss) from fundraising events . . 0-
9a Gross income from gaming activitiesSee Part IV, line 19 . .
a
b Less direct expenses . b
c Net income or (loss) from gaming acti vities . . .0-
10a Gross sales of inventory, lessreturns and allowances .
a
b Less cost of goods sold . b
c Net income or (loss) from sales of inventory . lim-
Miscellaneous Revenue Business Code
11a Cafeteria Sales 722212 1,066,959 1,066,959
b Gift Shop 453220 168,455 168,455
c Medical Records 561410 92,073 92,073
d All other revenue 217,632 82,517 135,115
e Total.Add lines 11a-11d 0-1,545,119 1
12 Total revenue . See Instructions 0- 1192,947,200 188,503,104 92,154 4,092,896
Form 990 (2012)
Form 990 (2012) Page 10
Statement of Functional Expenses
Section 501(c)(3) and 501(c)(4) organizations must complete all columns All other organizations must complete column (A)
Check if Schedule 0 contains a response to any auestion in this Part IX . . . . . . . . . . . . . .
Do not include amounts reported on lines 6b,
7b, 8b, 9b, and 10b of Part VIII .
(A)
Total expenses
(B)Program service
expenses
(C)Management andgeneral expenses
(D)Fundraisingexpenses
1 Grants and other assistance to governments and organizationsin the United States See Part IV, line 21 22,556 22,556
2 Grants and other assistance to individuals in theUnited States See Part IV, line 22
19,259 19,259
3 Grants and other assistance to governments,organizations , and individuals outside the UnitedStates See Part IV, lines 15 and 16
4 Benefits paid to or for members
5 Compensation of current officers, directors , trustees, and
key employees 362,544 362,544
6 Compensation not included above, to disqualified persons(as defined under section 4958(f)(1)) and personsdescribed in section 4958 (c)(3)(B)
7 Other salaries and wages 49,795,442 48,945,608 849,834
8 Pension plan accruals and contributions ( include section 401(k)and 403(b) employer contributions ) 1 ,256,815 1,239,253 17,562
9 Other employee benefits 8,871,005 8,688,359 182,646
10 Payroll taxes 3,643,324 3,559,606 83,718
11 Fees for services ( non-employees)
a Management 12,198,540 11,611,315 587,225
b Legal 302,882 302,882
c Accounting 34,323 34,323
d Lobbying . .
e Professional fundraising services See Part IV, line 17
f Investment management fees . .
g Other (If line 11g amount exceeds 10 % of line 25,
column ( A) amount, list line 11g expenses on
Schedule O) 15,606,582 15,447,654 158,928
12 Advertising and promotion 667,480 3,730 663,750
13 Office expenses 6,473,966 6,326,188 147,778
14 Information technology
15 Royalties
16 Occupancy 5,308,286 4,436,605 871,681
17 Travel 26,753 22,835 3,918
18 Payments of travel or entertainment expenses for any federal,state, or local public officials
19 Conferences , conventions , and meetings 50,665 18,908 31,757
20 Interest 132,900 132,900
21 Payments to affiliates
22 Depreciation , depletion, and amortization 9,915,438 9,328,390 587,048
23 Insurance 339,223 261,136 78,087
24 Other expenses Itemize expenses not covered above (Listmiscellaneous expenses in line 24e If line 24e amount exceeds 10%of line 25, column ( A) amount, list line 24e expenses on Schedule 0
a Hospital Supplies 38,322,835 38,322,835
b Charity Care 17,421,256 17,421,256
c Bad Debts 17,052,465 17,052,465
d Sponsorship Expense 1 ,847,889 1,847,889
e All other expenses 2,897,194 2,745,334 151,860
25 Total functional expenses. Add lines 1 through 24e 192,569,622 187,454,081 5,115,541 0
26 Joint costs. Complete this line only if the organizationreported in column ( B) joint costs from a combinededucational campaign and fundraising solicitation Checkhere - fl if following SOP 98-2 (ASC 958-720)
Form 990 (2012)
Form 990 (2012 ) Page 11
Balance SheetCheck if Schedule 0 contains a response to any question in this Part X F
(A) (B)Beginning of year End of year
1 Cash-non-interest-bearing 3,965 1 3,965
2 Savings and temporary cash investments . . . . . . . . -672,568 2 -201,272
3 Pledges and grants receivable, net 3
4 Accounts receivable, net . . . . . . . . . . . . 15,162,008 4 16,214,979
5 Loans and other receivables from current and former officers, directors, trustees, keyemployees, and highest compensated employees Complete Part II ofSchedule L . .
5
6 Loans and other receivables from other disqualified persons (as defined under section4958(f)(1)), persons described in section 4958(c)(3)(B), and contributing employersand sponsoring organizations of section 501(c)(9) voluntary employees' beneficiaryorganizations (see instructions) Complete Part II of Schedule L
6
7 Notes and loans receivable, net 7
8 Inventories for sale or use 5,292,217 8 5,228,212
9 Prepaid expenses and deferred charges . 1,454,871 9 1,165,645
10a Land, buildings, and equipment cost or other basisComplete Part VI of Schedule D 10a 240,739,903
b Less accumulated depreciation . 10b 157,884,963 88,438,628 10c 82,854,940
11 Investments-publicly traded securities . 80,411,248 11 90,374,697
12 Investments-other securities See Part IV, line 11 12
13 Investments-program-related See Part IV, line 11 . 0 13 533,153
14 Intangible assets . . . . . . . . . . . . . . 14
15 Other assets See Part IV, line 11 469,441 15 628,424
16 Total assets . Add lines 1 through 15 (must equal line 34) . 190,559,810 16 196,802,743
17 Accounts payable and accrued expenses 20,577,870 17 22,549,022
18 Grants payable . . . . . . . . . . . . . . . . 18
19 Deferred revenue . . . . . . . . . . . . . . . 206,630 19 72,932
20 Tax-exempt bond liabilities . . . . . . . . . . . . 20
21 Escrow or custodial account liability Complete Part IV of Schedule D . 21
22 Loans and other payables to current and former officers, directors, trustees,key employees, highest compensated employees, and disqualified
persons Complete Part II of Schedule L . 22
23 Secured mortgages and notes payable to unrelated third parties 116,362 23 83,817
24 Unsecured notes and loans payable to unrelated third parties 24
25 Other liabilities (including federal income tax, payables to related third parties,and other liabilities not included on lines 17-24) Complete Part X of ScheduleD . 7,928,530 25 9,217,839
26 Total liabilities . Add lines 17 through 25 . 28,829,392 26 31,923,610
Organizations that follow SFAS 117 (ASC 958), check here 1- F and complete
4) lines 27 through 29, and lines 33 and 34.
C5 27 Unrestricted net assets 161,730,418 27 164,879,133
Mca 28 Temporarily restricted net assets 28
r29 Permanently restricted net assets 29
_Organizations that do not follow SFAS 117 (ASC 958), check here 1 andFW_complete lines 30 through 34.
30 Capital stock or trust principal, or current funds 30
31 Paid-in or capital surplus, or land, building or equipment fund 31
4T 32 Retained earnings, endowment, accumulated income, or other funds 32
33 Total net assets or fund balances 161,730,418 33 164,879,133z
34 Total liabilities and net assets/fund balances . . . . . . . 190,559,810 34 196,802,743
Form 990 (2012)
Form 990 (2012) Page 12
« Reconcilliation of Net Assets('hark if crhariiila () rnntainc a rocnnnca to anv niiactinn in Chic Part YT 7
1 Total revenue (must equal Part VIII, column (A), line 12) . .
2 Total expenses (must equal Part IX, column (A), line 25) . .
3 Revenue less expenses Subtract line 2 from line 1
4 Net assets or fund balances at beginning of year (must equal Part X, line 33, column (A))
5 Net unrealized gains (losses) on investments
6 Donated services and use of facilities
7 Investment expenses . .
8 Prior period adjustments . .
9 Other changes in net assets or fund balances (explain in Schedule 0)
10 Net assets or fund balances at end of year Combine lines 3 through 9 (must equal Part X, line 33,column (B))
1 192,947,200
2 192,569,622
3 377,578
4 161,730,418
5 3,380,164
6
7
8
9 -609,027
10 164 ,879,133
Financial Statements and Reporting
Check if Schedule 0 contains a response to any question in this Part XII F
Yes No
1 Accounting method used to prepare the Form 990 fl Cash 17 Accrual (OtherIf the organization changed its method of accounting from a prior year or checked "Other," explain inSchedule 0
2a Were the organization 's financial statements compiled or reviewed by an independent accountant? 2a
If'Yes,'check a box below to indicate whether the financial statements for the year were compiled or reviewed ona separate basis, consolidated basis, or both
fl Separate basis fl Consolidated basis fl Both consolidated and separate basis
b Were the organization 's financial statements audited by an independent accountant? 2b Yes
If'Yes,'check a box below to indicate whether the financial statements for the year were audited on a separatebasis, consolidated basis, or both
fl Separate basis F Consolidated basis fl Both consolidated and separate basis
c If"Yes,"to line 2a or 2b, does the organization have a committee that assumes responsibility for oversight of theaudit, review , or compilation of its financial statements and selection of an independent accountant? 2c Yes
If the organization changed either its oversight process or selection process during the tax year, explain inSchedule 0
3a As a result of a federal award, was the organization required to undergo an audit or audits as set forth in theSingle Audit Act and 0 MB Circular A-1 33? 3a
b If"Yes," did the organization undergo the required audit or audits? If the organization did not undergo the required 3baudit or audits , explain why in Schedule 0 and describe any steps taken to undergo such audits
No
No
Form 990 (2012)
Additional Data
Software ID:
Software Version:
EIN: 62 -0636239
Name : Methodist Medical Center
Form 990, Part VII - Compensation of Officers, Directors,Trustees, Key Employees, HighestCompensated Employees, and Independent Contractors
(A) (B) (C) (D) ( E) (F)Name and Title Average Position (do not check Reportable Reportable Estimated amount
hours more than one box, compensation compensation of otherper unless person is both from the from related compensationweek an officer and a organization (W- organizations (W- from the(list director/trustee) 2/1099-MISC) 2/1099-MISC) organization andany
-nrelated
hours f moo organizationsfor s 74 m
related C: 7+_
organizations ° o '°below -dotted =71 (D mline) a'
V
Anthony L Spezia0 00
President & CEOX X 0 1,526,847 230,374
50 00
Gerald Boyd0 00
DirectorX 0 679 0
1 00
Dr Richard Brinner0 00
DirectorX 0 1,291 0
1 00
Dr Mitchell Dickson0 00
DirectorX 0 1,914 0
1 00
Pamela P Fansler0 00
DirectorX 0 0 0
1 00
James Fitzsimmons0 00
DirectorX 0 1,742 0
1 00
Kimberly Greene0 00
DirectorX 0 937 0
1 00
Wayne Heatherly0 00
DirectorX 0 752 0
1 00
Jim Johnson Jr0 00
DirectorX 0 1,642 0
1 00
Karla Lane0 00
DirectorX 0 924 0
1 00
Eddie Mannis0 00
DirectorX 0 0 0
1 00
Larry Mauldin0 00
DirectorX 0 834 0
1 00
Dr Joseph Metcalf0 00
DirectorX 0 15,603 0
3 00
George Miller0 00
DirectorX 0 978 0
1 00
Alvin Nance0 00
DirectorX 0 966 0
1 00
Linda Ogle0 00
DirectorX 0 0 0
1 00
Mitchell Steenrod0 00
DirectorX 0 805 0
1 00
Carl Storms0 00
DirectorX 0 1,641 0
1 00
Joseph E Sutter0 00
DirectorX 0 1,313 0
1 00
Richard Swanson0 00
DirectorX 0 0 0
1 00
Joe Ben Turner0 00
DirectorX 0 783 0
1 00
David Verble0 00
DirectorX 0 958 0
1 00
John T Geppi0 00
EVP / CFOX 0 673,095 27,138
50 00
Michael R Belbeck Jr50 00
President & CAOX 0 386,592 34,819
0 00
Julie G Utterback50 00
VP - Financial ServicesX 153,252 0 31,229
0 00
Form 990, Part VII - Compensation of Officers, Directors,Trustees, Key Employees, HighestCompensated Employees, and Independent Contractors
(A) (B) (C) (D) (E) (F)Name and Title Average Position (do not check Reportable Reportable Estimated amount
hours more than one box, compensation compensation of otherper unless person is both from the from related compensationweek an officer and a organization (W- organizations (W- from the(list director/trustee) 2/1099-MISC) 2/1099-MISC) organization andany 0 ,o = T relatedhours -D ^ Z organizationsfor m o ?
related_
r.
organizations 2
^ te
below - Kdotted K mline)
Susan K Harris50 00
X 157,645 0 20,418VP - Chief Nursing Officer
0 00
Connie B Martin50 00
VP - Support ServicesX 115,749 0 19,516
0 00
Stephen E Ellis MD40 00
Medical DirectorX 209,875 0 26,397
0 00
Shane West50 00
Senior Medical PhysicistX 183,325 0 28,042
0 00
efile GRAPHIC p rint - DO NOT PROCESS As Filed Data - DLN: 93493316039773
SCHEDULE A Public Charity Status and Public SupportOMB No 1545-0047
(Form 990 or 990EZ)2012Complete if the organization is a section 501(c)( 3) organization or a section
Department of the Treasury 4947( a)(1) nonexempt charitable trust.
Internal Revenue Service► Attach to Form 990 or Form 990-EZ . ► See separate instructions.
Name of the organization Employer identification numberMethodist Medical Center
1 62-0636239
Reason for Public Charity Status (All organizations must complete this part.) See instructions.The organi zation is not a private foundation because it is (For lines 1 through 11, check only one box )
1 1 A church, convention of churches, or association of churches described in section 170(b)(1)(A)(i).
2 1 A school described in section 170(b)(1)(A)(ii). (Attach Schedule E )
3 F A hospital or a cooperative hospital service organization described in section 170(b)(1)(A)(iii).
4 1 A medical research organization operated in conjunction with a hospital described in section 170(b)(1)(A)(iii). Enter the
hospital's name, city, and state5 fl An organization operated for the benefit of a college or university owned or operated by a governmental unit described in
section 170(b)(1)(A)(iv ). (Complete Part II )
6 fl A federal, state, or local government or governmental unit described in section 170 ( b)(1)(A)(v).
7 1 An organization that normally receives a substantial part of its support from a governmental unit or from the general publicdescribed in section 170 ( b)(1)(A)(vi ). (Complete Part II )
8 1 A community trust described in section 170 ( b)(1)(A)(vi ) (Complete Part II )
9 1 An organization that normally receives (1) more than 331/3% of its support from contributions, membership fees, and gross
receipts from activities related to its exempt functions-subject to certain exceptions, and (2) no more than 331/3% of
its support from gross investment income and unrelated business taxable income (less section 511 tax) from businesses
acquired by the organization after June 30, 1975 See section 509( a)(2). (Complete Part III )
10 fl An organization organized and operated exclusively to test for public safety See section 509(a)(4).
11 1 An organization organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes ofone or more publicly supported organizations described in section 509 ( a)(1) or section 509(a)(2) See section 509(a)(3). Checkthe box that describes the type of supporting organization and complete lines Ile through 11 h
a fl Type I b 1 Type II c fl Type III - Functionally integrated d (- Type III - Non - functionally integrated
e (- By checking this box, I certify that the organization is not controlled directly or indirectly by one or more disqualified personsother than foundation managers and other than one or more publicly supported organizations described in section 509(a)(1 ) orsection 509(a)(2)
f If the organization received a written determination from the IRS that it is a Type I, Type II, orType III supporting organization,check this box (-
g Since August 17, 2006, has the organization accepted any gift or contribution from any of thefollowing persons?(i) A person who directly or indirectly controls , either alone or together with persons described in (ii) Yes No
and (iii) below, the governing body of the supported organization? 11g(i)
(ii) A family member of a person described in (i) above? 11g(ii)
(iii) A 35% controlled entity of a person described in (i) or (ii) above? 11g(iii)
h Provide the following information about the supported organization(s)
(i) Name of (ii) EIN (iii) Type of (iv) Is the (v) Did you notify (vi) Is the (vii) Amount ofsupported organization organization in the organization organization in monetary
organization (described on col (i) listed in in col (i) of your col (i) organized supportlines 1- 9 above your governing support? in the U S ?or IRC section document?
(seeinstructions))
Yes No Yes No Yes No
Total
For Paperwork Reduction Act Notice, see the Instructions for Form 990 or 990EZ . Cat No 11285F ScheduleA(Form 990 or 990-EZ)2012
Schedule A (Form 990 or 990-EZ) 2012 Page 2
MU^ Support Schedule for Organizations Described in Sections 170(b )( 1)(A)(iv) and 170 ( b)(1)(A)(vi)(Complete only if you checked the box on line 5, 7, or 8 of Part I or if the organization failed to qualify underPart III. If the organization fails to qualify under the tests listed below, please complete Part III.)
Section A. Public SupportCalendar year ( or fiscal year beginning (a) 2008 (b) 2009 (c) 2010 (d) 2011 (e) 2012 (f) Total
in) 111111 Gifts, grants, contributions, and
membership fees received (Do notinclude any "unusualgrants ")
2 Tax revenues levied for theorganization's benefit and eitherpaid to or expended on itsbehalf
3 The value of services or facilitiesfurnished by a governmental unit tothe organization without charge
4 Total .Add lines 1 through 3
5 The portion of total contributionsby each person (other than agovernmental unit or publiclysupported organization) included online 1 that exceeds 2% of theamount shown on line 11, column(f)
6 Public support . Subtract line 5 fromline 4
Section B. Total SupportCalendar year ( or fiscal year beginning (a) 2008 (b) 2009 (c) 2010 (d) 2011 (e) 2012 (f) Total
in) ►7 Amounts from line 4
8 Gross income from interest,dividends, payments received onsecurities loans, rents, royaltiesand income from similarsources
9 Net income from unrelatedbusiness activities, whether or notthe business is regularly carriedon
10 Other income Do not include gainor loss from the sale of capitalassets (Explain in Part IV )
11 Total support (Add lines 7 through10)
12 Gross receipts from related activities, etc (see instructions) 12
13 First five years. If the Form 990 is for the organization's first, second, third, fourth, or fifth tax year as a 501(c)(3) organization, checkthis box and stop here .ItE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section C. Com p utation of Public Support Percenta g e14 Public support percentage for 2012 (line 6, column (f) divided by line 11, column (f)) 14
15 Public support percentage for 2011 Schedule A, Part II, line 14 15
16a 331 / 3%support test-2012 . If the organization did not check the box on line 13, and line 14 is 33 1/3% or more, check this boxand stop here . The organization qualifies as a publicly supported organization
b 331/3%support test-2011 . If the organization did not check a box on line 13 or 16a, and line 15 is 33 1/3% or more, check thisbox and stop here . The organization qualifies as a publicly supported organization
17a 10%-facts-and -circumstances test -2012 . If the organization did not check a box on line 13, 16a, or 16b, and line 14is 10% or more, and if the organization meets the "facts-and-circumstances" test, check this box and stop here . Explainin Part IV how the organization meets the "facts-and-circumstances" test The organization qualifies as a publicly supportedorganization
b 10%-facts-and-circumstances test -2011 . If the organization did not check a box on line 13, 16a, 16b, or 17a, and line15 is 10% or more, and if the organization meets the "facts- and-circumstances" test, check this box and stop here.Explain in Part IV how the organization meets the "facts-and-circumstances" test The organization qualifies as a publiclysupported organization
18 Private foundation . If the organization did not check a box on line 13, 16a, 16b, 17a, or 17b, check this box and seeinstructions
Schedule A (Form 990 or 990-EZ) 2012
Schedule A (Form 990 or 990-EZ) 2012 Page 3
IMMITM Support Schedule for Organizations Described in Section 509(a)(2)(Complete only if you checked the box on line 9 of Part I or if the organization failed to qualify underPart II. If the organization fails to qualify under the tests listed below, please complete Part II.)
Section A . Public SupportCalendar year ( or fiscal year beginning (a) 2008 (b) 2009 (c) 2010 (d) 2011 (e) 2012 (f) Total
in) 111111 Gifts, grants, contributions, and
membership fees received (Do notinclude any "unusual grants ")
2 Gross receipts from admissions,merchandise sold or servicesperformed, or facilities furnished inany activity that is related to theorganization's tax-exemptpurpose
3 Gross receipts from activities thatare not an unrelated trade orbusiness under section 513
4 Tax revenues levied for theorganization's benefit and eitherpaid to or expended on itsbehalf
5 The value of services or facilitiesfurnished by a governmental unit tothe organization without charge
6 Total . Add lines 1 through 5
7a Amounts included on lines 1, 2,and 3 received from disqualifiedpersons
b Amounts included on lines 2 and 3received from other thandisqualified persons that exceedthe greater of$5,000 or 1% of theamount on line 13 for the year
c Add lines 7a and 7b
8 Public support (Subtract line 7cfrom line 6 )
Section B. Total SuuuortCalendar year ( or fiscal year beginning (a) 2008 (b) 2009 (c) 2010 (d) 2011 (e) 2012 (f) Total
in) ►9 Amounts from line 6
10a Gross income from interest,dividends, payments received onsecurities loans, rents, royaltiesand income from similarsources
b Unrelated business taxableincome (less section 511 taxes)from businesses acquired afterJune 30, 1975
c Add lines 10a and 10b
11 Net income from unrelatedbusiness activities not includedin line 10b, whether or not thebusiness is regularly carried on
12 Other income Do not includegain or loss from the sale ofcapital assets (Explain in PartIV )
13 Total support . (Add lines 9, 1Oc,11, and 12 )
14 First five years. If the Form 990 is for the organization's first, second, third, fourth, or fifth tax year as a 501(c)(3) organization,check this box and stop here
Section C. Computation of Public Support Percentage
15 Public support percentage for 2012 ( line 8, column (f) divided by line 13, column (f)) 15
16 Public support percentage from 2011 Schedule A, Part III, line 15 16
Section D . Com p utation of Investment Income Percenta g e
17 Investment income percentage for 2012 (line 10c, column (f) divided by line 13, column (f)) 17
18 Investment income percentage from 2011 Schedule A , Part III, line 17 18
19a 331 / 3%support tests-2012 . If the organization did not check the box on line 14, and line 15 is more than 33 1/3%, and line 17 is notmore than 33 1/3%, check this box and stop here . The organization qualifies as a publicly supported organization lk'F-
b 331 / 3%support tests-2011 . If the organization did not check a box on line 14 or line 19a , and line 16 is more than 33 1/3% and line 18is not more than 33 1/3%, check this box and stop here . The organization qualifies as a publicly supported organization lk'F-
20 Private foundation . If the organization did not check a box on line 14, 19a, or 19b, check this box and see instructions
Schedule A (Form 990 or 990-EZ) 2012
Schedule A (Form 990 or 990-EZ) 2012 Page 4
Supplemental Information . Complete this part to provide the explanations required by Part II, line 10;Part II, line 17a or 17b; and Part III, line 12. Also complete this part for any additional information. (Seeinstructions).
Facts And Circumstances Test
Explanation
Schedule A (Form 990 or 990-EZ) 2012
lefile GRAPHIC print - DO NOT PROCESS As Filed Data - DLN: 93493316039773
SCHEDULE D(Form 990)
Department of the Treasury
Internal Revenue Service
Name of the organizationMethodist Medical Center
OMB No 1545-0047
2012
Employer identification number
1 62-0636239Organizations Maintaining Donor Advised Funds or Other Similar Funds or Accounts . Complete if theorg anization answered "Yes" to Form 990 , Part IV , line 6.
(a) Donor advised funds ( b) Funds and other accounts
1 Total number at end of year
2 Aggregate contributions to (during year)
3 Aggregate grants from ( during year)
4 Aggregate value at end of year
5 Did the organization inform all donors and donor advisors in writing that the assets held in donor advisedfunds are the organization ' s property , subject to the organization ' s exclusive legal control? F Yes I No
6 Did the organization inform all grantees , donors, and donor advisors in writing that grant funds can beused only for charitable purposes and not for the benefit of the donor or donor advisor, or for any other purposeconferring impermissible private benefit? fl Yes fl No
MRSTI-Conservation Easements . Complete if the organization answered "Yes" to Form 990, Part IV, line 7.
1 Purpose ( s) of conservation easements held by the organization ( check all that apply)
1 Preservation of land for public use ( e g , recreation or education ) 1 Preservation of an historically important land area
1 Protection of natural habitat 1 Preservation of a certified historic structure
fl Preservation of open space
2 Complete lines 2a through 2d if the organization held a qualified conservation contribution in the form of a conservationeasement on the last day of the tax year
a Total number of conservation easements
b Total acreage restricted by conservation easements
c Number of conservation easements on a certified historic structure included in (a)
d Number of conservation easements included in (c) acquired after 8/17/06, and not on ahistoric structure listed in the National Register
Held at the End of the Year
2a
2b
2c
2d
3 N umber of conservation easements modified, transferred , released, extinguished , or terminated by the organization during
the tax year 0-
4 N umber of states where property subject to conservation easement is located 0-
5 Does the organization have a written policy regarding the periodic monitoring , inspection , handling of violations, andenforcement of the conservation easements it holds? fl Yes fl No
6 Staff and volunteer hours devoted to monitoring , inspecting , and enforcing conservation easements during the year
0-
7 Amount of expenses incurred in monitoring , inspecting , and enforcing conservation easements during the year
0- $
8 Does each conservation easement reported on line 2(d) above satisfy the requirements of section 170(h)(4)(B)(i)and section 170(h)(4)(B)(ii)? F Yes 1 No
9 In Part XIII, describe how the organization reports conservation easements in its revenue and expense statement, andbalance sheet, and include, if applicable, the text of the footnote to the organization's financial statements that describesthe organization's accounting for conservation easements
Organizations Maintaining Collections of Art, Historical Treasures, or Other Similar Assets.Complete if the oraanization answered "Yes" to Form 990. Part IV. line 8.
la If the organization elected, as permitted under SFAS 116 (ASC 958), not to report in its revenue statement and balance sheetworks of art, historical treasures, or other similar assets held for public exhibition, education, or research in furtherance of publicservice, provide, in Part XIII, the text of the footnote to its financial statements that describes these items
b If the organization elected, as permitted under SFAS 116 (ASC 958), to report in its revenue statement and balance sheetworks of art, historical treasures, or other similar assets held for public exhibition, education, or research in furtherance of publicservice, provide the following amounts relating to these items
(i) Revenues included in Form 990, Part VIII, line 1 $
(ii)Assets included in Form 990, Part X $
2 If the organization received or held works of art, historical treasures, or other similar assets for financial gain, provide thefollowing amounts required to be reported under SFAS 116 (ASC 958) relating to these items
a Revenues included in Form 990, Part VIII, line 1 $
b Assets included in Form 990, Part X $
For Paperwork Reduction Act Notice, see the Instructions for Form 990. Cat No 52283D Schedule D ( Form 990) 2012
Supplemental Financial Statements
0- Complete if the organization answered "Yes," to Form 990,Part IV, line 6, 7, 8, 9, 10, 11a, 11b, 11c, 11d, 11e, 11f, 12a, or 12b
0- Attach to Form 990. 0- See separate instructions.
Schedule D (Form 990) 2012 Page 2
r:FTnFW Organizations Maintaining Collections of Art, Historical Treasures, or Other Similar Assets (continued)
3 Using the organization's acquisition, accession, and other records, check any of the following that are a significant use of itscollection items (check all that apply)
a F_ Public exhibition d fl Loan or exchange programs
b 1 Scholarly research e (- Other
c F Preservation for future generations
4 Provide a description of the organization's collections and explain how they further the organization's exempt purpose inPart XIII
5 During the year, did the organization solicit or receive donations of art, historical treasures or other similarassets to be sold to raise funds rather than to be maintained as part of the organization's collection? 1 Yes 1 No
Escrow and Custodial Arrangements . Complete if the organization answered "Yes" to Form 990,Part IV, line 9, or reported an amount on Form 990, Part X, line 21.
la Is the organization an agent, trustee, custodian or other intermediary for contributions or other assets notincluded on Form 990, Part X7 1 Yes F No
b If "Yes," explain the arrangement in Part XIII and complete the following table
c Beginning balance 1c
d Additions during the year ld
e Distributions during the year le
f Ending balance if
A mount
2a Did the organization include an amount on Form 990, Part X, line 21? fl Yes fl No
b If"Yes," explain the arrangement in Part XIII Check here if the explanation has been provided in Part XI II . . . . . . . . F
MWAF-Endowment Funds . Com p lete If the org anization answered "Yes" to Form 990 , Part IV , line 10.
la Beginning of year balance .
b Contributions
c Net investment earnings, gains, and losses
d Grants or scholarships
e Other expenditures for facilitiesand programs
f Administrative expenses .
g End of year balance
(a)Current year (b)Prior year b (c)Two years back (d)Three years back (e)Four years back
660,463 702,930 715,206 724,481 851,056
279,801 199,562 232,442 260,401 267,989
10,369 12,167 7,606 4,744 10,291
118,250 249,832 249,656 269,842 400,497
12,178 4,364 2,668 4,578 4,358
820,204 660,463 702,930 715,206 724,481
2 Provide the estimated percentage of the current year end balance (line 1g, column (a)) held as
a Board designated or quasi-endowment 0- 15 740 %
b Permanent endowment 0- 42 310 %
c Temporarily restricted endowment 0- 41 950 %
The percentages in lines 2a, 2b, and 2c should equal 100%
3a Are there endowment funds not in the possession of the organization that are held and administered for theorganization by Yes No
(i) unrelated organizations . . . . . . . . . . . . . . . . . . . . . . . . 3a(i) No
(ii) related organizations . . . . . . . . . . . . . . . . . . . . . . 3a(ii) No
b If "Yes" to 3a(ii), are the related organizations listed as required on Schedule R? . . I 3b
4 Describe in Part XIII the intended uses of the organization's endowment funds
Land . Buildings . and Eauiument. See Form 990. Part X. line 10.
Description of property ( a) Cost or otherbasis (investment )
( b)Cost or otherbasis ( other)
( c) Accumulateddepreciation
( d) Book value
la Land 8,018,800 8,018,800
b Buildings 111 ,594,515 60,947,374 50,647,140
c Leasehold improvements 9,204,432 5,479,165 3,725,266
d Equipment 107,326,571 88,065,761 19,260,811
e Other 4,595,585 3,392,663 1,202,923
Total . Add lines 1a through 1 e (Column (d) must equal Form 990, Part X, column (B), line 10(c).) . . 0- 82,854,940
Schedule D (Form 990) 2012
Schedule D (Form 990) 2012 Page 3
Investments -Other Securities . See Form 990 , Part X , line 12.
(a) Description of security or category (b)Book value (c) Method of valuation(including name of security) Cost or end-of-year market value
(1 )Financial derivatives
(2)Closely-held equity interests
Other
Total . (Column (b) must equal Form 990, Part X, col (B) line 12 ) 0.1
Investments- Pro ram Related . See Form 990 , Part X , line 13.
(a) Description of investment typeI I
(b) Book value (c) Method of valuationCost or end-of-year market value
Total . (Column (b) must equal Form 990, Part X, col (8) line 13 ) 0. 1
OMVITK-Other Assets . See Form 990 , Part X line 15.
(a) DescriDtion (b) Book value
Total . (Column (b) must equal Form 990, Part X, co/.(8) line 15.) . 0.1
Other Liabilities . See Form 990 , Part X , line 25.
1 (a) Description of liability (b) Book value
Federal income taxes
Due to Affiliates, Net 3,266,387
Due to Third Party Payors 3,438,996
Long-term Deferred Compensation 483,796
Long-term Deferred Revenue 115,003
Lona-term Reserve for Workers Como 1.913.657
Total . (Column (b) must equal Form 990, Part X, col (B) line 25) P. I 9, 217,839
2. Fin 48 (ASC 740) Footnote In Part XIII, provide the text of the footnote to the organization's financial statements that reports theorganization's liability for uncertain tax positions under FIN 48 (ASC 740) Check here if the text of the footnote has been provided inPart XIII F
Schedule D (Form 990) 2012
Schedule D (Form 990) 2012 Page 4
Reconciliation of Revenue per Audited Financial Statements With Revenue
1 Total revenue, gains, and other support per audited financial statements
2 Amounts included on line 1 but not on Form 990, Part VIII, line 12
a Net unrealized gains on investments . 2a
b Donated services and use of facilities . 2b
c Recoveries of prior year grants 2c
d Other (Describe in Part XIII ) 2d
e Add lines 2a through 2d .
3 Subtract line 2e from line 1 . . . . . . . . . . . . . . . . . . . . .
4 Amounts included on Form 990, Part VIII, line 12, but not on line 1
a Investment expenses not included on Form 990, Part VIII, line 7b 4a
b Other (Describe in Part XIII ) . . . . . . . . . . 4b
c Add lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . .
5 Total revenue Add lines 3 and 4c. (This must equal Form 990. Part I. line 12 ) . .
1
2
a
b
c
d
e
3
4
a
b
c
5
74 Reconciliation of Expenses per Audited Financial Stateme nts With Exuenses
Total expenses and losses per audited financial statements
Amounts included on line 1 but not on Form 990, Part IX, line 25
Donated services and use of facilities 2a
Prior year adjustments 2b
Other losses 2c
Other (Describe in Part XIII 2d
Add lines 2a through 2d . . . . . . . . . . . . . . . .
Subtract line 2e from line 1 . . . . . . . . . . . . . . .
Amounts included on Form 990, Part IX, line 25, but not on line 1:
Investment expenses not included on Form 990, Part VIII, line 7b 4a
Other (Describe in Part XIII ) . . . . . . . . . . . 4b
Add lines 4a and 4b . . . . . . . . . . . . . . . . .
Total expenses Add lines 3 and 4c. (This must equal Form 990, Part I, line 18
r Return
1
2e
3
4c
5
3er Return
1
2e
3
4c
5
ff7rWYM Supplemental Information
Complete this part to provide the descriptions required for Part II, lines 3, 5, and 9, Part III, lines la and 4, Part IV, lines lb and 2b,Part V, line 4, Part X, line 2, Part XI, lines 2d and 4b, and Part XII, lines 2d and 4b Also complete this part to provide any additionalinformation
Identifier Return Reference Explanation
Description of Intended Use of Part V, Line 4 Methodist Medical Center Foundation maintains four (4)Endowment Funds permanent endowments for the purpose of providing a permanent
source of income for the following programs at MethodistMedical Center The Hospitality Houses, The Wellness Place,and The Jane Manly Quiet Room The principal of all fourpermanent endowments will be kept intact in perpetuity Onlythe income generated will be distributed to Methodist MedicalCenter to provide support for the aforementioned programs
Description of Uncertain Tax Part X, Line 2 Note B to the consolidated audited financial statements ofPositions Under FIN 48 Covenant Health, parent company to Methodist Medical Center,
reads in part "Income Taxes Covenant and certain of itssubsidiaries or controlled entities are exempt from income taxespursuant to Section 501(c)(3) of the Internal Revenue CodeAccordingly, no provision for income taxes on qualifyingactivities has been made for these entities in the accompanyingconsolidated financial statements However, certain entities andoperations are subject to income taxes which are accounted forin accordance with Financial Accounting Standards Board(FASB) Accounting Standards Codification (ASC) 740, IncomeTaxes (see Note G) " Note G reads in part "Covenant had nounrecognized tax benefits at December 31, 2012 and 2011 Assuch, no interest or penalties were recognized in theConsolidated Statements of Operations related to unrecognizedtax benefits At December 31, 2012, tax returns for 2009through 2012 are subject to examination by the InternalRevenue Service Covenant has no uncertain tax positions thatwould require financial statement recognition or disclosureunder generally accepted accounting principles at December31, 2012 or 2011 "
Schedule D (Form 990) 2012
l efile GRAPHIC print - DO NOT PROCESS As Filed Data - DLN: 93493316039773
SCHEDULE H HospitalsOMB No 1545-0047
(Form 990)201 21- Complete if the organization answered "Yes" to Form 990, Part IV, question 20.
Department of the Treasury 1- Attach to Form 990. 1- See separate instructions. OpenInternal Revenue Service
I Inspection
Name of the organization Employer identification numberMethodist Medical Center
62-0636239
Financial Assistance and Certain Other Community Benefits at CostYes No
la Did the organization have a financial assistance policy during the tax year? If "No," skip to question 6a la Yes
b If "Yes," was it a written policy? . . . . . . . . . . . . . . . . . . . . . . lb Yes
2 If the organization had multiple hospital facilities , indicate which of the following best describes application of thefinancial assistance policy to its various hospital facilities during the tax year
F Applied uniformly to all hospital facilities F Applied uniformly to most hospital facilities
r Generally tailored to individual hospital facilities
3 Answer the following based on the financial assistance eligibility criteria that applied to the largest number of theorganization ' s patients during the tax year
a Did the organization use Federal Poverty Guidelines ( FPG) as a factor in determining eligibility for providing free care?
If "Yes," indicate which of the following was the FPG family income limit for eligibility for free care 3a Yes
F 100% F 150% F 200% F Other %
b Did the organization use FPG as a factor in determining eligibility for providing discounted care? If "Yes ," indicate
which of the following was the family income limit for eligibility for discounted care 3b Yes
F 200% F 250% F 300% F 350% F 400% F Other %
c If the organization used factors other than FPG in determining eligibility, describe in Part VI the income basedcriteria for determining eligibility for free or discounted care Include in the description whether the organizationused an asset test or other threshold , regardless of income, as a factor in determining eligibility for free ordiscounted care
4 Did the organization ' s financial assistance policy that applied to the largest number of its patients during the tax yea rprovide for free or discounted care to the " medically indigent"? 4 Yes
5a Did the organization budget amounts for free or discounted care provided under its financial assistance policy duringthe tax year? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5a Yes
b If "Yes," did the organization ' s financial assistance expenses exceed the budgeted amount? 5b Yes
c If "Yes" to line 5b, as a result of budget considerations , was the organization unable to provide free or discountedcare to a patient who was eligibile for free or discounted care? 5c No
6a Did the organization prepare a community benefit report during the tax year? 6a Yes
b If "Yes," did the organization make it available to the public? 6b Yes
Complete the following table using the worksheets provided in the Schedule H instructions Do not submit theseworksheets with the Schedule H
7 Financial Assistance and Certain Other Community Benefits at Cost
Financial Assistance and (a) Number ofOb Persons ( c) Total communit y Od Direct offsetting (e) Net community benefit (f) Percent of
Means-Testedactivities or served benefit expense revenue expense total expense
Government Programsprograms(optional)
(optional)
a Financial Assistance at cost(from Worksheet 1) . 13,396,777 3,489,881 9,906,896 5 640 %
b Medicaid (from Worksheet 3,column a) . . . 35,903,281 24,097,470 11,805,811 6 730 %
c Costs of other means-testedgovernment programs (fromWorksheet 3, column b) 152,307 100,334 51,973 0 030 %
d Total Financial Assistanceand Means-TestedGovernment Programs 49,452,365 27,687,685 21,764,680 12 400 %
Other Benefitse Community health
improvement services andcommunity benefit operations(from Worksheet 4) . 141,233 750 140,483 0 080 %
f Health professions education(from Worksheet 5) . . 0 0
g Subsidized health services(from Worksheet 6) . 1,863,579 2,774 1,860,805 1 060 %
h Research (from Worksheet 7) 0 0
i Cash and in-kindcontributions for communitybenefit (from Worksheet 8) 123,379 0 123,379 0 070 %
j Total . Other Benefits . 2,128,191 3,524 2,124,667 1 210 0/6
k Total . Add lines 7d and 7j 51,580,556 27,691,209 23,889,347 13 610 0/6
For Paperwork Reduction Act Noticee see the Instructions for Form 990 . Cat N o 50192T Schedule H (Form 990) 2012
Schedule H (Form 990) 2012 Page
Community Building Activities Complete this table if the organization conducted any community buildingactivities during the tax year, and describe in Part VI how its community building activities promoted the healthof the communities it serves-
(a) Number ofactivities orprograms(optional)
(b) Personsserved (optional)
(c) Total communitybuilding expense
(d) Direct offsettingrevenue
(e) Net communitybuilding expense
(f) Percent oftotal expense
1 Ph y sical im p rovements and housin g 16,559 16,559 0 010 %
2 Economic development 23,122 23,122 0 010 %
3 Community su pp ort 16,597 16,597 0 010 %
4 Environmental improvements 0
5 Leadership development and trainingfor community members 2,499 2,499 0 %
6 Coalition building 0
7 Community health improvementadvocacy 0
8 Workforce development 1,395 1,395 0 %
9 Other 10,000 1 1 10,000 0 010 %
10 Total 70,172 1 1 70,172 0 040 %
Ill: Bad Debt , Medicare , & Collection PracticesSection A. Bad Debt Expense Yes No
1 Did the organization report bad debt expense in accordance with Heathcare Financial Management AssociationStatement No 15? . . . . . . . . . . . . . . . . . . . . 1 No
2 Enter the amount of the organization's bad debt expense Explain in Part VI themethodology used by the organization to estimate this amount 2 17,050,642
3 Enter the estimated amount of the organization's bad debt expense attributable topatients eligible under the organization's financial assistance policy Explain in Part VIthe methodology used by the organization to estimate this amount and the rationale, ifany, for including this portion of bad debt as community benefit 3 4,654,825
4 Provide in Part VI the text of the footnote to the organization's financial statements that describes bad debt expenseor the page number on which this footnote is contained in the attached financial statements
Section B. Medicare
5 Entertotal revenue received from Medicare (including DSH and IME) . 5 54,940,266
6 Enter Medicare allowable costs of care relating to payments on line 5 . 6 56,793,573
7 Subtract line 6 from line 5 This is the surplus (or shortfall) . 7 -1,853,307
8 Describe in Part VI the extent to which any shortfall reported in line 7 should be treated as community benefitAlso describe in Part VI the costing methodology or source used to determine the amount reported on line 6Check the box that describes the method used
r- Cost accounting system F Cost to charge ratio F Other
Section C. Collection Practices
9a Did the organization have a written debt collection policy during the tax year? .
b If "Yes," did the organization 's collection policy that applied to the largest number of its patients during the tax yearcontain provisions on the collection practices to be followed for patients who are known to qualify for financialassistance? Describe in Part VI 9b Yes. . . . . . . . . . . . . . . . . . . . . . .
MITUT Mananernent Comnanies and Joint VenturesrnvunPri ,n° nr mnra hvnfrarc rLrartnrc triictaac kavamnlnvaac and nhvananc-s inctrnrtinncl
(a) Name of entity (b) Description of primaryactivity of entity
(c) Organization'sprofit % or stockownership %
(d) Officers, directors,trustees, or key
employees' profit %or stock ownership
(e) Physicians'profit % or stockownership
1
2
3
4
5
6
7
8
9
10
11
12
13
Schedule H (Form 990) 2012
Schedule H (Form 990) 2012 Page
Facility Information
Section A. Hospital Facilities 5 s CD
(PCID {3
=2-, N
(list in order of size from largest to0 T
0 Cp
smallest-see instructions) CL o 0How many hospital facilities did the 5 (P -0 (organization operate during the tax year? P_ o
1
e3 ^
Name, address, and primary website addressn
- Other (Describe) Facility reporting group
1 Methodist Medical Center990 Oak Ridge Turnpike
X X XOak Ridge,TN 37830www mmcoakridge com
Schedule H (Form 990) 2012
Schedule H (Form 990) 2012 Page
Facility Information (continued)Section B. Facility Policies and Practices(Complete a separate Section B for each of the hospital facilities or facility reporting groups listed in Part V, Section A)
Methodist Medical Center
Name of hospital facility or facility reporting group
For single facility filers only: line Number of Hospital Facility (from Schedule H, Part V, Section A)
No
i Health Needs Assessment (Lines 1 through 8c are optional for tax years begining on or before March 23, 2012
During the tax year or either of the two immediately preceding tax years, did the hospital facility conduct a communityhealth needs assessment (CHNA)? If "No," skip to line 9 . . . . . . . . . . . . . . . . . . .
If"Yes," indicate what the CHNA report describes (check all that apply)
a F A definition of the community served by the hospital facility
b F Demographics of the community
c Existing health care facilities and resources within the community that are available to respond to the health needs ofthe community
d 1 How data was obtained
e 1 The health needs of the community
f Primary and chronic disease needs and other health issues of uninsured persons, low-income persons, and minoritygroups
9 F The process for identifying and prioritizing community health needs and services to meet the community health needs
h F The process for consulting with persons representing the community's interests
i F Information gaps that limit the hospital facility's ability to assess the community's health needs
j F Other (describe in Part VI)
2 Indicate the tax year the hospital facility last conducted a CHNA 20
3 In conducting its most recent CHNA, did the hospital facility take into account input from representatives of the communityserved by the hospital facility, including those with special knowledge of or expertise in public health? If"Yes," describe inPart VI how the hospital facility took into account input from persons who represent the community , and identify thepersons the hospital facility consulted . . . . . . . . . . . . . . . . . . . . 3
4 Was the hospital facility's CHNA conducted with one or more other hospital facilities? If"Yes," list the other hospitalfacilities in Part VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Did the hospital facility make its CHNA report widely available to the public? . . . . . . . . . . . . . 5
If"Yes," indicate how the CHNA report was made widely available ( check all that apply)
a 1 Hospital facility's website
b 1 Available upon request from the hospital facility
c 1 Other ( describe in Part VI)
6 If the hospital facility addressed needs identified in its most recently conducted CHNA, indicate how (check all that applyto date)
a r- Adoption of an implementation strategy that addresses each of the community health needs identified through theCHNA
b F Execution of the implementation strategy
c F Participation in the development of a community- wide plan
d F Participation in the execution of a community- wide plan
e F Inclusion of a community benefit section in operational plans
f F Adoption of a budget for provision of services that address the needs identified in the CHNA
g F Prioritization of health needs in its community
h F Prioritization of services that the hospital facility will undertake to meet health needs in its community
i F Other ( describe in Part VI)
7 Did the hospital facility address all of the needs identified in its most recently conducted CHNA? If"No," explain in Part VIwhich needs it has not addressed and the reasons why it has not addressed such needs . . . . . . 7
8a Did the organization incur an excise tax under section 4959 for the hospital facility's failure to conduct a CHNA asrequired by section 501( r)(3)? . . . . . . . . . . . . . . . . . . . . . . . . . 8a
b If "Yes" to line 8a, did the organization file Form 4720 to report the section 4959 excise tax? . . . . . . 8b
c If "Yes" to line 8b, what is the total amount of section 4959 excise tax the organization reported on Form 4720 for all of its
hospital facilities? $
Schedule H (Form 990) 2012
Schedule H (Form 990) 2012 Page
Facility Information (continued)
Financial Assistance Policy Yes No
9 Did the hospital facility have in place during the tax year a written financial assistance policy that
Explained eligibility criteria for financial assistance, and whether such assistance includes free or discounted care? 9 Yes
10 Used federal poverty guidelines (FPG) to determine eligibility for providing free care? . . . . . . . . . . . 10 Yes
If "Yes," indicate the FPG family income limit for eligibility for free care 200 000000000000 %
If "No," explain in Part VI the criteria the hospital facility used
11 Used FPG to determine eligibility for providing discounted care? . . . . . . . . . . . . . . . . . 11 Yes
If"Yes," indicate the FPG family income limit for eligibility for discounted care 300 000000000000 %
If "No," explain in Part VI the criteria the hospital facility used
12 Explained the basis for calculating amounts charged to patients? . . . . . . . . . . . . . . . . . 12 Yes
If"Yes," indicate the factors used in determining such amounts (check all that apply)
a F' Income level
b F' Asset level
c F' Medical indigency
d F' Insurance status
e F' Uninsured discount
f F' Medicaid/Medicare
g F' State regulation
h F' Other (describe in Part VI)
13 Explained the method for applying for financial assistance? . . . . . . . . . . . . . . . . . . . 13 Yes
14 Included measures to publicize the policy within the community served by the hospital facility? . . . . . . . 14 Yes
If"Yes," indicate how the hospital facility publicized the policy (check all that apply)
a 1 The policy was posted on the hospital facility's website
b 1 The policy was attached to billing invoices
c 1 The policy was posted in the hospital facility's emergency rooms or waiting rooms
d 1 The policy was posted in the hospital facility's admissions offices
e 1 The policy was provided, in writing, to patients on admission to the hospital facility
f F The policy was available upon request
g I Other (describe in Part VI)
Billing and Collections
15 Did the hospital facility have in place during the tax year a separate billing and collections policy, or a written financialassistance policy (FAP) that explained actions the hospital facility may take upon non-payment? . . . . . . . 15 Yes
16 Check all of the following actions against an individual that were permitted under the hospital facility's policies duringthe tax year before making reasonable efforts to determine the patient's eligibility under the facility's FA P
a F' Reporting to credit agency
b F' Lawsuits
c F' Liens on residences
d F' Body attachments
e F' Other similar actions (describe in Part VI)
17 Did the hospital facility or an authorized third party perform any of the following actions during the tax year beforemaking reasonable efforts to determine the patient's eligibility under the facility's FAP? . . . . . . . . . . 17 No
If"Yes," check all actions in which the hospital facility or a third party engaged
a F' Reporting to credit agency
b F' Lawsuits
c F' Liens on residences
d F' Body attachments
e FO ther similar actions (describe in Part VI)
Schedule H (Form 990) 2012
Schedule H (Form 990) 2012 Page
Facility Information (continued)
18 Indicate which efforts the hospital facility made before initiating any of the actions listed in line 17 (check all that apply)
a F Notified individuals of the financial assistance policy on admission
b F Notified individuals of the financial assistance policy prior to discharge
c F Notified individuals of the financial assistance policy in communications with the patients regarding the patients' bills
d F- Documented its determination of whether patients were eligible for financial assistance under the hospital facility'sfinancial assistance policy
e 1 Other (describe in Part VI)
Policy Relating to Emergency Medical Care
Yes No
19 Did the hospital facility have in place during the tax year a written policy relating to emergency medical care that requiresthe hospital facility to provide, without discrimination, care for emergency medical conditions to individuals regardless oftheir eligibility under the hospital facility's financial assistance policy? . . . . . . . . . . 19 Yes
If"No," indicate why
a 1 The hospital facility did not provide care for any emergency medical conditions
b 1 The hospital facility's policy was not in writing
c 1 The hospital facility limited who was eligible to receive care for emergency medical conditions (describe in Part VI)
d 1 Other (describe in Part VI)
Charges to Individuals Eligible for Assistance under the FAP (FAP-Eligible Individuals)
20 Indicate how the hospital facility determined, during the tax year, the maximum amounts that can be charged to FA P-eligible individuals for emergency or other medically necessary care
a F- The hospital facility used its lowest negotiated commercial insurance rate when calculating the maximum amounts thatcan be charged
b F- The hospital facility used the average of its three lowest negotiated commercial insurance rates when calculating themaximum amounts that can be charged
c 1 The hospital facility used the Medicare rates when calculating the maximum amounts that can be charged
d I Other (describe in Part VI)
21 During the tax year, did the hospital facility charge any FAP-eligible individuals to whom the hospital facility providedemergency or other medically necessary services, more than the amounts generally billed to individuals who had insurancecovering such care? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 No
If"Yes," explain in Part VI
22 During the tax year, did the hospital facility charge any FAP-eligible individuals an amount equal to the gross charge for anyservice provided to that individual? . . . . . . . . . . . . . . . . . . . . . . . . . 22 No
If"Yes," explain in Part VI
Schedule H (Form 990) 2012
Schedule H (Form 990) 2012 Page
Facility Information (continued)
Section C. Other Health Care Facilities That Are Not Licensed , Registered, or Similarly Recognized as aHospital Facility(list in order of size, from largest to smallest)
How many non-hospital health care facilities did the organization operate during the tax year?10
MMC Radiation Oncology Center102 Vermont AvenueOak Ridge,TN 37830
Methodist Diagnostic Center944 Oak Ridge TurnpikeOak Ridge,TN 37830
Oak Ridge Breast Center3rd Floor Cheyenne AmbulatoryCenterOak Ridge,TN 37830
Methodist Therapy991 Oak Ridge Turnpike
Physical, Occupational & Speech Therapy
5 Methodist Sleep Diagnostic Center Sleep Diagnostic Center990 Oak Ridge TurnpikeOak Ridge,TN 37830
6 MMC Wound Treatment Center Wound Care & Hyperbaric Oxygen Clinic160A West Tennessee AvenueOak Rid e TN 37830
7 MMC Healthworks Occupational Health ServicesSuite L-50 988 Oak Ridge TurnpikeOak Ridge,TN 37830
8 MMC Cardiac Rehab Center Cardiac RehabilitationSuite 360 Westmall Medical ParkOak Rid e TN 37830
9 The Wellness Place at Methodist Diabetes, Congestive Heart Failure, Chest Clinic160C West Tennessee AvenueOak Ridge,TN 37830
10 Methodist Physical Therapy-Lake City Physical Therapy110 Industrial Park LaneLake Citv.TN 37769
Radiation Therapy Center
Diagnostic Imaging and Lab Services
Breast Imaging Center
Schedule H (Form 990) 2012
Additional Data
Software ID:
Software Version:
EIN: 62 -0636239
Name : Methodist Medical Center
Form 990 Schedule H, Part V Section C. Other Facilities That Are Not Licensed, Registered, or SimilarlyRecognized as a Hospital Facility
Section C. Other Health Care Facilities That Are Not Licensed , Registered, or Similarly Recognized as aHospital Facility(list in order of size, from largest to smallest)
11-low many non-hospital health care facilities did the organization operate during the tax year?
ame and address Type of Facility (describe1 MMC Radiation Oncology Center Radiation Therapy Center
102 Vermont AvenueOak Ridge,TN 37830
2 Methodist Diagnostic Center Radiation Therapy Center944 Oak Ridge TurnpikeOak Ridge,TN 37830
3 Oak Ridge Breast Center Radiation Therapy Center3rd Floor Cheyenne AmbulatoryCenterOak Ridge,TN 37830
4 Methodist Therapy Radiation Therapy Center991 Oak Ridge TurnpikeOak Ridge,TN 37830
5 Methodist Sleep Diagnostic Center Radiation Therapy Center990 Oak Ridge TurnpikeOak Ridge,TN 37830
6 MMC Wound Treatment Center Radiation Therapy Center160A West Tennessee AvenueOak Ridge,TN 37830
7 MMC Healthworks Radiation Therapy CenterSuite L-50 988 Oak Ridge TurnpikeOak Ridge,TN 37830
8 MMC Cardiac Rehab Center Radiation Therapy CenterSuite 360 Westmall Medical ParkOak Ridge,TN 37830
9 The Wellness Place at Methodist Radiation Therapy Center160C West Tennessee AvenueOak Ridge,TN 37830
10 Methodist Physical Therapy-Lake City Radiation Therapy Center110 Industrial Park LaneLake City,TN 37769
efile GRAPHIC print - DO NOT PROCESS I As Filed Data - I DLN: 93493316039773
Schedule I OMB No 1545-0047
(Form 990 ) Grants and Other Assistance to Organizations,2012Governments and Individuals in the United States
Complete if the organization answered "Yes," to Form 990, Part IV, line 21 or 22.Department of the Treasury l Attach to Form 990Internal Revenue Service
Name of the organization Employer identification number
Methodist Medical Center62-0636239
General Information on Grants and Assistance
1 Does the organization maintain records to substantiate the amount of the grants or assistance, the grantees' eligibility for the grants or assistance, andthe selection criteria used to award the grants or assistance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F Yes 1 No
2 Describe in Part IV the organization's procedures for monitoring the use of grant funds in the United States
Grants and Other Assistance to Governments and Organizations in the United States . Complete if the organization answered "Yes" toForm 990, Part IV, line 21, for any recipient that received more than $5,000. Part II can be duplicated if additional space is needed.
(a) Name and address of (b) EIN (c) IRC Code section (d) Amount of cash (e) Amount of non- (f) Method of (g) Description of (h) Purpose of grantorganization if applicable grant cash valuation non-cash assistance or assistance
or government assistance (book, FMV, appraisal,other)
(1) Oak Ridge Chamber of 62-0572006Commerce1400 Oak Ridge TurnpikeOak Ridge,TN 37830
501(c)(6) 10,000 Millenium PartnershipProgram
2 Enter total number of section 501(c)( 3) and government organizations listed in the line 1 table . . 0
3 Enter total number of other organizations listed in the line 1 table . . . . . . . . 1
For Paperwork Reduction Act Notice, see the Instructions for Form 990 . Cat No 50055P Schedule I (Form 990) 2012
Schedule I (Form 990) 2012 Pa g e 2Grants and Other Assistance to Individuals in the United States . Complete if the organization answered "Yes" to Form 990, Part IV, line 22.Part III can be duplicated if additional space is needed.
(a)Type of grant or assistance (b)N umber of (c)A mount of (d)Amount of (e)Method of valuation (book, (f)Description of non-cash assistancerecipients cash grant non-cash assistance FMV, appraisal, other)
^ .I supplemental information.
Com p lete this p art to p rovide the information re q uired in Part I line 2 , Part III , column ( b ), and an y other additional information
Identifier Return Reference Explanation
Procedure for Monitoring Part I, Line 2 Schedule I, Part I, Line 2 Scholarship recipients must be graduating high school seniors pursuing a health-related careerGrants in the U S Applicants are required to provide a personal letter of objectives, provide ACT/SAT scores and a current GPA on a 4 0 scale,
two letters of recommendation and be accepted by an accredited college Students are then required to remain enrolled inschool during the scholarship period All requests for scholarships and contributions are monitored and approved by aSteering Committee (President and Vice-Presidents)
Schedule I (Form 990) 2012
(1) Educational Scholarships 6 15,000 n/a
(2) Transportation for patients 59 4,000 Cost
(3) Car Seats 4 259 Cost Purchased car seats for newborns beingdischarged from hospital
l efile GRAPHIC p rint - DO NOT PROCESS As Filed Data - DLN: 93493316039773
Schedule J Compensation Information OMB No 1545-0047
(Form 990)For certain Officers, Directors, Trustees, Key Employees, and Highest
2012Compensated Employees1- Complete if the organization answered "Yes" to Form 990,
Department of the Treasury Part IV, question 23. PublicOpen to
Internal Revenue Service 1- Attach to Form 990. 1- See separate instructions. Inspection
Name of the organizationMethodist Medical Center
Employer identification number
62-0636239
Questions Regarding Compensation
la Check the appropiate box(es ) if the organization provided any of the following to or for a person listed in Form990, Part VII, Section A, line la Complete Part III to provide any relevant information regarding these items
1 First-class or charter travel 1 Housing allowance or residence for personal use
1 Travel for companions 1 Payments for business use of personal residence
1 Tax idemnification and gross - up payments 1 Health or social club dues or initiation fees
1 Discretionary spending account 1 Personal services ( e g , maid, chauffeur, chef)
Yes I No
b If any of the boxes in line la are checked, did the organization follow a written policy regarding payment orreimbursement or provision of all of the expenses described above? If "No," complete Part III to explain lb
2 Did the organization require substantiation prior to reimbursing or allowing expenses incurred by all officers,directors, trustees, and the CEO/Executive Director, regarding the items checked in line la? 2 Yes
3 Indicate which , if any, of the following the filing organization used to establish the compensation of theorganization 's CEO/Executive Director Check all that apply Do not check any boxes for methodsused by a related organization to establish compensation of the CEO/Executive Director, but explain in Part III
1 Compensation committee 1 Written employment contract
1 Independent compensation consultant 1 Compensation survey or study
1 Form 990 of other organizations 1 Approval by the board or compensation committee
4 During the year, did any person listed in Form 990, Part VII, Section A, line la with respect to the filing organizationor a related organization
a Receive a severance payment or change-of-control payment? 4a No
b Participate in, or receive payment from, a supplemental nonqualified retirement plan? 4b Yes
c Participate in, or receive payment from, an equity-based compensation arrangement? 4c No
If "Yes" to any of lines 4a-c, list the persons and provide the applicable amounts for each item in Part III
Only 501 ( c)(3) and 501 ( c)(4) organizations only must complete lines 5-9.
5 For persons listed in Form 990, Part VII, Section A, line la, did the organization pay or accrue anycompensation contingent on the revenues of
a The organization? 5a No
b Any related organization? 5b No
If "Yes," to line 5a or 5b, describe in Part III
6 For persons listed in Form 990, Part VII, Section A, line la, did the organization pay or accrue anycompensation contingent on the net earnings of
a The organization? 6a No
b Any related organization? 6b No
If "Yes," to line 6a or 6b, describe in Part III
7 For persons listed in Form 990, Part VII, Section A, line la, did the organization provide any non-fixedpayments not described in lines 5 and 6? If "Yes," describe in Part III 7 No
8 Were any amounts reported in Form 990, Part VII, paid or accured pursuant to a contract that wassubject to the initial contract exception described in Regulations section 53 4958-4(a)(3)? If "Yes," describein Part III 8 No
9 If "Yes" to line 8, did the organization also follow the rebuttable presumption procedure described in Regulationssection 53 4958-6(c)? 9
For Paperwork Reduction Act Notice, see the Instructions for Form 990. Cat No 50053T Schedule 3 (Form 990) 2012
Schedule J (Form 990) 2012 Page 2
Officers , Directors , Trustees , Key Employees, and Highest Compensated Employees . Use duplicate copies if additional space is needed.For each individual whose compensation must be reported in Schedule J, report compensation from the organization on row (i) and from related organizations, described in theinstructions, on row (ii) Do not list any individuals that are not listed on Form 990, Part VIINote . The sum of columns (B)(1)-(iii) for each listed individual must equal the total amount of Form 990, Part VII, Section A, line la, applicable column (D) and (E) amounts for that individual
(A) Name and Title (B) Breakdown of W-2 and/or 1099-MISC compensation (C) Retirement and (D) Nontaxable (E) Total of columns (F) Compensation
(i) Base (ii) Bonus & (iii) Other other deferred benefits (B)(1)-(D) reported as deferred
compensationincentive reportable compensation in prior Form 990
compensation compensation
(1)Anthony L Spezia (i) 0 0 0 0 0 0 0President & CEO (ii) 941,953 379,600 205,294 213,800 16,574 1,757,221 0
(2)John T Geppi EVP / (i) 0 0 0 0 0 0 0CFO (ii) 421,940 171,991 79,164 9,800 17,338 700,233 0
(3)Michael R Belbeck Jr (i) 0 0 0 0 0 0 0President & CAO (ii) 281,367 58,400 46,825 9,800 25,019 421,411 0
- FiG vkVPVP Fnancciaall Se rvices 0) 131,681 12,000 9,571 6,273 24,956 184,481 0
(ii) 0 0 0 0 0 0 0
(5)Susan K Harris VP - 0) 127,916 5,000 24,729 6,349 14,069 178,063 0Chief Nursing Officer (ii) 0 0 0 0 0 0 0
(6)Stephen E Ellis MD 0) 186,262 20,000 3,613 12,213 14,184 236,272 0Medical Director (ii) 0 0 0 0 0 0 0
(7)Shane West Senior 0) 176,104 0 7,221 11,024 17,018 211,367 0Medical Physicist (ii) 0 0 0 0 0 0 0
Schedule 3 (Form 990) 2012
Schedule J (Form 990) 2012 Page 3
Supplemental InformationComplete this part to provide the information, explanation, or descriptions required for Part I, lines la, 1b, 3, 4a, 4b, 4c, 5a, 5b, 6a, 6b, 7, and 8, and for Part IIAlso complete this part for any additional information
Identifier Return Reference Explanation
Part I, Line la
Part I, Line 3 Part I, Line 3 Covenant Health, the parent company of Methodist Medical Center, used one or more of the methodslisted in establishing the compensation of Anthony L Spezia Please see the statement to Core Part VI, Section B,Line 15a on Schedule 0
Part I, Line 4b Part I, Line 4b Anthony Spezia was a participant in two nonqualified deferred compensation plans, which will bereferred to as Plan A and Plan B In 2011 Mr Spezia vested in Plan A, and the accumulated balance as of August 1,2011 was included in his 2011 taxable income An Amendment to Plan A was adopted effective August 1, 2011which terminated further accruals (contributions) to the plan However, the Amendment does allow the accrual ofinterest on undistributed amounts which will be subject to risk of forfeiture until such time as indicated in theAmendment Interest earned by Plan A in 2012 amounted to $71,781 22 and is not required to be reported in PartII, as Mr Spezia is not substantially vested in earnings accumulated after July 31, 2011 Plan B was established in2011 Employer contributions to Plan B during 2012 totaled $204,000, which is reported in Column C of ScheduleJ, Part II Interest earned by Plan B during 2012 of$17,909 59 is not required to be reported in compensation inPart II, as Mr Spezia is not substantially vested in Plan B
Schedule 3 (Form 990) 2012
efile GRAPHIC p rint - DO NOT PROCESS As Filed Data - DLN: 93493316039773
SCHEDULE 0OMB No 1545 0047
(Form 990 or 990-EZ) Supplemental Information to Form 990 or 990-EZ2012
Department of the Treasury Complete to provide information for responses to specific questions onForm 990 or to provide any additional information . Open
Internal Revenue Service1- Attach to Form 990 or 990-EZ. Inspection
Name of the organization Employer identification numberMethodist Medical Center
Identifier ReturnReference
Explanation
Organization Form 990, In 1996, Fort Sanders Health System and MMC Healthcare System of Oak Ridge consolidated to form CovenantMission Part III, Line Health, with a mission of serving its communities by improving the quality of life through better health CovenantStatement 1 Health is a nationally recognized top health syste m in many areas patient care, quality performance, cost,
integration, information technol ogy, finances, ethics and innovation To meet the challenges and implications ofhealthcar e reform, Covenant Health has committed to these imperatives * Serving the community as a not-for-profit health system * Leading in quality and service * Outstanding governance and leadership * An engagedwork force with the right skill sets * Being the practice en vironment of choice for physicians * Reinvesting incommunities, providing programs, serv ices, technologies and facilities that improve local healthcare services andpatient care Covenant Health has invested more than a billion dollars in its communities since 2000 - a commitmentno other healthcare organization has approached Covenant Health has opened n ew hospitals, expandedservices, and brought cutting-edge medical technology to the region * Meeting the challenges of the healthcareenvironment through effective strategic plann ing and wise use of resources * Providing excellent care to everypatient, every time Th is commitment to excellence w ill help the system accomplish its mission of improving the quality of life through better health In order to deliver on the promise of excellence in today's healthcareenvironment, preparation is critical Covenant Health's Board of Direct ors ("the Board") is committed to advancingits understanding of health care The Board is continually learning about hospitals' operational challenges and howthe current environment affects physicians and their practices The healthcare universe is constantly shiftingThe Board members are volunteers, but have a passion for Covenant Health's mission, and a desire to expand itsknowledge in preparation for leading the organization Dedication t o a shared goal is essential Very fewcommunity endeavors are as important as making high -quality health care available to its citizens Our patientsand their families are at vul nerable points in their lives, and the Board believes it is a privilege to meet their healthcare needs Experience is a valuable asset Covenant Health has a legacy of delivering h igh-quality care, whichw ill help to weather the storms of change, including transitioning to value-based reimbursement COVENANTHEALTH MEMBER ORGANIZATIONS AND SERVICES Covenant Health Board members and administrative leadersserve their communities through strategic planning and successful operation of these member organizationsHospitals and Other Healt hcare Providers Covenant Homecare and Hospice Fort Loudoun Medical Center FortSanders Pe rinatal Center Fort Sanders Regional Medical Center LeConte Medical Center Methodist Medic al Centerof Oak Ridge Morristown-Hamblen Healthcare System Parkwest Medical Center Penins ula Hospital, a Division ofParkwest Medical Center Roane County Medical Center Thompson C ancer Survival Center Thompson OncologyGroup Knoxville Heart Group Outpatient and Specialty Care Departments, and Joint Ventures Fort Sanders WestDiagnostic Center Fort Sanders West Outpatient Surgery Center Patricia Neal Rehabilitation Center PeninsulaOutpatient Ce nters Fort Sanders Sevier Nursing Home Foundations Fort Sanders Foundation Methodist Medi calCenter Foundation Morristown-Hamblen Hospital Foundation Thompson Cancer Survival Cent er FoundationBRINGING QUALITY CARE TO LOCAL COMMUNITIES Covenant Health delivers quality care, with servicesdesigned to meet the specific needs of people in the communities it se rves Seven acute care hospitals located inKnoxville and surrounding areas comprise the f oundation of the health system The hospitals offercomprehensive care, including emergenc y care, specialty services, and a full range of diagnostics and treatment,provided by boa rd-certified medical staffs Three Covenant Health hospitals - Fort Sanders Regional, Meth odist,and Parkwest Medical Centers, were named among the top 10 hospitals in Tennessee in 2013 by U S News andWorld Report, recognizing excellence in both overall and specialty care Several hospitals have been recognizedfor clinical accomplishments by VHA, Inc , a cooperative of non-profit healthcare organizations In 2013, thecommunity celebrated the opening of the new 50-bed Roane County Medical Center in Harriman The new hospitalbrings expanded medical services and sophisticated technology to the people of Roane County In addition tocomprehensive hospital services, Covenant Health provides * Innovative cancer care and technologies to deliverradiation therapy and other cancer treatment in Knox, Se vier, Anderson and Hamblen counties * Nationallyrecognized care for patients suffering from physical disabilities, stroke and traumatic br
Identifier ReturnReference
Explanation
Organization Form 990 , ain injury at Fort Sanders Regional Medical Center's Patricia Neal Rehabilitation Center * Affiliated physician clinicsMission Part III, Line throughout the region which offers convenient access to pri mary and specialty care * Rehabilitation servicesStatement 1 including physical therapy , speech ther apy, sports medicine, and specialized therapy such as hand therapy and
vestibular (balance) rehabilitation RACING AGAINST TIME AND DISTANCE IN STROKE CARE With Fort SandersRegion al Medical Center's "tele-stroke" robot, East Tennessee stroke patients can benefit from early consultationwith the hospital ' s stroke experts - regardless of where patients are located across the region Fort SandersRegional Medical Center ("Fort Sanders ") introduced robots to the region in 2012 The InTouch R7 robot is a mobilecommunications platform that enables stroke patients to receive consults from Fort Sanders' neurologists via itsvide o screen "face " The robot allows neurologist's availability to patients in outlying areas 24 hours a dayCovenant Health stationed its first two robots in the emergency departmen is at Parkwest Medical Center inKnoxville and LeConte Medical Center in Sevierville The telestroke network allows physicians in surroundinghospitals to use live Web video stream ing to consult with Fort Sanders Stroke Center neurologists as soon as apatient arrives a t the community hospital The neurologist can remotely review patient information and exam ineand talk with the patient , family members and local clinicians to help determine the b est course of treatment, all atthe patient's bedside A STROKE CENTER OF EXCELLENCE Fort Sanders is a Stroke Center of Excellence, and theonly facility in the region to hold both a Comprehensive Stroke Center certification from the Joint Commission andthree separate stroke accreditations from the Commission on the Accreditation of Rehabilitation Facilities FortSanders has a team of experts available to treat patients 24 hours a day, seven da ys a week The stroke teamincludes emergency room physicians , neurologists, neurosurgeons , neurointerventional radiologists, nurses andtherapists who quickly diagnose patients an d use the most technically advanced methods available to removeclots, repair broken arter ies that cause strokes, and restore blood flow to the brain
Identifier ReturnReference
Explanation
TAVR - CHARTING NEW DIRECTIONS IN HEART CARE In 2012, Parkwest Medical Center ("Parkwest") performed itsfirst trans catheter aortic valve replacement (TAVR) procedure Parkwest is the first hospital in the area to offerTAVR as a minimally invasive procedure to help men and women with the progressive, life-threatening conditionknown as aortic stenos is With in the first year, the TAVR team of physicians from Parkwest and Fort SandersRegional Medical Centers performed surgery for nearly 60 people who were deemed inoperable for traditi onalopen-heart surgery The patients received new heart valves via a catheter tube insert ed either into the femoralartery or through the rib cage Recovery is markedly shorter th an traditional open-heart surgery In most cases thepatients were discharged from the hos petal within three to six days An important aspect of TAVR is its multi-disciplinary appr oach The TAVR team includes physicians specializing in cardiovascular and cardiothoracicsurgery, interventional cardiology, and cardiac anesthesiology, as well as nurses and tech nicians with specializedtraining The operating room used for TAVR procedures at Parkwest is also multi-disciplinary in design The $2 6million hybrid operating room combines the resources of a cardiac catheterization lab and an operating room,including the imaging e quipment needed for minimally invasive procedures ACHIEVING QUALITY THROUGHPARTNERSHIPS WITH PHYSICIANS Overall, Covenant Health's desire for alignment is driven by the need to f ullyevolve as a healthcare system In pursuing its goal of outstanding quality and seamle ss continuum of care, CovenantMedical Management, Inc (CMM), a for-profit entity in the Covenant Health system, has developed models withphysicians that include both employment and joint ventures CMM provides practice management services andsupport to over 120 prim ary care and specialty physicians in more than 60 practices in East Tennessee CMMrecentl y added Southern Medical Group and Family Care Specialists to its employed physician group s that include "Cardiology Associates of East Tennessee * Crossville Medical Group * For t Sanders Women's Specialists *Tennessee Brain and Spine CMM also acquired a new, separat e corporation, East Tennessee CardiovascularSurgery Group, in 2012 Prior to joining the Covenant Health system, the surgeons in this practice served as theprimary cardiac surgeo ns for Fort Sanders Regional, Methodist, and Parkwest Medical Centers and worked in the system's Valve Centers and TAVR program BEHAVIORAL HEALTH - A COMMITMENT TO ESSENTIAL SERVI CES In2012, Peninsula, a division of Parkwest Medical Center, faced an unprecedented chal lenge Lakeshore, a state-funded mental health institute, would be closing its doors for g ood, and the majority of patients would funnel intoPeninsula Hospital The closing was a strategic move by the state Department of Mental Health to follow the nationaltrend of mo ving behavioral health toward community-based care and away from state-funded care With a multi-professional team made up of experienced people from across the continuum of mental health care, Peninsula laidout a plan to accommodate the influx of hospital admissions, reduce costs, and improve the quality of care for mentalhealth patients The team was cha Ilenged by not only having more patients, but patients with serious and complexmental dis orders Changes in staffing and processes helped create a smooth admission process and imp rovementof service On average, Peninsula serves about a dozen more inpatients per day si nce Lakeshore closed Even withthe additional volume, Peninsula has been able to increase its customer satisfaction score and maintain or improve itsperformance in safety quality measures Many of the changes which resulted in taking the patients from Lakeshoretransl ated to better service For example, a process was developed to assess and enroll the pate ents in CoverRX,the state-funded program for prescription coverage Patients have benefit ed by increased collaborative effortswithin the community such as regular meetings with a community providers group including representatives fromlocal law enforcement, hospital emergency departments, mobile crisis, and a state mental health facility The groupworks on the continuum of services for behavioral health patients in the area Peninsula partici pates in the CrisisIntervention Training (CIT) for officers from the surrounding areas' police and sheriff's offices The training facilitatesunderstanding about mental illness, and when that happens, patients benefit A partnership with the State ofTennessee brought improvements to the community based care of mental health patients, such as transportatio n andmedications As a result, more outpatients are keeping their first appointments, and there are a lower number ofreadmissions In addition to the 155-bed inpatient psychiatri c hospital in Blount County, Peninsula also has ou
Identifier ReturnReference
Explanation
tpatient facilities in Knox, Blount, Loudon and Sevier counties SETTING THE STANDARD FOR TECHNOLOGY Therecently enacted American Recovery and Reinvestment Act includes incentives and penalties designed to accelerateour nation's adoption and "meaningful use" of electr onic health records, ("EHRs") The implementation of meaningfuluse initiatives is changin g the way healthcare is delivered not only at Covenant Health, but also across Tennessee,and throughout the U S With widespread adoption, EHRs can * make a patient's current hea Ith information availablein a single, secure, shared record, * provide real-time decision support designed to hardw ire best practices andreduce care variability, * reduce paperwo rk, duplicate testing and other inefficiencies Meaningful Use provides thetechnology inf restructure and electronic applications to connect care settings, reduce costs, improve efficiencyand standardize quality From 2015 forward, for every year that meaningful use re quirements are not met, providersw ill receive penalties in the form of reduced reimbursem ent At Covenant Health, interdisciplinary andmultidisciplinary operational teams have be en involved in developing and implementing applications and processesrelated to the main components of Meaningful Use * E-prescription writing, and computerized patient order ent ry, "Interoperability, or exchanging key clinical information among providers and patients, *Automated quality reportingThrough Meaningful Use initiatives Covenant Health will transform the way it delivers care by improving patientoutcomes, clinical quality, patien t safety and organizational effectiveness Covenant Health has installed a recordnumber o f applications related to Meaningful Use Seven initiatives ranging from admission databas es andmedication reconciliation (important for patient safety) to computerized patient or der entry and physician practicemanagement software took place in 2012 and continued in 2 013 The successful installation of multiple applicationsin a one-year period is unpreced ented in the IT world Quality assurance processes are in place to ensure deliveryof the best applications and processes for patient care, clinical quality, and patient safety
Identifier ReturnReference
Explanation
"MOST WIRED' Hospitals & Health Networks magazine, the journal of the American Hospital As sociation, has namedCovenant Health among the nation ' s Most Wired healthcare organization s in the 15th annual Most Wired Survey andBenchmarking Study It is the 10th time that Co venant Health has been named to the Most Wired list AlthoughCovenant has been named amon g the nation's Most Wired many times, the health systems that made the list in recentyear s have had to meet the demands of a more stringent analytic structure The Most Wired surv ey includesquestions about IT initiatives that support Meaningful Use requirements It me asures IT achievements in four focussections infrastructure , business and administrative management , clinical quality and safety (hospitalinpatient/outpatient ) and clinical integration ( ambulatory/physician/community) Participating organizations must meetspecific c riteria for each section in order to be named Most Wired " Most Wired surveys were comple ted by 659healthcare organizations representing 1,713 hospitals , or roughly 30 percent of all U S hospitals PHILANTHROPYTURNS CHALLENGE INTO OPPORTUNITY The Covenant Health Off ice of Philanthropy coordinates the philanthropiccontributions of individuals and busines ses throughout East Tennessee and beyond in support of health care in theregion Fund rai sing efforts are led by volunteer boards and staff at four foundations Fort Sanders Found ation,Methodist Medical Center Foundation, Morristown- Hamblen Hospital Foundation , and Thompson Cancer SurvivalCenter Foundation When Fort Sanders Health Systems created its first fund raising office , Fort Sanders Foundation,in the mid-1970s to raise funds to suppo rt Fort Sanders Regional Medical Center, it was a progressive move for ahealth care provi der Fund raising was not a need, but more in the category of 'nice to have ' This status haschanged in today's era of healthcare reform Financial resources have tightened and ho spitals look to the communityfor charitable contributions that are now very much in the ' need to have' category if they are to continue to meet thehealthcare needs of the people of East Tennessee During the past year these foundations received contributions ofapprox imately $ 3 7 million to help provide new equipment and facilities at the hospitals, staff training and patient careprograms While the Office of Philanthropy staff coordinates community events and fund raisers, local communityleadership and involvement is critical to fund raising success In an effort to expand the cadre of informed volunteerleaders in th e community, the Office of Philanthropy launched a new education program this year, Covena ntAnswers A Healthcare Leadership Academy Inaugural Academy participants included repre sentatives from theboards of Covenant Health , and Fort Sanders and TCSC foundations Futu re Leadership Academy classes willinclude business and community representatives from thr oughout Covenant Health's service area Over a five-monthperiod , class members attended h alf -day sessions at five Covenant hospitals, which included behind-the-scenestours and ha nds-on access to the latest technologies and treatments Participants discussed the challe nges of thecurrent health care environment with Covenant physicians and clinicians, heard firsthand from patients whoserecovery hinged on the excellent care provided at our hospi tals , and even tried their hands at using adaptive rehabequipment and maneuvering a surge cal robot IMPROVING HEALTH BEYOND HOSPITAL WALLS One of the greatestchallenges facing a healthcare organization is not only caring for the patients and families who receive direc tservices , but making a positive impact in the health of the surrounding community That is the mission of CovenantHealth reaching beyond hospital walls to improve the quality o f life through better health In all the communitiesCovenant Health serves, local initiat ives and partnerships create opportunities to interact with people of all ages andencoura ge healthier lifestyles * In Knoxville more than 7,000 people participated in the annual Covenant HealthKnoxville Marathon , which attracted local runners and hand cyclists, as we II as competitors from throughout theU S and other countries * The Covenant Health Bigg est Winner Weight Loss Challenge is a friendly competition thatencourages East Tennessean s to get off the couch and get moving for a fit and healthy lifestyle Team memberstrain together for five months , with the goal of crossing the finish line in Covenant Health Kno xville Marathon eventsParticipants challenge other East Tennesseans to start a health jo urney that will change their lives for the better "Some of the funds raised through the Covenant Health Knoxville Marathon were contributed to The Patricia NealRehabilitation Ce nter's Innovative Recreation Cooperative , a collaboration of groups and individuals who he Ipdisabled persons enjoy leisure and recreation a
Identifier ReturnReference
Explanation
ctivities such as water skiing and cycling * The Covenant Kids Run attracted over 1,000 children who participated ina "marathon" of activities over a period of several weeks, cul minating in a run to Neyland Stadium on the day beforethe Covenant Health Knoxville Marat hon * Covenant Health was the fitness sponsor of the Dogwood Arts Festival,held annually in April Fitness activities included several outdoor walks, "Bikes and Blooms" bike rides on localDogwood trails, and a Dogwood Mile run and Kids Race held in downtown Knoxville * Covenant HomeCare Hospicehelps children grieving the loss of a loved one through Kate rpillar Kids Camp, offered with the support of Variety-The Children's Charity The camp is staffed by health system volunteers and helps children in grades 1-12 expresstheir feeli ngs in a supportive environment while enjoying camp activities * Morristown-Hamblen's Wel Iness ofWomen is dedicated to improving the lives of area women and their families Thep rogram sponsors events such asan annual Girls Night Out, which offers free health screeni ngs and encourages women to have fun while learning tostay healthy UNCOMPENSATED CARE On e of the most tangible expressions of the charitable purpose of CovenantHealth is provide ng care to people in need As a not-for-profit system, Covenant Health provides medicallynecessary services to people with limited resources Covenant Health actively participates in the state's TennCareprogram, and collaborates with other area providers to identify a nd support efforts to make community healthcareresources available for those in need The Community Benefit totals for uncompensated care are included on theForms 990 for the end ividual Covenant Health hospitals
Identifier ReturnReference
Explanation
Form 990, Part Part VI, Section B, Line 11 Covenant Health is a large, integrated health system which files twelve Forms 990VI, Section B, Methodist Medical Center is one of those twelve entitites Annually, at the September Finance Committee meeting,line 11 one of the twelve 990s is selected (a different entity each year) for distribution to each member of the Committee
Management then reviews in detail each of the Form 990 schedules and describes variances between entities, ifany The remaining eleven Forms are made available for review by any committee member The same presentationis made to the Covenant Health Board of Directors at the October meeting All twelve Forms 990 are then madeavailable to all Board members for their review throughout the month of October
Identifier ReturnReference
Explanation
Form 990, Board members, officers and employees are required to adhere to rules and policies regarding conflicts of interestPart VI, Covenant Health, the parent company of the organization, distributes a Board-approved Code of Conduct to allSection B, employees The Code covers among other subjects, conflicts of interest Additionally managers are required toline 12c complete and sign an annual management certification that addresses conflicts of interest Board members' conflicts
of interests are dealt with in the corporate bylaws and Board members are required to complete and sign a conflictof interest questionnaire on an annual basis The Integrity Compliance Office maintains records that contain conflictof interest information obtained from Board members, officers and employees These records are available to bequeried prior to engaging in business transactions The Integrity Compliance Officer initially reviews all conflict ofinterest data Based on this information, the officer determines what conflicts of interest exist at that point in timeBetween times when surveys are collected Board members are expected to disclose any new conflicts that havearisen that affect pending Board decisions As well, managers and other employees are expected to reportconflicts to the Integrity Compliance Officer as they arise Depending on the nature of the conflict and thecircumstances surrounding the conflict and transaction, the Integrity Compliance Officer, Senior Leadership, or theBoard of Directors may review the conflict of interest Where appropriate these bodies may also consult legalcounsel Restrictions imposed on persons with a conflict of interest are determined on a case by case basis ForCovenant Health employees, the Integrity Compliance Officer, in conjunction with Executive Leadership determineshow to appropriately handle the conflict In any conflict involving a Board member, such member is expected toexcuse himself or herself from voting on matters that give rise to the conflict
Identifier ReturnReference
Explanation
Form 990, Form 990, Part VI, Section B, Line 15a Overall compensation policies for Methodist Medical Center, Covenant HealthPart Vl, (Parent Company), and affiliates are set by the Compensation Committee of the Board of Directors, which isSection B, comprised of independent members of the Board The Committee is guided in its decision-making process by anline 15 independent, nationally-recognized executive compensation consultant experienced in advising nonprofit hospital
boards Compensation policies for Anthony Spezia and John Geppi are reported on the 2012 Form 990 of CovenantHealth, EIN 62-1646734, parent company of Methodist Medical Center Form 990, Part VI, Section B, Line 15b Basesalary and annual bonus opportunities for Michael Belbeck, President/CAO, are set by the Covenant Health CEO orExecutive Vice President-Human Resources, subject to approval of the Compensation Committee of the CovenantHealth Board of Directors ("the Committee"), after review by and discussion with the executive compensationconsultant ("the consultant") to ensure that total compensation is reasonable and within a fair market value rangeSalary ranges are based upon the recommendations of the consultant made after comparison with similar jobs insimilar size health systems across the nation Bonuses are recommended by the CEO and approved by theCommittee conditioned upon receipt of a written opinion fromthe consultant that total compensation is reasonableand consistent with fair market value Base salary is initially targeted at midpoint and varies according to theindividual's experience, market conditions and competition Annual bonuses are designed to award 0-35% of basesalary based upon system performance and accomplishment of certain targets established by the CEO Base salaryand annual bonus opportunities for Julie Utterback, VP-Financial Services, are based on established targets toinsure that total compensation is reasonable and within a fair market value range Salary ranges are based uponcomparison with similar jobs in similar size health systems across the nation Base salary and bonuses areapproved by Executive Leadership predicated upon performance, and are reasonable and consistent with fairmarket value Base salary is initially targeted at midpoint and varies according to the individual's experience, marketconditions and competition Annual bonuses are designed to award 0-20% of base salary based upon systemperformance and accomplishment of certain targets established by Executive Leadership
Identifier ReturnReference
Explanation
Form 990, Part Form 990, Part VI, Section C, Line 19 Per its tax exempt bond provisions, the parent company, Covenant Health,VI, Section C, is required to file quarterly and annual consolidated and obligated group financial statements in addition to otherline 19 documentation, with various bond insurers and other agencies, including the Electronic Municipal Market Access,
EMMA web site Any member of such a repository has access to these financial statements In addition,Methodist Medical Center files a Joint Annual Report containing financial information with the TennesseeDepartment of Health
Identifier Return ExplanationReference
Contact addresses Form 990 , Part Anthony L Spezia Covenant Health 100 Fort Sanders West Blvd Knoxville , TN 37922 John T Geppi,for Officers , VI,Section A, Larry Mauldin and all Directors Covenant Health 1420 Centerpoint Blvd, Bldg C Knoxville , TN 37932 AllDirectors, etc Line 9 other persons listed in Part VII , Section A may be contacted at the organization's address, which is
Methodist Medical Center 990 Oak Ridge Turnpike Oak Ridge , TN 37830
Identifier ReturnReference
Explanation
Form 990, Part Methodist Medical Center (MMC) entered into a partnership agreement with Oak Ridge Healthcare Associates, LLCVI, Section B, (ORHA) on October 15, 2010 for the purpose of developing, owning, and operating an assisted living communityLine 16b in Oak Ridge, TN When complete, ORHA will be the managing partner of the assisted living community This joint
venture is insignificant when compared to MMC's overall operations The transaction, as well as any joint ventureentered into by the hospital, is reviewed by executive management and legal counsel The facility is not completeand is currently not generating any revenues When operations commence all revenue will be monitored todetermine whether it creates unrelated business income for the hospital and will be reported accordingly
Identifier Return Reference Explanation
Changes in Net Assets or Fund Balances Form 990, Part XI, line 9 Forgiveness of Affiliate Receivables -609,027
Identifier Return Reference Explanation
Form 990, Part XII,Line 2C
The Finance Committee of the Board of Directors assumes responsibility for oversight of the audit of theconsolidated financial statements and selection of an independent accountant
jefile GRAPHIC print - DO NOT PROCESS
SCHEDULE R(Form 990)
Department of the Treasury
Internal Revenue Service
As Filed Data -
Related Organizations and Unrelated Partnerships
1- Complete if the organization answered "Yes" to Form 990, Part IV, line 33, 34, 35, 36, or 37.1- Attach to Form 990. 1- See separate instructions.
DLN:93493316039773
OMB No 1545-0047
2012
Name of the organization Employer identification numberMethodist Medical Center
62-0636239
Identification of Disregarded Entities (Complete if the organization answered "Yes" to Form 990, Part IV, line 33.)
(a)Name, address, and EIN (if applicable) of disregarded entity
(b)Primary activity
(c)Legal domicile (stateor foreign country)
(d)Total income
(e)End-of-year assets
(f)Direct controlling
entity
(1) MMC Healthworks LLC988 Oak Ridge Turnpike Ste L-50Oak Ridge, TN 3783002-0712412
Occupational health TN 946,447 190,523 Methodist Medical Center
Identification of Related Tax-Exempt Organizations (Complete if the organization answered "Yes" to Form 990, Part IV, line 34 because it had oneor more related tax-exempt organizations during the tax year.)
(a)Name, address, and EIN of related organization
( b)Primary activity
(c)Legal domicile (stateor foreign country)
(d)Exempt Code section
(e)Public charity status
(if section 501(c)(3))
(f)Direct controlling
entity
(g)Section 512(b)(13) controlled
entity?
Yes No
See Additional Data Table
For Paperwork Reduction Act Notice, see the Instructions for Form 990. Cat No 50135Y Schedule R (Form 990) 2012
Schedule R (Form 990) 2012 Page 2
Identification of Related Organizations Taxable as a Partnership (Complete if the organization answered "Yes" to Form 990, Part IV, line 34because it had one or more related organizations treated as a partnership during the tax year.)
(a) (b) (c) (d) (e) (f) (g) (h) (i) 0) (k)Name, address, and EIN of Primary activity Legal Direct Predominant Share of Share of Disproprtionate Code V-UBI General or Percentage
related organization domicile controlling income(related, total income end-of-year allocations? amount in managing ownership(state or entity unrelated, assets box 20 of partner?foreign excluded from Schedule K-1country) tax under (Form 1065)
sections 512-514)
Yes No Yes No
(1) Endoscopy Center of Oak Ridge LLC Outpatient TN N/Amedical facility
988 Oak Ridge Turnpike Ste 200Oak Ridge, TN 3783062-1667358
(2) Fort Sanders West OP Surgery Center Outpatient TN N/ALLC surgery center
210 Fort Sanders West Blvd Ste 106Knoxville, TN 3792262-1366907
(3) Fort Sanders West Associates Building TN N/Aownership
280 Fort Sanders West Blvd Ste 214Knoxville, TN 3792262-1384171
(4) Assc of the Meridian Health OP Outpatient TN N/ASurgery Ctr LLC surgery center
908 W 4th North StMorristown, TN 3781486-1167487
(5) KOSC Properties LLC Building TN N/Aownership
260 Ft Sanders W Blvd Ste 200Knoxville, TN 3792226-2444076
(6) Knoxville Orthopaedic Surgery Center Orthopaedic TN N/ALLC surgery
260 Ft Sanders W Blvd Ste 200Knoxville, TN 3792226-2437385
Identification of Related Organizations Taxable as a Corporation or Trust (Complete if the organization answered "Yes" to Form 990, Part IV,line 34 because it had one or more related organizations treated as a corporation or trust during the tax year.)
(a) (b) (c) (d) (e) (f) (g) (h) (i)Name, address, and EIN of Primary activity Legal Direct controlling Type of entity Share of total Share of end- Percentage Section 512
related organization domicile entity (C corp, S corp, income of-year ownership (b)(13)(state or foreign or trust) assets controlled
country) entity?
Yes No
(1) Fortress Corporation Management company N/A C No
280 Ft Sanders West Blvd SteTN
214Knoxville, TN 3792262-1308885
(2) Covenant Medical Physician practice N/A C NoManagement Inc management
1400 Centerpoint Blvd Suite TN100 BldKnoxville, TN 3793262-1282917
(3) KASC Acquisition Real estate holdings N/A C NoCompany Inc
1420 Centerpoint Blvd Bldg CTN
Knoxville, TN 3793226-3400984
(4) Knoxville Heart Group Cardiology medical practice N/A C No
1819 Clinch Ave Ste 108 TNKnoxville, TN 3791627-1528941
(5) East TN Cardiovascular Cardiovascular surgery N/A C YesSurgery Grouplnc practice
9125 Cross Park Dr Ste 200TN
Knoxville, TN 3792362-1018541
Schedule R (Form 990) 2012
Schedule R (Form 990) 2012 Page 3
ff^ Transactions With Related Organizations (Complete if the organization answered "Yes" to Form 990, Part IV, line 34, 35b, or 36.)
Note . Complete line 1 if any entity is listed in Parts II, III, or IV of this schedule
1 During the tax year, did the orgranization engage in any of the following transactions with one or more related organizations listed in Parts II-IV?
a Receipt of (i) interest (ii) annuities (iii) royalties or (iv) rent from a controlled entity
b Gift, grant, or capital contribution to related organization(s)
c Gift, grant, or capital contribution from related organization(s)
d Loans or loan guarantees to or for related organization(s)
e Loans or loan guarantees by related organization(s)
f Dividends from related organization(s)
g Sale of assets to related organization(s)
h Purchase of assets from related organization(s)
i Exchange of assets with related organization(s)
j Lease of facilities, equipment, or other assets to related organization(s)
k Lease of facilities, equipment, or other assets from related organization(s)
I Performance of services or membership or fundraising solicitations for related organization(s)
m Performance of services or membership or fundraising solicitations by related organization(s)
n Sharing of facilities, equipment, mailing lists, or other assets with related organization(s)
o Sharing of paid employees with related organization(s)
p Reimbursement paid to related organization(s) for expenses
q Reimbursement paid by related organization(s) for expenses
r Other transfer of cash or property to related organization(s)
s Other transfer of cash or property from related organization(s)
Yes No
la Yes
lb No
1c Yes
ld No
le No
if No
1g No
1h Yes
li No
1j Yes
1k No
11 No
1m No
in No
to Yes
1p Yes
1q Yes
lr No
is No
2 If the answer to any of the above is "Yes," see the instructions for information on who must complete this line, including covered relationships and transaction thresholds
(a)Name of other organization
(b)Transactiontype (a-s)
(c)Amount involved
(d)Method of determining amount involved
(1) Endoscopy Center of Oak Ridge LLC A 85,959 FMV
(2) East TN Cardiovascular Surgery Group Inc A 6,196 FMV
Schedule R (Form 990) 2012
Schedule R (Form 990) 2012 Page 4
Unrelated Organizations Taxable as a Partnership (Complete if the organization answered "Yes" to Form 990, Part IV, line 37.)Provide the following information for each entity taxed as a partnership through which the organization conducted more than five percent of its activities (measured by total assets or grossrevenue) that was not a related organization See instructions regarding exclusion for certain investment partnerships
(a)Name, address, and EIN of entity
(b)Primary activity
(c)Legal
domicile(state orforeigncountry)
(d)Predominant
income(related,unrelated,
excluded fromtax under
section 512-
(e)Are all partners
section501(c)(3)
organizations?
(f)Share of
totalincome
(g)Share of
end-of-yearassets
(h)Disproprtionateallocations?
(i)Code V-UBIamount inbox 20
of ScheduleK-1
(Form 1065)
U)General ormanagingpart ner?
(k)Percentageownership
514)Yes No Yes No Yes No
Schedule R (Form 990) 2012
Schedule R (Form 990) 2012 Page 5
Supplemental Information
Complete this Dart to provide additional information for responses to auestions on Schedule R (see instructions
Identifier Return Reference Explanation
Additional Data
Software ID:
Software Version:
EIN: 62 -0636239
Name : Methodist Medical Center
Form 990, Schedule R, Part II - Identification of Related Tax-Exempt Organizations
Return to Form
(c) 9(a) (b) Legal Domicile
(e) (f) Section 512
Name, address, and EIN of related organization Primary Activity (Statept CodeExempt Public charity
Direct Controlling(b)(1 3)
or Foreignsection status
Entitycontrolled
C ountry)(if501(c)(3)) organization
Covenant Health Supporting TN 501(c)(3) Line 11b, II N/A Noorganization
1420 Centerpoint Blvd Bldg CKnoxville, TN 3793262-1646734
Covenant Homecare Home health services TN 501(c)(3) Line 9 Covenant Health No
3001 Lake Brook Blvd Ste 101Knoxville, TN 3790962-1623114
Fort Loudoun Medical Center Acute care hospital TN 501(c)(3) Line 3 Covenant Health No
550 Fort Loudoun Medical Ctr DrLenoir City, TN 3777262-1373691
Fort Sanders Regional Medical Center Acute care hospital TN 501(c)(3) Line 3 Covenant Health No
1901 W Clinch AveKnoxville, TN 3791662-0528340
Fort Sanders Foundation Fundraising and TN 501(c)(3) Line 11 b, II Covenant Health Nopatient outreach
280 Ft Sanders West Blvd Ste 202Knoxville, TN 3792262-1748601
Fort Sanders Perinatal Center High risk obstetrical TN 501(c)(3) Line 3 Covenant Health Noservices
Trustees Tower Ste 304 501 19th StKnoxville, TN 3791604-3760551
LeConte Medical Center Acute care hospital TN 501(c)(3) Line 3 Covenant Health No
742 Middle Creek RoadSevierville, TN 3786262-1114867
Morristown-Hamblen Hospital Assc dba M-H Healthcare System Acute care hospital TN 501(c)(3) Line 3 Covenant Health No
908 W 4th North StreetMorristown, TN 3781462-0545814
Parkwest Medical Center Acute care hospital TN 501(c)(3) Line 3 Covenant Health Noand behavioral health
9352 Park West Blvd servicesKnoxville, TN 3792358-1897274
Roane Co Medical Ctrdba Roane Medical Center Acute care hospital TN 501(c)(3) Line 3 Covenant Health No
8045 Roane Medical Center DrHarriman, TN 3774868-0673354
Thompson Cancer Survival Center Cancer treatment TN 501(c)(3) Line 3 Covenant Health Nofacility
1915 White AveKnoxville, TN 3791662-1250943
Thompson Oncology Group Oncology services TN 501(c)(3) Line 3 Covenant Health No
1915 White AveKnoxville, TN 3791662-1619239
Methodist Medical Center Foundation Fundraising and TN 5 0 1 ( c ) ( 3 ) Line h a, I N/A Nopatient outreach
990 Oak Ridge TurnpikeOak Ridge, TN 3783062-1414205
Thompson Cancer Survival Center Foundation Fundraising and TN 501(c)(3) Line 11 a, I Thompson Cancer Nopatient outreach Survival Center
1915 White AveKnoxville, TN 3791658-2130450
Morristown Regional Cancer Center LLC Cancer treatment TN 501(c)(3) Line 3 Morristown-Hamblen Nofacility Hospital Association
908 W 4th North StreetMorristown, TN 3781420-0916364
COVENANT HEALTH
Audited Consolidated Financial Statements
Years Ended December 31, 2012 and 2011
PCertified Public Accountants
COVENANT HEALTH
Audited Consolidated Financial Statements
Years Ended December 31, 2012 and 2011
Independent Auditor' s Report..........................................................................................................I
Audited Consolidated Financial Statements
Consolidated Balance Sheets ...........................................................................................................3Consolidated Statements of Operations and Changes in Net Assets ...............................................5Consolidated Statements of Cash Flows ..........................................................................................7Notes to Consolidated Financial Statements.................................................................................... 9
PERSHING YOAKLEY & ASSOCIATES, P.C.One Cherokee Mills, 2220 Sutherland Avenue
P
^ Knoxville, TN 37919
p: (865 ) 673-0844 f: (865) 673-0173Certified Public Accountants www.pyopc.com
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors ofCovenant Health:
We have audited the accompanying consolidated financial statements of Covenant Health and itssubsidiaries (Covenant) which comprise the consolidated balance sheets as of December 31,2012 and 2011 and the related consolidated statements of operations and changes in net assetsand cash flows for the years then ended, and the related notes to the financial statements.
Management 's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidatedfinancial statements in accordance with accounting principles generally accepted in the UnitedStates of America; this includes the design, implementation, and maintenance of internal controlrelevant to the preparation and fair presentation of consolidated financial statements that are freefrom material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based onour audits. We conducted our audits in accordance with auditing standards generally accepted inthe United States of America. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements. The procedures selected depend on theauditor's judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of Covenant's internal control. Accordingly, we express no such opinion. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonablenessof significant estimates made by management, as well as evaluating the overall presentation ofthe consolidated financial statements.
ATLANTA I KANSAS CITY I KNOXVILLE I TAMPA BAY
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Covenant Health as of December 31, 2012 and 2011and the results of its operations, changes in net assets and cash flows for the years then ended inconformity with accounting principles generally accepted in the United States of America.
Knoxville, TennesseeApril 18, 2013
2
COVENANT HEALTH
Consolidated Balance Sheets(Dollars in Thousands)
December 31,2012 2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Short-term investments
Assets limited as to usePatient accounts receivable , less estimated allowances for
uncollectible accounts of approximately $77,900 in 2012and $74,800 in 2011
Other current assets
TOTAL CURRENT ASSETS
ASSETS LMTED AS TO USE, less amounts required
to meet current obligations
PROPERTY, PLANT AND EQUIPMENT, net ofaccumulated depreciation and amortization
OTHER ASSETSLong-term investmentsBond and note issuance costs, net of accumulatedamortization of $8,973 in 2012 and $11,698 in 2011
Goodwill
Other assets
$ 36,168 $ 30,549550 519
24,568 24,604
93,541 98,585
44,341 44,123
199,168 198,380
41,842 74,027
683,975 642,070
961,990 904,751
11,032 14,9978,553 -
12,818 13,844
TOTAL OTHER ASSETS 994,393 933,592
$ 1,919,378 $ 1,848,069
3
December 31,2012 2011
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Trade accounts payable, accrued expenses and otherliabilities $ 131,132 $ 134,502
Accrued salaries , wages, compensated absences andamounts withheld 51,142 47,764
Estimated third-party payor settlements 12,626 12,048
Current portion of long-term debt and capital leaseobligations 21,771 20,633
TOTAL CURRENT LIABILITIES 216,671 214,947
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion 728,622 737,462
OTHER LONG-TERM LIABILITIES 66,818 73,326
TOTAL LIABILITIES 1,012,111 1,025,735
COMMITMENTS AND CONTINGENCIES - Note I
NET ASSETS
Unrestricted 897,789 813,378
Temporarily restricted 9,478 8,956
TOTAL NET ASSETS 907,267 822,334
$ 1,919,378 $ 1,848,069
See notes to consolidatedfinancial statements. 4
COVENANT HEALTH
Consolidated Statements of Operations and Changes in NetAssets(Dollars in Thousands)
Year Ended December 31,2012 2011
Change in unrestricted net assets:
Unrestricted revenue and support:
Patient service revenue, net of contractual adjustmentsand discounts $ 1,088,843 $ 1,101,965
Provision for bad debts (86,197) (98,127)
Net patient service revenue 1,002,646 1,003,838
Other operating revenue 45,917 44,450
Net assets released from restrictions used for operations 2,552 2,576
TOTAL REVENUE AND SUPPORT 1,051 ,115 1 ,050,864
Expenses:
Salaries and benefits 505,955 500,978Supplies and other 457,576 458,246
Provision for depreciation and amortization 68,477 70,152
Interest 18,730 19,015
TOTAL OPERATING EXPENSES 1,050 ,738 1,048,391
INCOME FROM CONTINUING OPERATIONS 377 2,473
Non-operating gains (losses):
Investment incomeGain (loss) on early extinguishment of debt - Note F
NET NON-OPERATING GAINS
EXCESS OF REVENUE, GAINS ANDSUPPORT OVER EXPENSES AND LOSSES
FROM CONTINUING OPERATIONS
Additional gain on sale of discontinued operations - Note N
35,012 43,223
(3,242) 11,631
31,770 54,854
32,147 57,32714,320 -
EXCESS OF REVENUE, GAINS AND SUPPORTOVER EXPENSES AND LOSSES 46,467 57,327
Change in net unrealized gains on investments 36,748 (32,965)Contributions of property 925 2,297Net assets released from restrictions for capital additions 271 501
INCREASE IN UNRESTRICTED NET ASSETS 84,411 27,160
5
Year Ended December 31,
2012 2011
Change in temporarily restricted net assets:Restricted gifts and bequests
Investment income and realized/unrealized net
losses on investments
Net assets released from restrictions
INCREASE IN TEMPORARILY
3,238 3,265
107 4(2,823) (3,077)
RESTRICTED NET ASSETS 522 192
INCREASE IN NET ASSETS 84,933 27,352
NET ASSETS, BEGINNING OF YEAR 822,334 794,982
NET ASSETS, END OF YEAR $ 907,267 $ 822,334
See notes to consolidatedfinancial statements. 6
COVENANT HEALTH
Consolidated Statements ofCash Flows(Dollars in Thousands)
Year Ended December 31,2012 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase in net assets
Adjustments to reconcile increase in net assets to net
cash provided by operating activities
Provision for depreciation and amortization
Net realized and unrealized (gains) losses on
investments and assets limited as to use
Discount amortization on capital appreciation bonds
Property contributions
Restricted contributions
Loss (gain) on early extinguishment of debtGain on sale of previously discontinued operations
Increase (decrease) in cash due to changes in:
Net patient accounts receivable
Other current assets
Other assetsTrade accounts payable, accrued expenses and other
liabilities
Accrued salaries , wages , compensated absences andamounts withheld
Estimated third-party payor settlements
Other long-term liabilities
Total adjustments
$ 84,933 $ 27,352
68,477 70,152
(53,775) 7,37510,974 10,392
(925) (2,297)(3,238) (3,265)3,242 (11,631)
(14,320) -
5,044 (3,209)(218) (2,054)
(2,705) (2,182)
4,709 4,168
3,378 5,408578 173
(18,115) (7,237)
3,106 65,793
NET CASH PROVIDED BY OPERATING ACTIVITIES 88,039 93,145
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Proceeds from sale of property, plant and equipmentPurchases of investments
Proceeds from redemption or maturities of investments
Decrease in assets limited as to use
Investment in unconsolidated affiliates
Goodwill acquired
Distributions from unconsolidated affiliates
NET CASH USED IN INVESTING ACTIVITIESFROM CONTINUING OPERATIONS
(105,454) (78,359)1,176 -
(231,315) (443,146)226,585 264,31233,452 83,727
(159) (1,397)
(6,522) -2,250 3,593
(79,987) (171,270)
7
Year Ended December 31,2012 2011
Additional gain on sale of discontinued operations 15,073 -
NET CASH USED IN INVESTING ACTIVITIES (64,914) (171,270)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 160,753 240,700Redemption of debt (159,636) (139,200)Repayment of debt and capital lease obligations (21,057) (22,508)Payment of acquisition and financing costs (804) (2,124)Proceeds from restricted contributions 3,238 3,265
NET CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES (17,506) 80,133
NET INCREASE INCASH AND CASH EQUIVALENTS 5,619 2,008
CASH AND CASH EQUIVALENTS, beginning of year 30,549 28,541
CASH AND CASH EQUIVALENTS, end of year $ 36,168 $ 30,549
SUPPLEMENTAL INFORMATION:
Cash paid for interest
Cash paid for income taxes
Capital additions in accounts payable
Investments transferred to assets limited as to use
Property acquired through capital lease arrangements
$ 8,921 $ 9,179
$ - $ 120
$ 4,724 $ 1,950
$ - $ 88,559
$ 1,812 $ -
See notes to consolidatedfinancial statements. 8
COVENANT HEALTH
Notes to Consolidated Financial Statements(Dollars in Thousands)
Years EndedDecember 31, 2012 and 2011
NOTE A--ORGANIZATION AND OPERATIONS
Covenant Health (Covenant) is a tax-exempt entity as described under Section 501(c)(3) of theInternal Revenue Code. The operations of Covenant and its subsidiaries consist predominantlyof the delivery of healthcare and healthcare related services in East Tennessee. Covenantprovides management services to, and is the sole member or majority shareholder of, numerouscontrolled or subsidiary entities, the most significant of which are:
Fort Sanders Regional Medical Center (FSRMC) operates a 541-bed acute care facility
located in Knoxville, Tennessee.
Parkwest Medical Center (PMC) operates 462 acute care beds, consisting of a 307-bed acutecare facility located in Knoxville, Tennessee, and a 155-bed inpatient behavior health
facility located in Louisville, Tennessee and outpatient behavioral medicine facilities invarious locations in East Tennessee.
Methodist Medical Center of Oak Ridge (MMC) operates a 301-bed acute care facilitylocated in Oak Ridge , Tennessee , and sponsors Methodist Medical Center Foundationwhich was formed primarily to raise funds on behalf ofMMC.
Morristown-Hamblen HealthCare System (MHHS) operates a 167-bed acute care hospitallocated in Morristown, Tennessee. MHHS owns an interest in joint ventures of anambulatory surgery center and cancer treatment center (see Note M). MHHS is the solemember of Morristown-Hamblen Health Foundation whose purpose is primarily to raisefunds on behalf ofMHHS.
LeConte Medical Center (LMC) operates a 133-bed acute care and extended care facilitylocated in Sevierville , Tennessee.
Roane Medical Center (RMC) leases and operates a 105-bed acute care facility located inHarriman, Tennessee (See Note I).
Fort Loudoun Medical Center (FLMC) leases and operates a 50-bed acute care facilitylocated in Lenoir City, Tennessee (see Note 1).
The Thompson Cancer Survival Center (TCSC) and Subsidiary is located in Knoxville,Tennessee, and operates specialty cancer treatment facilities and oncology physicianpractices.
9
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years EndedDecember 31, 2012 and 2011
NOTE A--ORGANIZATION AND OPERATIONS - Continued
The Thompson Cancer Survival Center Foundation (TCSCF) has been established tosupport TCSC' s operations.
Covenant Medical Management (CMM) is a for-profit entity whose major operationsinclude ownership of physician practices in East Tennessee and the provision of physicianmanagement and support services. CMM also has an ownership in three surgery center jointventures.
Fortress Corporation (Fortress) is a for-profit entity located in Knoxville, Tennessee, whoseoperations include a daycare center, a health and fitness facility and real estate services.Fortress also holds an interest in a long-term care facility and has an ownership in other jointventures and partnerships.
Covenant HomeCare (CHC) is a not-for-profit entity which provides home health andhospice services in East Tennessee.
Fort Sanders Foundation (FSF) is a not-for-profit foundation formed to coordinate thefundraising and development activities of Covenant.
Covenant, FSRMC, PMC, MMC, LMC, FLMC, TCSC and CHC collectively comprise theCovenant Obligated Group (see Note F).
Covenant (or its subsidiaries ) is an owner in numerous partnerships or joint ventures which areaccounted for under the equity method of accounting . Covenant's ownership in the equity ofthese entities is included as part of Other Assets and Covenant's equity in the income of theseentities totaled $3,513 and $2,660 for the years ended December 31, 2012 and 2011, respectively,and is included in Other Operating Revenue in the accompanying consolidated financialstatements . Certain owners in these joint ventures are physicians that practice at Covenantfacilities.
The following is combined, condensed, unaudited financial information related to these entitiesas of and for the years ended December 31, 2012 and 2011:
2012 2011
Total assets $ 34,288 $ 37,914Partner' s capital/equity 12,491 14,322Net income 5,340 4,814
10
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE A--ORGANIZATION AND OPERATIONS - Continued
Additionally, certain of Covenant's subsidiaries are obligated on all or a portion of theoutstanding debt of several of these joint ventures totaling approximately $3,200 at December 31,2012. Management believes it is unlikely Covenant or its subsidiaries will be required to fundany guarantees.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements include theaccounts of Covenant and its subsidiaries after elimination of all significant intercompanyaccounts and transactions.
Use of Estimates: The preparation of the consolidated financial statements in conformity withgenerally accepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities as of the date of the consolidated financial statements and the reportedamounts of revenue and expenses during the reporting period. Actual results could differ fromthese estimates.
Cash and Cash Equivalents: Cash and cash equivalents includes cash on-hand and in bankdeposit accounts, as well as investments with original terms to maturity of less than ninety days,except amounts designated as assets limited as to use or amounts included in investmentportfolios. Covenant has cash deposits significantly in excess of Federal Deposit InsuranceCorporation limits at December 31, 2012. Management believes that credit risk related to thesedeposits is minimal.
Investments and Assets Limited as to Use. All debt securities and marketable equity securitieswith readily determinable fair values are valued at fair value based on quoted market prices ofidentical or similar securities as of the date of the Consolidated Balance Sheets. Investments incollective trust funds are also valued at estimated fair value as determined by the fund manager,based on quoted market prices of the underlying investments which have readily determinablemarket values. Investments in alternative investments do not have a readily determinable fairvalue and are stated at cost or estimated fair value if determined to be other-than-temporarilyimpaired.
Investment portfolios are classified as current or long-term assets dependent upon the objectivesof the portfolio relative to current operations. Assets limited as to use are primarily those held bybond trustees and generally consist of bond proceeds designated for capital projects as well asamounts designated for debt service as required by bond indentures. Amounts required to meetcurrent liabilities are shown as current assets in the Consolidated Balance Sheets.
11
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE B--SIGNIFICANT ACCOUNTING POLICIES - Continued
Investment income, including realized gains or losses and any other-than-temporary unrealizedlosses, is reported as non-operating gains (losses) in the Consolidated Statements of Operationsand Changes in Net Assets. Realized gains and losses are computed using the specific-identification method of cost determination. The change in unrealized gains and losses for other-than-trading securities is excluded from "Excess of Revenue, Gains and Support Over Expensesand Losses from Continuing Operations" except for any other-than-temporary impairment losses.
Inventories: Inventories of medical supplies are stated at the lower of cost (average cost method)or market and are reported as Other Current Assets in the Consolidated Balance Sheets.
Property, Plant and Equipment: Property, plant and equipment is stated on the basis of cost or,if donated, at fair market value on the date of gift. Cost incurred for internal use software relatedto design, installation and testing of the applications are capitalized as incurred. Depreciation isprovided over the estimated useful lives of the related assets principally under the straight-linemethod. Equipment held under capital lease obligations is amortized under the straight-linemethod over the shorter of the lease term or estimated useful life. Such amortization is includedin the provision for depreciation and amortization in the consolidated financial statements.
Interest cost incurred on borrowed funds during the period of construction of capital assets iscapitalized as a component of the cost of acquiring those assets. The amount capitalized is net ofinvestment earnings on assets limited as to use derived from borrowings designated for capitalassets. Costs of maintenance and repairs are expensed as incurred. Covenant periodicallyreviews property for indicators of potential impairment. If this review indicates that the carryingamount of these assets may not be recoverable, Covenant estimates the future cash flowsexpected to result from the operations of the asset and its eventual disposition. If the sum ofthese future cash flows (undiscounted and without interest charges) is less than the carryingamount of the asset, a write-down to estimated fair value is recorded.
Bond and Note Issuance Costs: Bond and note issuance costs are amortized over the terms of therelated debt issues under the straight-line method.
Goodwill: Goodwill represents the excess purchase price over the assigned fair value ofidentifiable tangible assets and separately identified intangible assets acquired in the acquisitionof various entities. Management annually evaluates goodwill for impairment and records anyreduction in goodwill in the period such impairment is determined. Management believes nosuch impairment exists at December 31, 2012.
12
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE B--SIGNIFICANT ACCOUNTING POLICIES - Continued
Temporarily Restricted Net Assets: Temporarily restricted net assets are those whose use hasbeen limited by donors to a specific time period or purpose. The majority of temporarilyrestricted net assets are restricted to programs of specific Covenant entities.
Net Patient Service Revenue/Receivables: Net patient service revenue is reported on the accrualbasis in the period in which services are provided at estimated net realizable amounts, includingestimated retroactive adjustments under reimbursement agreements with third-party payors andestimated provisions for uncollectible accounts. Retroactive adjustments are reported on anestimated basis in the period the related services are rendered and adjusted in future periods asfinal settlements are determined or additional information is obtained.
Patient accounts receivable are reported net of both an estimated allowance for uncollectibleaccounts and an estimated allowance for contractual adjustments. The contractual allowancerepresents the difference between established billing rates and estimated reimbursement fromMedicare, TennCare and other third-party payment programs. The allowance for uncollectibleaccounts is estimated based upon the age of the patient accounts receivable, prior experience andany unusual circumstances (such as local, regional or national economic conditions) which affectthe collectability of receivables, including management's assumptions about conditions it expectsto exist and courses of action it expects to take. Covenant's policy does not require collateral orother security for patient accounts receivable and Covenant routinely accepts assignment of, or isotherwise entitled to receive, patient benefits payable under health insurance programs, plans orpolicies.
Uncompensated Care: Covenant provides care without charge to patients who meet certaincriteria under its charity care policy. Because Covenant does not pursue collection of amountsdetermined to qualify as charity care, or other standardized discounts, they are not reported as netpatient revenue. Charges foregone, based on established rates, totaled approximately $110,500and $98,700 in 2012 and 2011, respectively, including standardized discounts for certainuninsured patients. The estimated direct and indirect cost of providing these services totaledapproximately $29,900 and $27,500 for the years ended December 31, 2012 and 2011,respectively. Such costs are determined using a ratio of cost to charges analysis with indirectcost allocated under a systematic approach. In addition, Covenant provides a number of otherservices to benefit the indigent for which little or no payment is received. Medicare, TennCareand certain other programs do not cover the full cost of providing care to beneficiaries of thoseprograms. Covenant also provides services to the community at large for which it receives littleor no payment.
13
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE B--SIGNIFICANT ACCOUNTING POLICIES - Continued
Estimated Malpractice Costs: The provision for estimated medical malpractice claims includesestimates of the ultimate costs for reported claims and includes an estimate for claims incurredbut not reported (See Note 1).
Income Taxes: Covenant and certain of its subsidiaries or controlled entities are exempt fromincome taxes pursuant to Section 501(c)(3) of the Internal Revenue Code. Accordingly, noprovision for income taxes on qualifying activities has been made for these entities in theaccompanying consolidated financial statements. However, certain entities and operations aresubject to income taxes which are accounted for in accordance with Financial AccountingStandards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes (SeeNote G).
Excess ofRevenue, Gains and Support Over Expenses and Losses from Continuing Operations:
The Consolidated Statements of Operations and Changes in Net Assets includes the caption
"Excess of Revenue , Gains and Support Over Expenses and Losses from Continuing
Operations ." Consistent with industry practice, changes in unrestricted net assets which are
excluded from this caption include , but are not limited to, unrealized gains and losses (except
losses which are determined to be other-than -temporary and on trading securities) and capital
contributions.
Fair Value ofFinancial Instruments: The fair value of Covenant's financial instruments, otherthan certain investments which are discussed in Note D and long-term debt discussed in Note F,approximates their carrying value due to the nature and terms of these assets and liabilities.Patient accounts receivable; other assets; accounts payable, accrued expenses, and otherliabilities; accrued salaries, wages, compensated absences and other amounts withheld; andestimated third-party payor settlements have short maturities or will otherwise be settled within ashort period of time. The fair value of financial instruments reported as part of other long-termliabilities is not estimable, due to the unpredictable timing of the payments and the nature of theestimates involved (primarily estimated professional and worker's compensation liabilities anddeferred revenue from a provider agreement discussed in Note N.)
Subsequent Events: Covenant has evaluated all events or transactions that occurred afterDecember 31, 2012 through April 18, 2013, the date the consolidated financial statements wereavailable to be issued. During this period, management did not note any material recognizablesubsequent events that required recognition or disclosure in the December 31, 2012 consolidatedfinancial statements other than as disclosed in Note F.
14
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE B--SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Pronouncements : In July 2011, the Financial Accounting Standards Board(FASB) issued Accounting Standards Update 2011-07, Presentation and Disclosure of Patient
Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain
Health Care Entities , which requires healthcare entities to reclassify the provision for bad debtsfrom an operating expense to a deduction from patient service revenue (net of contractual
allowances and discounts) in the Statement of Operations when the ultimate collection of theamounts billed or billable cannot be determined at the time patient services are rendered, as well
as additional disclosures about changes in the bad debt allowance . Covenant adopted theprovisions retrospectively of this Update for the year ended December 31, 2012. The adoption of
this Update had no net impact on the Covenant's financial position, results of operations, or cashflows.
Reclassifications: Certain 2011 amounts have been reclassified to conform with the 2012presentation.
NOTE C--NET PATIENT SERVICE REVENUE/RECEIVABLES
Covenant has agreements with various third-party payors that provide for payments at amountsdifferent from established rates. The difference between the rates charged and the estimated
payments from third-party payors is recorded as a reduction of gross patient charges. Amounts
recorded under certain of these contractual arrangements are subject to review and final
determination by various program intermediaries. Management believes that adequate provision
has been made for any adjustments which may result from such reviews. However, due touncertainties in the estimates, it is at least reasonably possible that management's estimates will
change in 2013, although the amount of the change cannot be estimated. Net patient servicerevenue for the years ended December 31, 2012 and 2011 increased by approximately $10,250
and $680, respectively, as a result of changes in or adjustments to prior years' estimates or final
settlements of prior periods. The 2012 amount includes a payment from Medicare for the
settlement of a lawsuit related to rural floor budget neutrality adjustment of approximately
$8,700.
A summary of the payment arrangements with significant third-party payors follows:
Medicare : Services are rendered to patients under contractual arrangements with theMedicare program or its designated agents . At December 31, 2012 and 2011, approximately53% and 45%, respectively , of Covenant ' s net patient accounts receivable were due from theMedicare program . The Medicare program pays for inpatient and most outpatient service ona prospective basis based upon the patient's clinical diagnosis and medical proceduresutilized . Covenant also receives additional payments from Medicare based on the provision
15
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE C--NET PATIENT SERVICE REVENUE/RECEIVABLES - Continued
of services to a disproportionate share of TennCare and other low income patients, as well asother pass-through payments. The Medicare program continues to reimburse certain otherservices based on a percentage of cost up to predetermined cost limits. Certain other revenue,primarily from physician practices, is reimbursed based upon rate schedules.
The Recovery Audit Contractors (RAC) program was created by legislation to detect andcorrect improper payments under the Medicare and Medicaid programs. Management
believes that any amounts payable related to audits through the RAC programs will not have
a significant impact on the consolidated financial statements. However, due to theuncertainties involved, management's estimate could change in the future.
TennCare: The State of Tennessee's Medicaid waiver program (TennCare) providescoverage through managed care organizations (MCOs) and Covenant has contracts withseveral of these MCOs. At December 31, 2012 and 2011, approximately 11% of Covenant'snet patient accounts receivable were from the TennCare program. TennCare reimbursementfor both inpatient and outpatient services is based upon prospectively determined rates andper diems. During 2012 and 2011, Covenant received additional distributions under theTennCare Essential Access program and other programs totaling approximately $8,410 and$9,040, respectively, designed to provide supplemental funding for services provided toTennCare patients. Future distributions under these programs are not guaranteed.
Other: Covenant has also entered into payment agreements with certain commercialinsurance carriers, health maintenance organizations, preferred provider organizations andemployer groups. The basis for payment under these agreements includes prospectivelydetermined rates per discharge, discounts from established charges, and prospectivelydetermined daily rates. In addition, for uninsured patients, Covenant reduces charges fromcurrent rates based on average discounts provided to certain third-party payors.
Covenant also provides services to uninsured and underinsured patients that do not qualify forfinancial assistance. Based on historical experience, a significant portion of uninsured andunderinsured patients are unable or unwilling to pay for their responsible amounts for servicesprovided and a significant provision for bad debts is recorded in the period services are provided.Management has determined that patient service revenue is generally recorded prior to assessingthe patient's ability to pay and, as such, the entire provision for bad debts is deducted from netpatient service revenue.
Patient service revenue, net of contractual allowances and discounts (but before the provision forbad debts) is composed of the following for the years ended December 31, 2012 and 2011:
16
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Years EndedDecember 31, 2012 and 2011
NOTE C--NET PATIENT SERVICE REVENUE/RECEIVABLES - Continued
2012 2011
Third-party payors $ 903 ,660 $ 920,671
Self-pay patients 185,183 181,294
$ 1,088 , 843 $ 1,101,965
Patient accounts receivable is recorded net of estimated allowances for uncollectib le accounts asfollows at December 31:
2012 2011
Third-party payors $ 16 ,903 $ 15,408
Self-pay patients 61,013 59,343
Total estimated allowances for uncollectible accounts $ 77,916 $ 74,751
Covenant's estimated allowance for uncollectible accounts for self-pay patients wasapproximately 96% of self-pay accounts receivable at both December 31, 2012 and 2011.Covenant's bad debt write-offs from self-pay patients were approximately $60,110 and $52,000for the years ended December 31, 2012 and 2011, respectively. This increase was the result of anincrease in acuity of self-pay patients and increased difficulty in placing patients in a post-acutecare setting.
Covenant's estimated allowance for uncollectible accounts for the patient portion of third-partypayors increased from approximately 64% of the patient portion of the accounts receivable atDecember 31, 2011, to approximately 67% of the patient portion of the accounts receivable atDecember 31, 2012. Covenant' s bad debt write-offs from third-party payors were approximately$20,900 and $25,400 for the years ended December 31, 2012 and 2011, respectively. Thisdecrease was the result of improved frontend cash collections and continued strong postdischarge collections.
NOTE D--INVESTMENTS AND ASSETS LIMITED AS TO USE
Investments consist of the following at December 31:
Short-Term Investment PortfolioCash and cash equivalentsOther
2012 2011
$ 38 $512
550
26493
519
17
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE D--INVESTMENTS AND ASSETS LIMITED AS TO USE - Continued
Long-Term Investment PortfolioCash and cash equivalentsU.S. Government and Agency securities,
including mortgage-backed securitiesU.S. Government inflation indexed securitiesMunicipal bondsCorporate debtStock mutual fundsInternational equity securitiesCollective trust fundsAlternative investments (cost)
Assets Limited as to UseCash, cash equivalents and commercial paperU.S. Government and Agency securities,
including mortgage-backed securitiesCorporate debtOther
TOTAL INVESTMENTS AND
2012 2011
18,544 23,107
95,884 102,58959,897 79,35981,345 57,363
343,552 339,901234,104 182,46520,598 17,52637,063 30,49371,003 71,948
961,990 904,751
21,909 21,830
34,914 64,647- 4,131
9,587 8,023
66,410 98,631
ASSETS LIMITED AS TO USE $ 1,028,950 $ 1,003,901
Collective trust funds and the alternative investments include ownership in various funds that arestructured as limited liability companies, limited partnerships or offshore limited partnerships.The funds have a wide range of investment strategies with various levels of risk.
Certain investments are managed by a company, an officer of which is a member of Covenant'sBoard of Directors.
Unrestricted investment income, gains and losses on assets limited as to use, cash equivalentsand investments consists of the following for the years ended December 31, 2012 and 2011:
18
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE D--INVESTMENTS AND ASSETS LIMITED AS TO USE - Continued
2012 2011
Investment Income:Interest and dividends $ 19,400 $ 19,303Net realized gains on sales of securities at fair value 15,881 22,558Net realized gain on sales of securities at cost 1,045 2,879
36,326 44,740
Less : Investment expenses (1,314) (1,517)
Investment income reported as non-operating $ 35,012 $ 43,223
Other changes in unrestricted net assets:
Change in net unrealized gains/losses on investments
Debt and equity securities $ 40,349 $ (11,394)
Other investments (3,601) (21,571)
$ 36,748 $ (32,965)
The age of gross unrealized losses on investments and assets limited as to use that are notconsidered other-than-temporarily impaired as of December 31, 2012 and 2011 are as follows:
December 31, 2012
U.S. Government and
Agency securities
Municipal bonds
Corporate debt
Equity mutual funds
International equity securities
Alternative investments
Greater ThanLess Than 12 Months 12 Months Total
Unrealized Unrealized UnrealizedFair Value Losses Fair Value Losses Fair Value Losses
$ 24,164 $ (56) $ - $ - $ 24,164 $ (56)3,617 (19) - - 3,617 (19)8,606 (223) - - 8,606 (223)
- - 29,853 (2,097) 29,853 (2,097)2,145 (426) 4,206 (1,639) 6,351 (2,065)
- - 6,548 (3,872) 6,548 (3,872)
$ 38,532 $ (724) $ 40,607 $ (7,608) $ 79,139 $ (8,332)
19
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years EndedDecember 31, 2012 and 2011
NOTE D--INVESTMENTS AND ASSETS LIMITED AS TO USE - Continued
Greater ThanLess Than 12 Months 12 Months Total
Unrealized Unrealized UnrealizedFair Value Losses Fair Value Losses Fair Value Losses
December 31, 2011
U.S. Government and
Agency securities $ 15,603 $ (23) $ - $ - $ 15,603 $ (23)Municipal bonds 14,170 (32) - - 14,170 (32)
Corporate debt 63,068 (1,202) 7,218 (769) 70,286 (1,971)
Equity mutual funds 62,068 (10,927) - - 62,068 (10,927)International equity securities 3,867 (988) 3,216 (1,433) 7,083 (2,421)
Alternative investments 5,474 (537) 3,050 (1,370) 8,524 (1,907)
$ 164,250 $ (13,709) $ 13,484 $ (3,572) $ 177,734 $ (17,281)
Management believes, based on their analysis, that investments listed above with unrealizedlosses at December 31, 2012 are not other-than-temporarily impaired. Such analysis includesindustry outlooks and input from investment consultants. Due to uncertainties in the financialmarket, it is at least reasonably possible that management's estimate may change in 2013.
NOTE E--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 2012 and 2011:
Land and land improvements
Buildings and leasehold improvements
Equipment
Equipment held under capital leases
Less: allowances for depreciation and amortization
Projects in progress - Note I
2012 2011
$ 69,200 $ 58,203
700,996 683,866
627,450 581,958
7,185 5,467
1,404,831 1,329,494(796,485) (731,424)
608,346 598,07075,629 44,000
$ 683,975 $ 642,070
20
COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years EndedDecember 31, 2012 and 2011
NOTE E--PROPERTY, PLANT AND EQUIPMENT - Continued
During 2012, Covenant capitalized interest expense on construction projects totaling $2,126,which includes an arbitrage rebate of $2,325 and is net of investment earnings on acquisitionfund assets of $717. No significant amount of interest expense was capitalized in 2011.
NOTE F--LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
Maturities Outstanding Balance
Description (at December 2012) Rates 2012 2011
2012 Bonds $107,555 serially from 2019 through 2026, net of
premium of $15,226 in 2012 2.5% to 5% $ 122,781 $ -
2012 Note $37,875 variable rate revenue note through 2018 Variable 37,875 -
2011 Bonds $103,700 variable rate securities due through 2033 Variable 103,060 103,700
2011 Note $100,000 variable rate revenue note due through 2016 Variable 100,000 100,000
$35,500 variable rate revenue note due through 2016 Variable 35,500 35,500
2006 Bonds $46,245 capital appreciation bonds due through 2042, 5.01%to 62,200 59,157
net of discount of $249 in 2012 and $257 in 2011 5.08%
$125,000 variable rate bank note, final maturity in 2046, Variable 124,577 124,564
net of discount of $423 in 2012 and $436 in 2011
2002 Bonds $14,855 term bonds redeemed in 2012, net ofpremium 5% to - 15,094
of $346 and discount of $107 in 2011 5.5%
$82,617 capital appreciation bonds redeemed in 2012 5.4% to - 137,376
5.93%
$97,325 auction rate securities, final maturity in 2023 Variable 97,325 97,950
and 2033
1993 Bonds $60,245 serially through 2015, net ofpremium of 5.25% to 60,475 78,589$230 in 2012 and $464 in 2011 6.25%
Notes Payable Maturing through 2018 2.05% to 4,817 5,390
6.4%
Capitalized lease Maturing through 2015 5.25% to 1,783 775
obligations 6.00%
750,393 758,095Less: Current portion of long-term debt and capital lease obligations (21,771) (20,633)
$ 728,622 $ 737,462
During 2012, Covenant issued $107,555 of Hospital Revenue Refunding Bonds, Series 2012 (the2012 Bonds) through The Health, Educational and Housing Facility Board of the County ofKnox, Tennessee. The 2012 Bonds are secured by an interest in the gross receipts of certainmembers of Covenant (the Obligated Group).
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE F--LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - Continued
Additionally, during 2012 Covenant issued a revenue note in the amount of $37,875 through alender with The Health, Educational and Housing Facility Board of the County of Knox,Tennessee (the 2012 Note). The 2012 Note bears interest, payable quarterly, at a rate equal to70% of the one-month London Interbank Offered Rate (LIBOR) plus a margin (currently 0.55%)based on the loan rating assigned by rating agencies. The 2012 Note is secured by an interest inthe gross receipts of certain members of Covenant (the Obligated Group).
The proceeds of the 2012 Bonds and 2012 Note were used to redeem a portion of Covenant'soutstanding 2002 Hospital Revenue Refunding and Improvement Bonds (the 2002 Bonds)consisting of $145,316 of capital appreciation bonds and $14,320 of current interest bonds andwere deposited into an irrevocable escrow fund in amounts sufficient to pay all applicableprincipal maturities refunded. The principal amounts outstanding on the advanced refunded 2002Bonds total $159,636 at December 31, 2012. Management believes that the escrow fund depositrelieves Covenant's responsibility as primary obligor on that portion of the 2002 Bonds and,accordingly, those obligations were derecognized in the Consolidated Balance Sheets. Theadvanced refunded 2002 bonds were redeemed in their entirety subsequent to December 31,2012. Covenant recognized a loss on early extinguishment of the 2002 Bonds of $3,242 whichincludes unamortized insurance premiums and other bond issuance costs.
During 2011, Covenant issued $103,700 of Hospital Revenue Refunding Bonds, Series 2011 (the2011 Bonds) through The Health, Educational and Housing Facility Board of the County ofKnox, Tennessee. The 2011 Bonds bear interest at a variable rate, initially adjusted weekly, asdetermined by the remarketing agent. The average weekly rate was approximately 0.2% duringboth 2012 and 2011, exclusive of remarketing fees. Mandatory sinking fund redemptions are dueannually on January 1 at varying amounts ranging from $660 to $14,830 through 2033. The2011 Bonds are secured by an interest in the gross receipts of certain members of Covenant (theObligated Group). The 2011 Bonds are subject to tender for purchase on any business day andare secured by irrevocable direct pay letters of credit which permit an amount to be drawn equalto the outstanding principal plus 52 days of interest. The credit facilities expire on March 24,2014, unless extended.
The proceeds of the 2011 Bonds were used to acquire $122,000 of the outstanding auction ratesecurities of Covenant's 2002 Bonds. The tender price was 85% of the principal amount whichtotaled $103,700 and Covenant recognized a gain on early extinguishment of the 2002 Bonds ofapproximately $12,886 which is net of unamortized insurance premium and other bond issuancecosts.
Additionally, during 2011 Covenant issued a revenue note in the amount of $135,500 through alender with The Health, Educational and Housing Facility Board of the County of Knox,
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE F--LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - Continued
Tennessee (the 2011 Note). The 2011 Note bears interest, payable monthly, at the seven-dayhigh-grade market index of tax-exempt variable rate demand obligations as published by theSecurities Industry & Financial Markets Association (the SIFMA Index Rate) plus a margin(currently 0.7%) based on the loan rating assigned by rating agencies. The average variable rate,including the margin, was approximately 0.9% and 0.8% during 2012 and 2011, respectively.The 2011 Note is due on September 16, 2016 and is secured by an interest in the gross receipts ofcertain members of Covenant (the Obligated Group).
The proceeds of the 2011 Note were used to refund a portion of Covenant's 2006 HospitalRevenue Refunding and Improvement Bond (the 2006 Bonds) totaling $35,500 and to providefinancing for facility and equipment improvements. Covenant recognized a loss on earlyextinguishment of the 2006 Bonds of approximately $1,255 which includes unamortizedinsurance premiums and other bond issuance costs.
During 2006, Covenant issued $206,745 of Hospital Revenue Refunding and ImprovementBonds (the 2006 Bonds) through The Health, Educational and Housing Facility Board of theCounty of Knox, Tennessee. The 2006 Bonds consisted of $46,245 of uninsured capitalappreciation bonds maturing through January 2042 and $160,500 of insured auction ratesecurities with a final maturity date of January 1, 2046. A portion of the proceeds from thesebonds were used to refund portions of certain maturities of Covenant's 2002 Bonds and weredeposited into an irrevocable escrow fund in amounts sufficient to pay all applicable principalmaturities refunded. The principal amounts outstanding on the advanced refunded 2002 Bondstotal $17,430 at December 31, 2012. Management believes that the escrow fund deposit relievesCovenant's responsibility as primary obligor on that portion of the 2002 Bonds and, accordingly,those obligations were derecognized in the Consolidated Balance Sheets. Activity in theirrevocable escrow account is restricted to transactions approved by the Trustee. The remainingportion of the 2006 Bonds proceeds were deposited into an acquisition fund for capitalimprovements of Covenant or used to pay issuance costs.
During 2008, the 2006 auction rate securities were converted to a variable rate determined dailyby the remarketing agent based upon comparable tax-exempt obligations. On September 15,2011, $125,000 of these variable rate securities were converted to a bank-held variable interestrate note with a lender. The bank-held bonds bear interest at a variable rate equal to 75% of theone-month LIBOR plus an additional margin (currently 0.6%) based on Covenant's credit rating.The rate may also increase if the Federal Corporate Tax rate decreases. The average variableinterest rate after the conversion was 0.8%, including the margin, during 2012 and 2011. Thebank-held bonds interest rate period ends on September 16, 2016 at which point the bonds willbe converted to another interest rate mode. The principal and interest payments are guaranteedby insurance policies.
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE F--LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - Continued
With respect to the 2006 capital appreciation bonds, the maturity amount is $222,465. Covenantis accreting the difference between the principal amount and the maturity amount as interestexpense over the term of the bonds using the bonds outstanding method. The capitalappreciation bonds are subject to early redemption on or after January 1, 2017 at a redemptionprice equal to their compound accreted value as of the redemption date without premium. These2006 capital appreciation bonds are secured by an interest in the gross receipts of the ObligatedGroup.
The 2006 Bonds are subject to extraordinary and early redemption. The 2006 Bonds are callablefor redemption prior to maturity in the event of damage to or destruction of projects funded, asdefined in the agreement. Covenant has requirements to make principal debt service payments onthe outstanding 2006 Bonds ranging from $3,500 in 2026 to $28,755 in 2042.
During 2002, Covenant issued $374,957 of Hospital Revenue Refunding and ImprovementBonds (the 2002 Bonds) through The Health, Educational and Housing Facility Board of theCounty of Knox, Tennessee. The 2002 Bonds consisted of three issues of current interest bonds(both insured and uninsured) totaling $62,640 (redeemed during 2012); $82,617 of insuredcapital appreciation bonds (redeemed during 2012); and $229,700 of insured auction ratesecurities with final maturity dates of January 1, 2023 and 2033.
With respect to the remaining 2002 auction rate (variable rate) securities which total $97,325,Covenant may elect to convert these bonds to fixed rate debt at any interest payment date. Themaximum bond interest rate for the 2002 auction rate securities is based on various publishedindices, not to exceed the maximum lawful rate and averaged approximately 0.3% for the yearsended December 31, 2012 and 2011. In the event such conversion occurs, these bonds aresubject to a mandatory tender to repurchase. Covenant refinanced a portion of these securitiesthrough the 2011 Bonds discussed earlier. The remaining 2002 auction rate securities aresecured by an interest in the gross receipts of certain members of Covenant (the ObligatedGroup).
Under the terms of the various bond indentures, Covenant is subject to a number of affirmativeand negative covenants, including restrictions on the incurrence of additional debt, themaintenance of specific financial ratios, and restrictions on the transfer of assets. In the eventsuch covenants are not met, Covenant may be required to fund a debt service reserve fund,pledge assets as collateral or take other actions as required under the Master Trust Indenture.Management believes Covenant is in compliance with all such requirements at December 31,2012.
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE F--LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - Continued
The scheduled maturities and mandatory principal debt service payments of the long-term debtand capital lease obligations (excluding interest), exclusive of net unamortized original issuediscounts and premiums, are as follows:
Year Ending December 31,
2013 $ 21,7712014 22,6002015 23,0772016 13,8642017 14,332
Thereafter 639,965
735,609Net premiums 14,784
$ 750,393
NOTE G--INCOME TAXES
Fortress and CMM (the For-Profit Subsidiaries) file a group consolidated federal, and separatecompany state income tax returns and account for income taxes under the provisions of FASBAccounting Standards Codification 740, Income Taxes. As of December 31, 2012 and 2011, theFor-Profit Subsidiaries have net operating loss carryforwards for federal income tax purposes ofapproximately $18,200 and $27,800, respectively, and for state purposes, approximately $59,200and $51,500, respectively. These carryforward amounts relate to operating losses generated inprior years which expire through 2032. The remaining net operating loss carryforward may beoffset against the future taxable income of each respective group or company.
Deferred income taxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used forincome tax purposes. Significant components of combined deferred taxes at December 31, 2012and 2011 include deferred tax assets of approximately $10,030 and $12,780, respectively, relatedto net operating loss carryforwards. Other deferred tax assets total approximately $5,900 and$3,800 at December 31, 2012 and 2011, respectively, and relate to other temporary differences;primarily deferred salaries and book/tax differences in income from partnership investments.
Deferred tax liabilities of approximately $599 and $159 at December 31, 2012 and 2011,respectively, relate primarily to book/tax differences in depreciation and amortization. Valuation
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE G--INCOME TAXES - Continued
allowances have been established for all net deferred tax assets as of December 31, 2012 and2011.
Covenant had no unrecognized tax benefits at December 31, 2012 and 2011. As such, no interestor penalties were recognized in the Consolidated Statements of Operations related tounrecognized tax benefits. At December 31, 2012, tax returns for 2009 through 2012 are subjectto examination by the Internal Revenue Service. Covenant has no uncertain tax positions thatwould require financial statement recognition or disclosure under generally accepted accountingprinciples at December 31, 2012 or 2011.
NOTE H--RETIREMENT PLANS
Covenant sponsors defined contribution plans (401(k) and 403(b) plans) for substantially all full-time employees meeting specified age and service requirements. Under these plans, during 2012and 2011, Covenant made a matching contribution of up to 6% of participants' eligible wages.Additionally, Covenant sponsors a non-qualified retirement plan for certain members ofmanagement to defer a portion of their income. During 2012 and 2011, Covenant made adiscretionary contribution of 4.5% of compensation, as defined, to this plan. Expenses related toall retirement plans totaled approximately $12,700 and $12,400 in 2012 and 2011, respectively.
NOTE I--COM TTMENTS, CONTINGENCIES AND OTHER
Professional Liability Insurance: Covenant and subsidiaries maintain an insurance policy toprotect from catastrophic medical malpractice or general liability exposure . This policy obligatesCovenant for the first $1,000 per occurrence for any claim (including claim expenses) madeduring the period per the Self-Insured Retention (SIR) policy. The total SIR obligation is$14,000 annually. Beyond the SIR obligation, Covenant's policy of insurance provides a$35,000 limit of insurance as protection for such insured liabilities . This limit of liability applies"per occurrence" and in the "annual aggregate" for any claims made during the policy period.
An estimated reserve for ultimate losses on claims reported and claims incurred but not reportedis established (undiscounted) based upon an actuarial study and is included in accrued expensesor other long-term liabilities based on management's estimate of when such claims will be paid.
Covenant and its subsidiaries are named as defendants in various lawsuits and other actionsclaiming alleged damages. While the ultimate outcome of these proceedings is not presentlydeterminable, it is the opinion of management that the claims will have no material adverse effecton the financial position or results of operations of Covenant.
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE I--COMMITMENTS, CONTINGENCIES AND OTHER - Continued
Employee Benefits: Covenant is self-insured for worker's compensation claims and recordsestimated amounts for reported claims, as well as a reserve for claims incurred but not reported,based on an actuarial study. Management's estimate of the amount of claims that will be paid inany subsequent year is included in accrued expenses and the remaining liability is reported asother long-term liabilities. Covenant is required by the Tennessee Self-Insured Workers'Compensation Program to maintain an irrevocable Letter of Credit for $10,677 as collateral forworkers' compensation claims.
Covenant maintains a self-funded healthcare plan to provide reimbursement for covered expensesincurred by eligible employees and covered dependents. Covenant has recorded an estimatedreserve for unpaid claims and claims incurred but not yet reported at December 31, 2012 and2011.
Projects in Progress: Certain subsidiaries of Covenant were engaged in construction, renovation
and information technology projects at December 31, 2012. Projects on which commitments or
contracts have been signed have an estimated cost to complete of approximately $20,000 at
December 31, 2012.
Physician Agreements: Covenant (or its subsidiaries) has entered into contractual relationshipswith physicians. These contracts include management services agreements, employmentcontracts, clinical scholar agreements and practice assistance agreements. These contracts haveterms of varying lengths. Some contracts include certain base annual payments and may includeadditional incentives based on productivity levels.
Municipal Leases: FLMC leases its operating facility under a capital lease agreement withLoudon County, Tennessee (the County). This facility is included as a part of buildings andleasehold improvements. Under the terms of the agreement with the County, Covenantcompleted construction of a replacement facility for FLMC during 2004. Covenant acquired landand constructed the facility on behalf of the County and has transferred title to the County.However, FLMC is leasing the new facility from the County for twenty years (at a nominalannual amount) with two renewal options for five years each and has recognized this facility asan asset of Covenant.
Covenant also entered into an agreement with the City of Harriman , Tennessee , to lease andpurchase certain assets , and assume certain liabilities , of Roane Medical Center. Under the termsof the agreement , Covenant has committed to invest a minimum of $50 ,000 in the acquisition,development, construction and equipping of a new hospital facility . The lease of the currentfacility will terminate 90 days after completion of the new facility. The new facility wascompleted and placed in service in February 2013.
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE I--CONMUTMENTS, CONTINGENCIES AND OTHER - Continued
Operating Leases: Covenant has entered into certain non-cancelable leases for office space andequipment which require payments through 2022. Total rental expense for all operating leaseswas approximately $8,620 and $8,640 for the years ended December 31, 2012 and 2011,respectively . The following is a schedule of future minimum lease payments under non-cancelable lease agreements with remaining terms of at least one year, net of subleases , for theyears ending December 31:
2013 $ 2,1222014 1,5362015 7022016 782017 81
Thereafter 350
$ 4,869
In addition, Covenant leases office space to physicians and others under various lease agreements
with terms in excess of one year. Rental revenue recognized in each of the years 2012 and 2011
totaled approximately $12,610. The following is a schedule of future minimum lease payments
to be received for the years ending December 31 •
2013 $ 9,2062014 8,0992015 7,1262016 6,0072017 5,029
Thereafter 17,676
$ 53,143
Union Service Agreements: MMC participates in two separate union service agreements, the"RN Unit" agreement and the " Service and Technical Unit" agreement, which were signed inAugust 2011. The agreements are for a three-year period through October 2014. Bothagreements provide a no strike and no lockout provision to protect both parties to the agreement.
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE I--COMMITMENTS, CONTINGENCIES AND OTHER - Continued
Healthcare Industry: The healthcare industry is subject to numerous laws and regulations of
federal, state and local governments. These laws and regulations include, but are not necessarily
limited to, matters such as licensure, accreditation, government healthcare program participation
requirements, reimbursement for patient services, Medicare fraud and abuse and under provisions
of the Health Insurance Portability and Accountability Act of 1996, patient records privacy and
security. Recently, government activity has increased with respect to investigations and
allegations concerning possible violations of fraud and abuse statutes and regulations by
healthcare providers. Violations of these laws and regulations could result in expulsion from
government healthcare programs together with the imposition of significant fines and penalties,
as well as significant repayments for patient services previously billed.
In March 2010, Congress adopted comprehensive health care insurance legislation, Patient CareProtection and Affordable Care Act and Health Care and Educational Reconciliation Act. Thelegislation, among other matters is designated to expand access to coverage to substantively allcitizens by 2019 through a combination of public program expansion and private industry healthinsurance. Changes to existing Medicaid coverage and payments are also expected to occur as aresult of this legislation. Implementing regulations are generally required for these legislativeacts, which are to be adopted over a period of years and, accordingly, the specific impact of anyfuture regulations is not determinable.
NOTE J--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of substantially all financial instruments approximates fair value due to thenature or term of the instruments, except as described below. The following methods andassumptions were used to estimate the fair value of these other financial instruments:
Investments in Alternative Investments: The fair value of investments in alternative investmentsis determined based on the fair value of the underlying assets as determined by the fund manager.
Long-Term Debt: The fair value of long-term debt is estimated based upon quotes from brokersfor tax-exempt bonds and discounted future cash flows using current market rates for other debt.For long-term debt with variable interest rates, the carrying value approximates fair value.
Other Long-term Liabilities: Other long-term liabilities consist of reserves for professional andworkers' compensation liabilities and deferred gains related to the sale of a subsidiary (See NoteN). The fair value of other long-term liabilities is not estimable, due to the uncertainties indetermining the future payment date of liability claims and the unique nature of the deferredgains.
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE J--FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
The estimated fair value of Covenant's significant financial instruments which have carryingvalues different from fair value is as follows at December 31, 2012 and 2011:
2012 2011Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Investments in alternative investments $ 71,003 $ 87,999 $ 71,948 $ 84,026
Long-term debt (excluding capital leases) 748,610 751,957 757,320 751,381
NOTE K--FAIR VALUE MEASUREMENT
FASB ASC 820, Fair Value Measurements and Disclosures, establishes a three-level valuationhierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon thetransparency of inputs to the valuation of an asset or liability as of the measurement date. Thethree levels are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identicalassets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets andliabilities in active markets, and inputs that are observable for the asset or liability, eitherdirectly or indirectly, for substantially the full term of the asset or liability.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fairvalue measurement.
The following table presents assets reported at fair value as of December 31, 2012 and 2011 andtheir respective classification under the valuation hierarchy:
Significant
Quoted Prices Other Significant
in Active Observable UnobservableCarrying Markets Inputs Inputs
Value (Level 1) (Level 2) (Level 3)
Assets Measured at Fair Value on a
Recurring Basis at December 31, 2012
Investments in debt and equity securities $ 880,393 $ 255,214 $ 625,179 $
Investments in collective trust funds 37,063 - 37,063
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE K--FAIR VALUE MEASUREMENT - Continued
Significant
Quoted Prices Other Significant
in Active Observable Unobservable
Carrying Markets Inputs Inputs
Value (Level 1) (Level 2) (Level 3)
Assets Measured at Fair Value on a
Recurring Basis at December 31, 2011
Investments in debt and equity securities
Investments in collective trust funds856,497 $ 200,484 $ 656,013 $
30,493 - 30,493
There were no liabilities requiring fair value measurement disclosure at December 31, 2012 or
2011.
NOTE L--EXPENSES BY FUNCTIONAL CLASSIFICATION
Covenant does not present expenses based upon functional classification because its resourcesand activities are primarily related to providing healthcare services.
NOTE M--ACQUISITIONS
Cancer Center: During 2012, MHHS acquired the remaining 50% interest in Morristown-Regional Cancer Center (MRCC) under the terms of a purchase agreement effective January 1,2012. The assets acquired and liabilities assumed, at their estimated fair value based on anindependent valuation, were not significant. MHHS recorded goodwill totaling $5,319 as aresult of this transaction. The operations of MRCC for 2012 have been combined with theoperations ofMHHS and cannot be separately identified.
Physician Practices: CMM acquired certain assets and assumed certain liabilities of CrossvilleMedical Group effective July 1, 2012; Southern Medical Group, effective December 1, 2012; andFamily Care Specialist effective December 31, 2012. The assets acquired and liabilitiesassumed, at their estimated fair, were not significant. CMM recorded goodwill totaling $3,234as a result of these transactions.
NOTE N--DISCONTINUED OPERATIONS AND RELATED DEFERRED GAIN
In 2008, Covenant sold all of the outstanding Class A common stock and Class C common stockof PHP Companies, Inc. (PHP), a for-profit organization that operated an insurance corporation,as well as a licensed health maintenance organization for commercial health insurance products
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE N--DISCONTINUED OPERATIONS AND RELATED DEFERRED GAIN - Continued
and Medicare risk products, and managed a health maintenance organization under the State ofTennessee's TennCare program, to Humana, Inc. (Humana).
The purchase price was subject to adjustments based on final settlement of estimates included inthe consolidated balance sheet of PHP at October 31, 2008, including those related to futureclaims payments and audits thereof by governmental authorities or their agents and other parties.During 2010, Covenant received $34,923 as additional payment on these contingent settlements.Covenant recognized $24,923 of this amount as additional gain on the sale of discontinuedoperations with the balance deferred in other current liabilities pending the result of additionalclaims audits and settlement of other matters.
In conjunction with the sale of PHP, Covenant entered into a seven-year Hospital SystemParticipation Agreement (the Provider Agreement) with Humana. Under the terms of theProvider Agreement, Covenant agreed to reimbursement rates for individuals covered byHumana's commercial and Medicare plans at rates below those received from similar insuranceprograms, and has limits on future rate increases from Humana. As such, Covenant deferred theportion of the sale proceeds estimated to be compensation for entering into the ProviderAgreement. Covenant estimated this deferral to be $71,000, which is being amortized as part ofnet patient service revenue over the term of the Provider Agreement. During 2012 and 2011,Covenant recognized net patient service revenue totaling $13,010 and $13,388, respectively,related to amortization of amounts deferred related to this Provider Agreement.
Additionally, as part of the sale of PHP, Covenant entered into an Administrative ServicesAgreement (ASO) with Humana for third party health claims administration for Covenantemployees under a self-insured health plan for a period of eight years beginning January 1, 2009.Under the terms of the ASO, Covenant agreed to pay a fixed rate for these services at a rate thatwas higher than the then current market rate. Covenant estimated the portion of the sale proceedsrelated to this agreement totaled $6,100 which is being amortized and reported as a reduction ofhealth plan administration expenses over the term of the ASO Agreement. During 2012 and2011, Covenant recognized $1,035 annually as a reduction of claims administration expenserelated to amortization of this ASO Agreement.
During 2012, Covenant entered into a final Settlement Agreement with Humana. The terms ofthe Settlement Agreement required Humana to make an additional payment of $15,073 toCovenant. The agreement also required certain amendments to the Provider Agreement. Thefirst amendment provides for a further reduction in the payment rate related to services providedby Covenant to Humana's Medicare plan for the next two years. The second amendmentrequires Covenant to participate in a Humana select managed care product for a three-year period
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COVENANT HEALTH
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Years Ended December 31, 2012 and 2011
NOTE N--DISCONTINUED OPERATIONS AND RELATED DEFERRED GAIN - Continued
beginning January 1, 2013. Services provided to Humana members under this product will bereimbursed based on a fee schedule that provides for rates that are less than the rates paid undercurrent Humana managed care plans.
Covenant considers these amendments a required part of the Settlement Agreement and thereforehas determined that a portion of the settlement proceeds should be reported as deferred revenueto offset the reduced reimbursement that will occur in future years. Covenant estimated thisdeferral to be $11,607, which will be amortized as part of net patient service revenue during theterm of the agreement beginning in 2013.
The final payment, net of the deferred amount, and previously unrecognized amounts have been
recognized as an additional gain on the sale of discontinued operations in the Consolidated
Statement of Operations and Changes in Net Assets for the year ended December 31, 2012. The
Settlement Agreement releases both parties of any additional or future claims related to the
original transaction and related agreements.
33