This Preliminary Offering Memorandum and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Offering Memorandum constitute an offer to sell or the solicitation of an offer to buy, nor
shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction.
PRELIMINARY OFFERING MEMORANDUM DATED MARCH 29, 2017
NEW ISSUE – BOOK-ENTRY ONLY
See “DESCRIPTION OF RATINGS” herein
$300,000,000*
Hackensack Meridian Health
____% Taxable Bonds, Series 2017
Dated: Date of Delivery
Price: ______%
CUSIP No. _________†
Due: July 1, ____
The Hackensack Meridian Health Taxable Bonds, Series 2017 (the “Series 2017 Bonds”) will be issued pursuant to the terms of a Trust
Indenture, dated as of April 1, 2017 (the “Indenture”), by and between Hackensack Meridian Health, Inc., a New Jersey nonprofit corporation
(the “Institution”), and The Bank of New York Mellon, as trustee (the “Trustee”). The proceeds of the Series 2017 Bonds will be used by the
Institution to (i) provide moneys to finance the general corporate purposes of the Institution and other System Affiliates (as defined herein),
and (ii) pay the costs of issuance of the Series 2017 Bonds.
The Series 2017 Bonds will be issued in fully registered form in denominations of $1,000 and any integral multiple thereof and, when
issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC
will act as securities depository for the Series 2017 Bonds. Individual purchases will be made in book-entry form only, in principal amounts
of $1,000 and any integral multiple thereof. Purchasers of the Series 2017 Bonds will not receive physical certificates (except under certain
circumstances described in the Indenture) representing their ownership interests in the Series 2017 Bonds purchased.
Interest on the Series 2017 Bonds will be payable on January 1 and July 1 of each year, commencing on January 1, 2018. So long as
the Series 2017 Bonds are held by DTC, the principal or Redemption Price of and interest on the Series 2017 Bonds will be payable by
wire transfer to DTC, which in turn is required to remit such principal or Redemption Price and interest to the DTC Participants (as defined
herein) for subsequent disbursement to the Beneficial Owners of the Series 2017 Bonds, as more fully described in “BOOK-ENTRY ONLY
SYSTEM” herein.
The Series 2017 Bonds are subject to optional redemption prior to maturity as described herein. See “THE SERIES 2017
BONDS – Redemption” herein.
Interest on and profit, if any, on the sale of the Series 2017 Bonds are not excludable from gross income for federal, state or local
income tax purposes. See “CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS” herein.
The Series 2017 Bonds have not been registered under the Securities Act of 1933, as amended, or any state securities laws.
To secure the Institution’s obligations under the Indenture, the Institution, as sole Member of the Obligated Group (the “Obligated
Group”), will issue a note (the “Series 2017 Note”) to the Trustee, secured by a pledge of Gross Revenues (as defined herein) of the
Combined Group (as defined herein) pursuant to a Master Trust Indenture, dated as of April 1, 2017 (the “Master Indenture”), with The Bank
of New York Mellon, as master trustee (the “Master Trustee”).
The Obligated Group has other indebtedness outstanding, including indebtedness that will become secured by promissory notes
and/or other Debt Obligations issued under and pursuant to the Master Indenture simultaneously with the issuance of the Series 2017
Note. Moreover, the Members of the Obligated Group are permitted to issue additional indebtedness, which may be either unsecured or
secured, including secured by a lien on Gross Revenues securing the Series 2017 Note, as more fully described herein. See Appendix
A – “INFORMATION CONCERNING HACKENSACK MERIDIAN HEALTH – SELECTED FINANCIAL INFORMATION – LONG
TERM INDEBTEDNESS AND INTEREST RATE SWAP AGREEMENTS” and Appendix B-1 through Appendix B-4 attached hereto.
See also “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS” herein.
There are certain risks associated with the purchase of the Series 2017 Bonds. See “BONDHOLDERS’ RISKS” herein.
This cover page contains certain information for quick reference only. It is not intended to be a summary of this issue. Investors must
read the entire Offering Memorandum to obtain information essential to the making of an informed investment decision.
The Series 2017 Bonds are offered when, as and if issued by the Institution and accepted by the Underwriters, subject to prior sale, to
withdrawal or modification of the offer without notice, and to the approval of legality by McCarter & English, LLP, Newark, New Jersey,
counsel to the Obligated Group. Certain legal matters will be passed upon for the Underwriters by their counsel, Hawkins Delafield &
Wood LLP, Newark, New Jersey. It is expected that the Series 2017 Bonds will be available for delivery to DTC in New York, New York or
its custodial agent on or about April __, 2017.
Goldman, Sachs & Co.
Dated: April __, 2017
* Preliminary, subject to change.
† See the CUSIP footnote on page iv, “SUMMARY OF THE OFFERING”.
J.P. Morgan
TABLE OF CONTENTS
Page
GENERAL INFORMATION ........................................................................................................................................ii SUMMARY OF THE OFFERING .............................................................................................................................. iv INTRODUCTION ......................................................................................................................................................... 1 THE SERIES 2017 BONDS.......................................................................................................................................... 5 BOOK-ENTRY ONLY SYSTEM ................................................................................................................................ 8 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS .................................................... 10 CERTAIN FINANCIAL COVENANTS .................................................................................................................... 13 PLAN OF FINANCE .................................................................................................................................................. 15 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................................... 16 DEBT SERVICE REQUIREMENTS ......................................................................................................................... 17 BONDHOLDERS’ RISKS .......................................................................................................................................... 18 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS .................................................... 59 ERISA CONSIDERATIONS ...................................................................................................................................... 60 UNDERWRITING ...................................................................................................................................................... 61 FINANCIAL ADVISOR ............................................................................................................................................. 62 CERTAIN RELATIONSHIPS .................................................................................................................................... 62 CONTINUING DISCLOSURE................................................................................................................................... 62 INDEPENDENT ACCOUNTANTS ........................................................................................................................... 63 DESCRIPTION OF RATINGS ................................................................................................................................... 63 LITIGATION .............................................................................................................................................................. 64 MISCELLANEOUS .................................................................................................................................................... 64 APPENDIX A
APPENDIX B-1
APPENDIX B-2
APPENDIX B-3
APPENDIX B-4
APPENDIX C
APPENDIX D
– Information Concerning Hackensack Meridian Health. .......................................................... A-1
– Hackensack Meridian Health, Inc. Consolidated Financial Statements and Consolidating
Supplemental Schedules, Six Month Period Ending December 31, 2016 ............................B-1-1
– Hackensack University Medical Center Consolidated Financial Statements
December 31, 2016 and 2015 ...............................................................................................B-2-1
– Meridian Hospitals Corporation and Meridian Nursing and Rehabilitation, Inc.
Combined Financial Statements and Combining Supplemental Schedules
December 31, 2016 and 2015 ...............................................................................................B-3-1
– HackensackUMC Palisades and Affiliates (Successor) and Palisades Healthcare System, Inc.
(Predecessor) Financial Statements and Supplemental Schedules, Period March 1, 2016 to
December 31, 2016 (Successor) and January 1, 2016 to February 29, 2016 (Predecessor)..B-4-1
– Forms of the Trust Indenture and the Master Indenture .......................................................... C-1
– Approving Opinion of Institution Counsel .............................................................................. D-1
i.
GENERAL INFORMATION
This Offering Memorandum does not constitute an offer to sell the Series 2017 Bonds in any jurisdiction in
which or to any person to whom it is unlawful to make such an offer. No dealer, salesperson or other person has
been authorized by the Underwriters or the Obligated Group to give any information or to make any representations,
other than those contained herein, in connection with the offering of the Series 2017 Bonds and, if given or made,
such information or representations must not be relied upon.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE OBLIGATED GROUP AND THE TERMS OF THIS OFFERING MEMORANDUM,
INCLUDING THE MERITS AND RISKS INVOLVED. NONE OF THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION, OR ANY OTHER FEDERAL OR STATE
REGULATORY AUTHORITY HAS RECOMMENDED OR APPROVED OR DISAPPROVED OF THE SERIES
2017 BONDS, OR DETERMINED THAT THIS OFFERING MEMORANDUM IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Series 2017 Bonds have not been and will not be registered under the Securities Act of 1933, as
amended (the “Securities Act”), and are being issued in reliance on an exemption under Section 3(a)(4) of the
Securities Act. The Series 2017 Bonds are not exempt in every jurisdiction in the United States; some jurisdictions’
securities laws (the “blue sky laws”) may require a filing and a fee to secure the Series 2017 Bonds’ exemption from
registration. In addition, the Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in
reliance upon exemptions in such Act.
The distribution of this Offering Memorandum and the offer or sale of Series 2017 Bonds may be restricted
by law in certain jurisdictions. None of the Members of the Obligated Group or the Underwriters represent that this
Offering Memorandum may be lawfully distributed, or that any Series 2017 Bonds may be lawfully offered, in
compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an
exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In
particular, no action has been taken by the Obligated Group or the Underwriters which would permit a public
offering of any of the Series 2017 Bonds or distribution of this Offering Memorandum in any jurisdiction where
action for that purpose is required. Action may be required to secure exemptions from the blue sky registration
requirements either for the primary distributions or any secondary sales that may occur. Accordingly, none of the
Series 2017 Bonds may be offered or sold, directly or indirectly, and neither this Offering Memorandum nor any
advertisement or other offering material may be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with any applicable laws and regulations.
All information set forth herein has been obtained from the Obligated Group, The Depository Trust
Company and other sources which are believed to be reliable, but are not guaranteed as to accuracy or completeness,
and is not to be construed as a representation of the Underwriters. Estimates and opinions are included and should
not be interpreted as statements of fact. Summaries of documents do not purport to be complete statements of their
provisions. The information and expressions of opinion herein are subject to change without notice, and neither the
delivery of this Offering Memorandum nor any sale made hereunder will, under any circumstances, create any
implication that there has been no change in the affairs of the Members of the Obligated Group since the date hereof.
Certain statements included or incorporated by reference in this Offering Memorandum constitute
“forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of
1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 27A of the Securities Act. Such statements are generally identifiable by the terminology used such as
“plan,” “expect,” “estimate,” “budget,” “intend,” “projection” or other similar words. Such forward-looking
statements include, but are not limited to, certain statements contained in Appendix A – “INFORMATION
CONCERNING HACKENSACK MERIDIAN HEALTH” and Appendix B-1 through Appendix B-4. A number of
important factors, including factors affecting the financial condition of the Members of the Obligated Group and
factors which are otherwise unrelated thereto, could cause actual results to differ materially from those stated in such
forward-looking statements. THE OBLIGATED GROUP DOES NOT PLAN TO ISSUE ANY UPDATES OR
REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS
ii.
CHANGE, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE
BASED OCCUR.
The Underwriters have provided the following sentence for inclusion in this Offering Memorandum. The
Underwriters have reviewed the information in this Offering Memorandum in accordance with, and as part of, their
responsibility to investors under the federal securities laws as applied to the facts and circumstances of this
transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES
2017 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The order and placement of materials in this Offering Memorandum, including the Appendices, are not to
be deemed to be a determination of relevance, materiality or importance, and this Offering Memorandum, including
the Appendices, must be considered in its entirety.
iii.
SUMMARY OF THE OFFERING
Issuer
Hackensack Meridian Health, Inc.
Securities Offered
$_________ ____%, Price ____% Taxable Bonds, Series 2017, due
July 1, ____
Issue Price
________%
CUSIP Number
______________*
Interest Accrual Dates
Interest will accrue from April __, 2017
Interest Payment Dates
January 1 and July 1 of each year, commencing January 1, 2018
Redemption
The Series 2017 Bonds are subject to optional redemption by the
Institution, in whole or in part at any time, (i) prior to ________, at the
Make-Whole Redemption Price, and (ii) on or after _____________,
at par, in either case plus accrued interest thereon to the date set for
redemption as described more fully herein. See “THE SERIES 2017
BONDS –Redemption” herein.
Settlement Date
April __, 2017
Authorized Denominations
$1,000 and any integral multiple thereof.
Form and Depository
The Series 2017 Bonds will be delivered solely in book-entry form
through the facilities of DTC.
Use of Proceeds
The Institution will use the proceeds of the Series 2017 Bonds to: (i)
provide moneys to finance the general corporate purposes of the
Institution and other System Affiliates; and (ii) pay the costs of
issuance of the Series 2017 Bonds. See “PLAN OF FINANCE”
herein.
Ratings
Fitch: “___” (______) outlook
S&P: “A+” (positive) outlook
The Bank of New York Mellon
Bond Trustee
(*)
Copyright 2017, American Bankers Association. The CUSIP (Committee on Uniform Securities
Identification Procedures) number in this Offering Memorandum has been assigned by an organization not affiliated
with the Foundation, the Underwriters or the Bond Trustee, and such parties are not responsible for the selection or
use of the CUSIP number. The CUSIP number is included solely for the convenience of Bondholders and no
representation is made as to the correctness of the CUSIP number herein. CUSIP numbers assigned to securities
may be changed during the term of such securities based on a number of factors including but not limited to the
refunding or defeasance of such issue or the use of secondary market financial products. None of the Foundation,
the Underwriters or the Bond Trustee has agreed to, nor is there any duty or obligation to, update this Offering
Memorandum to reflect any change or correction in the CUSIP number herein.
iv.
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
OFFERING MEMORANDUM
Relating to
$300,000,000*
HACKENSACK MERIDIAN HEALTH
TAXABLE BONDS, SERIES 2017
INTRODUCTION
The purpose of this Offering Memorandum, which includes the cover page, the General Information on
pages ii. through iv. and the appendices hereto, is to provide certain information concerning Hackensack Meridian
Health, Inc., including information concerning the other Members of the Obligated Group (as defined below) and
the sale and delivery by the Institution of $300,000,000* aggregate principal amount of its Taxable Bonds, Series
2017 (the “Series 2017 Bonds”). This Introduction contains only a brief summary of certain of the terms of the
Series 2017 Bonds being offered and a brief description of the Offering Memorandum. All statements contained in
this Introduction are qualified in their entirety by reference to the entire Offering Memorandum. The definitions of
certain terms used and not otherwise defined herein are contained in Appendix C – “FORMS OF THE TRUST
INDENTURE AND THE MASTER INDENTURE.”
Hackensack Meridian
Hackensack University Health Network, Inc., a New Jersey nonprofit corporation (“HUHN”) and Meridian
Health System, Inc., a New Jersey nonprofit corporation (“Meridian”) completed a transaction effective July
1, 2016, whereby Hackensack Meridian Health, Inc., also a New Jersey nonprofit corporation (referred to herein as
“Hackensack Meridian”, the “Institution”, the “System” or the “Combined Group Agent”), became the surviving
corporation of both HUHN and Meridian. The Institution consists of a group of affiliated health care organizations
(each, a “System Affiliate”). The sole member or stockholder of each System Affiliate is either Hackensack
Meridian or another System Affiliate controlled by Hackensack Meridian. The System forms an integrated network
of health care providers throughout the State of New Jersey.
The System offers a complete range of medical services, research and life-enhancing care. The Institution
comprises 13 hospitals, including two academic medical centers, two children's hospitals and nine community
hospitals, physician practices, more than 120 ambulatory care centers, surgery centers, home health services, longterm care and assisted living communities, ambulance services, air medical transportation, fitness and wellness
centers, rehabilitation centers, and urgent care and after-hours centers. The System has 28,000 team members
(employees) and more than 6,000 credentialed physicians.
For a more detailed discussion of Hackensack Meridian and the System Affiliates, see Appendix A hereto.
Purpose of the Series 2017 Bonds and the Plan of Finance
The Institution will use the proceeds of the Series 2017 Bonds to: (i) provide moneys to finance the general
corporate purposes of the Institution and other System Affiliates; and (ii) pay the costs of issuance of the Series 2017
Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein and Appendix
A hereto.
Concurrently with the issuance of the Series 2017 Bonds, Hackensack Meridian is expected to issue the
New Jersey Health Care Facilities Financing Authority (the “Authority”) Revenue and Refunding Bonds,
Hackensack Meridian Health Obligated Group Issue, Series 2017A (the “Series 2017A Bonds”) in the aggregate
*
Preliminary, subject to change.
principal amount of $620,000,000*. The proceeds of the Series 2017A Bonds are expected to be used to provide
funds in an amount sufficient, together with investment earnings and other available funds, to: (i) refund, redeem
and/or legally defease all of the following outstanding bonds, the Authority’s Revenue and Refunding Bonds,
Palisades Medical Center Obligated Group Issue, Series 2013, the Authority’s Revenue and Refunding Bonds,
Hackensack University Medical Center Issue, Series 2010B, the Authority’s Revenue and Refunding Bonds,
Hackensack University Medical Center Issue, Series 2010, the Authority’s Revenue Bonds, Hackensack University
Medical Center Issue, Series 2008, the Authority’s Revenue Bonds, Meridian Health System Obligated Group Issue,
Series 2007 (collectively, the “Refunded Bonds”), (ii) refinance a taxable commercial bank loan taken by the
Hackensack Meridian, the proceeds of which were used to provide the funds necessary to refinance and defease,
prior to the date hereof, a portion of the Authority’s outstanding Revenue and Refunding Bonds, Hackensack
University Medical Center Issue, Series 2010B, and its Revenue and Refunding Bonds, Palisades Medical Center
Obligated Group Issue, Series 2013 (the “Taxable Loan Refinancing”), (iii) reimburse Hackensack Meridian and/or
its applicable affiliate for the costs of planning, development, acquisition, construction, equipping and furnishing of
the Hope Tower, a new ten story building located in Neptune, New Jersey, on the campus of Jersey Shore University
Medical Center, which is owned and operated by Meridian Hospitals Corporation (“MHC”), an affiliate of
Hackensack Meridian, which will primarily house various outpatient medical facilities and services and will also
contain a parking garage and other parking facilities, and (iv) pay certain costs incurred in connection with the
issuance and sale of the Series 2017A Bonds. The Series 2017A Bonds are being issued under separate bond
documents and offered pursuant to a separate offering document. The issuance of the Series 2017 Bonds is
contingent on the issuance of the Series 2017A Bonds.
The Combined Group
Hackensack Meridian is the sole Member of the Obligated Group. Pursuant to the Master Indenture
(defined herein), Hackensack Meridian has designated Hackensack University Medical Center (“HUMC”), MHC,
Palisades Medical Center, Inc., and Raritan Bay Medical Center as Designated Affiliates. For a further description
of the hospitals operated by Hackensack Meridian, see “FACILITIES OVERVIEW” in Appendix A to this Offering
Memorandum. The Master Indenture provides that Hackensack Meridian, as the Combined Group Agent, shall
cause each Designated Affiliate, and use reasonable efforts to cause each other System Affiliates (subject to
contractual and organizational limitations), to pay, loan or otherwise transfer to the Combined Group Agent such
amounts as are necessary to duly and punctually make payments due under any Obligation under the Master
Indenture. Members of the Obligated Group and the Designated Affiliates are referred to collectively herein as the
“Combined Group.” See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS – The
Master Indenture.”
In the future, other entities may become Members of the Obligated Group in accordance with the
provisions of the Master Indenture as supplemented from time to time, and members of the Obligated Group may
withdraw from the Obligated Group and be released from their respective obligations under the Master Indenture
upon compliance with the conditions prescribed therein. See “SECURITY AND SOURCES OF PAYMENT FOR
THE SERIES 2017 BONDS – The Master Indenture.
Hackensack Meridian currently intends to merge some or all of the Designated Affiliates with one another
over the course of the next year. Such transactions among Designated Affiliates are permitted under the Master
Indenture.
See “THE SYSTEM” herein and Appendix A hereto for certain information regarding the Members of the
Combined Group. For a form of the Master Indenture, see “FORMS OF THE TRUST INDENTURE AND THE
MASTER INDENTURE – FORM OF THE MASTER INDENTURE” in Appendix C hereto.
*
Preliminary, subject to change.
2
The Series 2017 Bonds
The Series 2017 Bonds are being issued pursuant to a Trust Indenture, dated as of April 1, 2017 (the
“Indenture”), by and between the Institution and The Bank of New York Mellon, as bond trustee (the “Trustee”).
The Series 2017 Bonds will mature on the date, and bear interest at the rate, set forth on the cover page hereof. See
“THE SERIES 2017 BONDS” herein.
The Master Indenture
The obligation of Hackensack Meridian to make payments under the Indenture are evidenced by a
promissory note of Hackensack Meridian, on behalf of itself and any future Members of the Obligated Group, dated
as of the date of Closing (the “Series 2017 Note”), in an aggregate principal amount equal to the principal amount of
the Series 2017 Bonds and will contain payment provisions corresponding to those of the Series 2017 Bonds. The
Series 2017 Note will be issued under and pursuant to the Master Trust Indenture (the “Master Trust Indenture”) by
and between Hackensack Meridian, on behalf of itself and any future Members of the Obligated Group, and The
Bank of New York Mellon, as Master Trustee (the “Master Trustee”), dated as of April 1, 2017, as amended and
supplemented by a First Supplemental Indenture by and between Hackensack Meridian, on behalf of itself and any
future Members of the Obligated Group, and the Master Trustee, dated as of April 1, 2017 (the “First Supplemental
Indenture” and, together with the Master Trust Indenture, are collectively referred to herein as the “Master
Indenture”).
The Series 2017 Note will be secured under the Master Indenture equally and ratably with other Debt
Obligations, Hedging Obligations or Ancillary Obligations outstanding thereunder upon the issuance of the Series
2017 Bonds or thereafter pursuant to the Master Indenture, including without limitation, the Debt Obligations to be
issued currently with the Series 2017 Note described herein.
To secure its payment obligations under the Series 2017 Note, each Member of the Combined Group shall
grant, upon the issuance of the Series 2017 Bonds, to the Master Trustee for the equal and ratable benefit of the
holders of all Obligations issued and Outstanding under the Master Indenture a first lien on and security interest in
the Gross Revenues (as hereinafter defined) of such Member of the Combined Group subject to the provisions of the
Master Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS” herein.
Concurrently with the issuance of the Series 2017 Bonds, Hackensack Meridian is expected to issue the
Series 2017A Note under the Master Indenture in the aggregate principal amount of the Series 2017A Bonds in
order to secure the obligations thereunder, which Series 2017A Note will be secured by the lien on Gross Revenues
on a parity with the lien securing the Series 2017 Note. In addition, certain existing debt of the Members of the
Obligated Group is expected to remain outstanding and will not be redeemed, refunded, refinanced or legally
defeased with the proceeds of the Series 2017 Bonds or the Series 2017A Bonds. Such existing debt is expected to
be secured as Debt Obligations through the use of substitute or replacement promissory notes under the Master
Indenture, which will be on a parity with the Series 2017 Note and the Series 2017A Note, and may add Hackensack
Meridian as a borrower. See “PLAN OF FINANCE” and “SOURCES OF PAYMENT FOR THE SERIES 2017
BONDS – Potential for Additional Covenants For Existing Institutional Debt” for additional information related
thereto.
It should be noted that the Master Indenture contains provisions permitting amendments thereto under
certain conditions. See “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE – FORM OF
THE MASTER INDENTURE – Section 701. Supplemental Indentures Not Requiring Consent of Obligation
Holders,” “ – Section 702. Supplemental Indentures Requiring Consent of Obligation Holders” and “ – Section 703.
Note and Document Substitution” in Appendix C hereto.
Security and Sources of Payment for the Series 2017 Bonds
The Series 2017 Bonds constitute general obligations of the Institution. As security for the Series 2017
Bonds, the Obligated Group will cause to be delivered to the Trustee the Series 2017 Note issued pursuant to the
Master Indenture. The Series 2017 Note shall be secured by a lien on Gross Revenues of the Combined Group as
3
set forth in the Master Indenture and as described herein. The Series 2017 Note will constitute a joint and several
obligation of the Institution and any other entities which may hereafter become Members of the Obligated Group.
The Series 2017 Bonds will be secured by the Series 2017 Note, which Series 2017 Note is to be secured
on a parity basis, including with respect to the pledge of Gross Revenues, with all outstanding Notes and obligations
issued and to be issued the Master Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE
SERIES 2017 BONDS” herein.
Redemption
The Series 2017 Bonds are subject to optional redemption by the Institution prior to maturity, in whole or
in part at any time, (i) prior to ____________, at the Make-Whole Redemption Price, as described herein, and (ii) on
or after ____________, at par, in either case plus accrued interest thereon to the date set for redemption as more
fully described herein. See “THE SERIES 2017 BONDS –Redemption” herein. The Bonds are not subject to
mandatory sinking fund redemption.
Book-Entry Only System
When delivered, the Series 2017 Bonds will be registered in the name of Cede & Co., the nominee of The
Depository Trust Company (“DTC”). DTC will act as the securities depository for the Series 2017 Bonds.
Purchases of the Series 2017 Bonds may be made in book-entry form only, through brokers and dealers who are, or
who act through, DTC Participants. Beneficial Owners of the Series 2017 Bonds will not receive physical delivery
of certificated securities (except under certain circumstances described in the Indenture). Payment of the principal
or Redemption Price of and interest on the Series 2017 Bonds are payable by the Trustee to DTC, which will in turn
remit such payments to the DTC Participants, which will in turn remit such payments to the Beneficial Owners of
the Series 2017 Bonds. In addition, so long as Cede & Co. is the registered owner of the Series 2017 Bonds, the
right of any Beneficial Owner to receive payment for any Series 2017 Bond will be based only upon and subject to
the procedures and limitations of the DTC book-entry system. See “BOOK-ENTRY ONLY SYSTEM” herein.
Continuing Disclosure
The Combined Group will agree to provide, or cause to be provided, certain annual and quarterly financial
information and operating data with respect to the Institution, pursuant to the Indenture. See “CONTINUING
DISCLOSURE” herein.
Certain Information Related to this Offering Memorandum
The descriptions herein of the Indenture, the Master Indenture, the Supplemental Master Indenture, the
Series 2017 Note and other documents relating to the Series 2017 Bonds do not purport to be complete and are
qualified in their entirety by reference to such documents, and the description herein of the Series 2017 Bonds is
qualified in its entirety by the form thereof and the information with respect thereto included in such documents.
See Appendix C – “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE – FORM OF
THE TRUST INDENTURE” attached hereto for certain excerpts from the Indenture, including provisions relating
to certain duties of the Trustee, rights and remedies of the Trustee and the Bondowners upon an Event of Default,
and amendments of the Indenture and procedures for defeasance of the Series 2017 Bonds. See Appendix C –
“FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE – FORM OF THE MASTER
INDENTURE” attached hereto for certain excerpts from the Master Indenture.
All capitalized terms used in this Offering Memorandum and not otherwise defined herein have the same
meanings as in the Indenture. See Appendix C attached hereto for definitions of certain words and terms used but
not otherwise defined herein.
The information and expressions of opinion herein speak only as of their date and are subject to change
without notice. Neither delivery of this Offering Memorandum nor any sale made hereunder nor any future use of
4
this Offering Memorandum will, under any circumstances, create any implication that there has been no change in
the affairs of the Members of the Obligated Group.
THE SYSTEM
The System consists of a group of affiliated health care organizations. The sole member or stockholder of
each System Affiliate is either Hackensack Meridian or another System Affiliate controlled by Hackensack
Meridian. The System forms an integrated network of health care providers throughout the State of New Jersey.
The System offers a complete range of medical services, research and life-enhancing care. The System
comprises 13 hospitals, including two academic medical centers, two children's hospitals and nine community
hospitals, physician practices, more than 120 ambulatory care centers, surgery centers, home health services, longterm care and assisted living communities, ambulance services, air medical transportation, fitness and wellness
centers, rehabilitation centers, and urgent care and after-hours centers. The System has 28,000 team members
(employees) and more than 6,000 credentialed physicians.
For a more detailed description of the System, see Appendix A hereto. For the financial statements of the
various System Affiliates, see Appendix B-1 through Appendix B-4 hereto. Such financial statements contain
consolidated financial statements of Members of the Combined Group and other System Affiliates that are not
Members of the Combined Group. As of December 31, 2016, management calculates that Members of the
Combined Group accounted for approximately 87% of total operating revenue and approximately 84% of
unrestricted net assets of the Network, based on the Network’s six-month audited results from July 1 to December
31, 2016. The financial information included in Appendix A hereto is presented on a consolidated basis; however,
certain calculations of the select financial indicators included in Appendix A are calculated, where indicated therein,
in accordance with the relevant requirements of the Master Indenture.
THE SERIES 2017 BONDS
Description of the Series 2017 Bonds
The Series 2017 Bonds will be dated, will bear interest at the rate and will mature on the date (subject to
prior redemption) as set forth on the cover page to this Offering Memorandum. Interest on the Series 2017 Bonds
will be calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Series 2017 Bonds will be delivered in the form of fully registered Series 2017 Bonds in
denominations of $1,000 and any integral multiple thereof. The Series 2017 Bonds will be registered initially in the
name of “Cede & Co.,” as nominee of DTC and will be evidenced by one Series 2017 Bond in the aggregate
principal amount of the Series 2017 Bonds. Registered ownership of the Series 2017 Bonds, or any portions thereof,
may not thereafter be transferred except as set forth in the Indenture. See Appendix C – “FORMS OF THE TRUST
INDENTURE AND THE MASTER INDENTURE – FORM OF THE TRUST INDENTURE” attached hereto.
The principal or Redemption Price of the Series 2017 Bonds will be payable by check or by wire transfer of
immediately available funds in lawful money of the United States of America at the Corporate Trust Office (as
defined in the Indenture) of the Trustee.
Interest on the Series 2017 Bonds will be payable from the later of (i) the dated date of the Series 2017
Bonds and (ii) the most recent Interest Payment Date to which interest has been paid or duly provided for. An
“Interest Payment Date” for the Series 2017 Bonds will occur on January 1 and July 1 of each year commencing on
January 1, 2018. Payment of the interest on the Series 2017 Bonds shall be made to the person appearing on the
registration books of the Institution kept by the Trustee provided for herein as the Bondowner thereof on the Record
Date, by wire or by check or draft mailed by the Trustee to the Bondowner at the address of such Bondowner as
shown on such registration books of the Institution, unless an alternate method of payment is agreed to by the
Trustee and the Bondowner, subject to the approval of the Institution. Notwithstanding the foregoing, as long as
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Cede & Co. is the Holder of all or part of the Series 2017 Bonds in Book-Entry Form, said principal or Redemption
Price and interest payments will be made to Cede & Co. by check mailed to DTC or by wire transfer.
Redemption
Optional Redemption. The Series 2017 Bonds are subject to optional redemption by the Institution prior to
maturity in whole or in part, at any time (i) prior to ______ 1, 20__, at the Make-Whole Redemption Price, and (ii)
on and after ________ 1, 20_, at a Redemption Price equal to the principal amount of the Series 2017 Bonds to be
redeemed, in either case plus accrued interest thereon to the date set for redemption. For purposes of this paragraph,
the following definitions shall apply:
“Comparable Treasury Issue” means the United States Treasury security or securities selected by a
Designated Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the
Bonds to be redeemed that would be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of such
Bonds.
“Comparable Treasury Price” means, with respect to any redemption date, the average of the Reference
Treasury Dealer Quotations for such redemption date or, if the Designated Investment Banker obtains only one
Reference Treasury Dealer Quotation, such Reference Treasury Dealer Quotation.
“Designated Investment Banker” means one of the Reference Treasury Dealers appointed by the
Institution.
“Make-Whole Redemption Price” is the greater of (i) 100% of the principal amount of the Series 2017
Bonds to be redeemed; and (ii) the sum of the present values of the remaining scheduled payments of principal and
interest on any Series 2017 Bonds being redeemed (exclusive of interest accrued to the date of redemption)
discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate plus __ basis points.
“Reference Treasury Dealer” means each of four firms, as designated by the Institution, and their respective
successors; provided, however, that if any of them ceases to be a primary U.S. Government securities dealer in the
City of New York (a “Primary Treasury Dealer”), the Institution will substitute another Primary Treasury Dealer.
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Designated Investment Banker, of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to
the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m. (New York City time) on the
third Business Day preceding such redemption date.
“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue with respect thereto, computed as of the second
business day immediately preceding that redemption date, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable Treasury Price with respect thereto for
that redemption date.
The Institution may provide prior written direction to the Trustee, together with available funds, to
purchase, or cause to be purchased, Series 2017 Bonds at prices which have been identified by the Institution not
exceeding the Redemption Price for such Series 2017 Bonds, plus accrued interest to the date of purchase. Upon
purchase thereof, such Series 2017 Bonds shall be canceled and no longer considered to be Outstanding.
Notice of Redemption. If the Series 2017 Bonds (or portions thereof) are to be redeemed, the Trustee shall
give or cause to be given notice of the redemption of the Series 2017 Bonds (or portions thereof) in the name of the
Institution which notice shall specify: (i) that the Series 2017 Bonds are to be redeemed, in whole or in part, as
applicable; (ii) the redemption date and the Redemption Price; (iii) the numbers and other distinguishing marks, if
any, of the Series 2017 Bonds to be redeemed (except in the event that all of the Outstanding Series 2017 Bonds are
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to be redeemed); (iv) that such Series 2017 Bonds will be redeemed at the Corporate Trust Office of the Trustee; and
(v) any conditions applicable to such redemption. Such notice shall further state that on such date there shall
become due and payable upon the Series 2017 Bonds (or portions thereof to be redeemed) the Redemption Price
thereof, together with interest accrued to the redemption date, and that, from and after such date, interest thereon
shall cease to accrue. Such notice shall be given, not more than 45 nor less than 30 days prior to the redemption
date, by the Trustee by mail, postage prepaid, or by Electronic Means to the Bondowners of the Series 2017 Bonds
which are to be redeemed, at their addresses appearing on the registration books maintained by the Trustee. Any
notice of optional redemption shall state that it is conditional and that the redemption of such Series 2017 Bonds is
subject to there being on deposit with the Trustee on the redemption date funds sufficient to pay the Redemption
Price of such Series 2017 Bonds. Notice having been given in accordance with the foregoing, failure to receive any
such notice by any of such Bondowners or any defect therein, shall not affect the redemption or the validity of the
proceedings for the redemption of the Series 2017 Bonds. Upon mailing such notice to Bondowners the Trustee
shall submit a copy of the notice of such redemption to the Municipal Securities Rulemaking Board (the “MSRB”)
via its Electronic Municipal Markets Access (“EMMA”) System and to any securities depository in the event that
the Bonds are registered in the name of a securities depository or its nominee. The Trustee shall also indicate on
such notices, the contact person or persons and telephone number of the person or persons handling the redemption.
Effect of Redemption. Notice having been given in the manner provided in the Indenture, and the
conditions for such redemption having been met, the Series 2017 Bonds (or portions thereof called for redemption)
shall become due and payable on the redemption date so designated at the Redemption Price, plus accrued interest to
the redemption date, and upon presentation and surrender thereof at the office specified in such notice, the Series
2017 Bonds (or portions thereof so called for redemption) shall be paid at the Redemption Price, plus accrued
interest to the redemption date. If, on the redemption date, moneys for the redemption of all the Series 2017 Bonds
(or portions thereof so called for redemption), together with interest to the redemption date, shall be held by the
Trustee so as to be available therefor on such date, and after notice of redemption shall have been given as aforesaid,
then, from and after the redemption date, the Series 2017 Bonds (or portions thereof so called for redemption) shall
cease to bear interest and the Series 2017 Bonds (or such portions) shall no longer be considered as Outstanding
under the Indenture. If such moneys shall not be so available on the redemption date, the Series 2017 Bonds (or
portions thereof) shall continue to bear interest until paid at the same rate as they would have borne had they not
been called for redemption, and in the case of optional redemption, the Series 2017 Bonds shall continue to be due
on their original maturity dates as if the Series 2017 Bonds had not been called for redemption.
Selection of a Portion of the Series 2017 Bonds. If the Series 2017 Bonds are registered in book-entry only
form and so long as Cede & Co (or such other DTC nominee) is the sole registered owner of the Series 2017 Bonds,
if less than all of the Series 2017 Bonds are called for prior redemption, the portions thereof to be redeemed shall be
allocated on a pro rata pass-through distribution of principal basis in accordance with DTC procedures, provided
that, so long as the Series 2017 Bonds are held in book-entry form, the selection for redemption of such portions of
the Series 2017 Bonds shall be made in accordance with the operational arrangements of DTC then in effect, and, if
such operational arrangements do not allow for redemption on a pro rata pass-through distribution of principal basis,
the portions of the Series 2017 Bonds will be selected for redemption, in accordance with DTC procedures, by lot.
The Institution intends that redemption allocations made by DTC be made on a pro rata pass-through
distribution of principal basis as described above. However, neither the Institution nor the Underwriters can provide
any assurance that DTC, DTC’s direct and indirect participants or any other intermediary will allocate the
redemption of the Series 2017 Bonds on such basis.
For purposes of calculation of the pro rata pass-through distribution of principal, “pro rata,” means, for any
amount of principal to be paid, the application of a fraction to the Series 2017 Bonds where (a) the numerator is
equal to the amount due to the respective Bondowners on a payment date, and (b) the denominator is equal to the
total original par amount of the Series 2017 Bonds.
If the Series 2017 Bonds are no longer registered in book-entry-only form, each owner will receive an
amount of Series 2017 Bonds equal to the original face amount then beneficially held by that owner, registered in
such investor’s name. Thereafter, any redemption of less than all of the Series 2017 Bonds will continue to be paid
to the registered owners of the Series 2017 Bonds on a pro rata basis, based on the portion of the original face
amount of the Series 2017 Bonds to be redeemed.
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BOOK-ENTRY ONLY SYSTEM
The Depository Trust Company, New York, New York, will act as securities depository for the Series 2017
Bonds. The Series 2017 Bonds will be issued as fully-registered securities registered in the name of Cede & Co.
(DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One
fully registered Bond certificate will be issued for the Series 2017 Bonds, and will be deposited with DTC.
The information set forth in this section under the subheading “General” has been obtained from sources
that the Obligated Group, the Trustee and the Underwriters believe to be reliable, but none of the Members of the
Obligated Group, the Trustee or the Underwriters make any representation as to the completeness or accuracy of
such information or as to the absence of material adverse changes in such information subsequent to the date hereof.
SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES 2017 BONDS, AS
NOMINEE OF DTC, REFERENCES HEREIN TO THE BONDOWNERS OR REGISTERED OWNERS OF THE
SERIES 2017 BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS
OF THE SERIES 2017 BONDS.
General
DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking
organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a
“clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency”
registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC
holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and
municipal debt issues and money market instruments (from over 100 countries) that DTC’s participants (“Direct
Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales
and other securities transactions in deposited securities, through electronic computerized book-entry transfers and
pledges between Direct Participants’ accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through
or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants,”
and together with Direct Participants, “DTC Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC
Rules applicable to DTC Participants are on file with the Securities and Exchange Commission. More information
about DTC can be found at www.dtcc.com.
Purchases of the Series 2017 Bonds under the DTC system must be made by or through Direct Participants,
which will receive a credit for the Series 2017 Bonds on DTC’s records. The ownership interest of each actual
purchaser of each Series 2017 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct Participants’ and
the Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their
purchase, Beneficial Owners are, however, expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct Participant or the Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2017
Bonds are to be accomplished by entries made on the books of Direct Participants and Indirect Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests
in the Series 2017 Bonds, except in the event that use of the book-entry system for such Series 2017 Bonds is
discontinued.
To facilitate subsequent transfers, all Series 2017 Bonds deposited by Direct Participants with DTC are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC. The deposit of the Series 2017 Bonds with DTC and their registration in the
name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Series 2017 Bonds; DTC’s records reflect only the identity of the
8
Direct Participants to whose accounts such Series 2017 Bonds are credited, which may or may not be the Beneficial
Owners. The Direct Participants and the Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Series 2017 Bonds of an issue are being
redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant to be
redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series
2017 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual
procedures, DTC mails an Omnibus Proxy to the Institution as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series
2017 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Series 2017 Bonds will be made to Cede & Co. or such other
nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct
Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Trustee on the
payable date in accordance with their respective holdings shown on DTC’s records. Payments by DTC Participants
to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in “street name”, and will be the
responsibility of such DTC Participant and not of DTC, the Underwriters, the Trustee or the Obligated Group
subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and
interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the
responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC
and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct Participants and
Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Series 2017 Bonds
at any time by giving reasonable notice to the Institution and the Trustee. Under such circumstances, in the event
that a successor securities depository is not obtained, the Series 2017 Bond certificates are required to be printed and
delivered. See “Certificated Bonds” below.
The Institution may decide to discontinue use of the system of book-entry transfers through DTC (or a
successor securities depository). In that event, the Series 2017 Bond certificates will be printed and delivered to
DTC.
Each person for whom a DTC Participant acquires an interest in the Series 2017 Bonds, as nominee, may
desire to make arrangements with such DTC Participant to receive a credit balance in the records of such DTC
Participant, and may desire to make arrangements with such DTC Participant to have all notices of redemption or
other communications to DTC, which may affect such persons, to be forwarded in writing by such DTC Participant
and to have notification made of all interest payments. NONE OF THE MEMBERS OF THE OBLIGATED
GROUP, THE TRUSTEE OR THE UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR
OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES
WITH RESPECT TO THE SERIES 2017 BONDS.
When reference is made to any action which is required or permitted to be taken by the Beneficial Owners,
such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such
Beneficial Owners for such purposes. When notices are given, they shall be sent by the Trustee to DTC only.
For every transfer and exchange of the Series 2017 Bonds, the Beneficial Owner may be charged a sum
sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto.
9
NONE OF THE MEMBERS OF THE OBLIGATED GROUP, THE TRUSTEE OR THE
UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS,
TO INDIRECT PARTICIPANTS, OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE
ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT, OR ANY
INDIRECT PARTICIPANT; (II) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE
OWNERS OF THE SERIES 2017 BONDS UNDER THE INDENTURE; (III) THE SELECTION BY DTC OR
ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN
THE EVENT OF A PARTIAL REDEMPTION OF THE SERIES 2017 BONDS; (IV) THE PAYMENT BY DTC
OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO
THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OR INTEREST DUE WITH RESPECT TO THE SERIES
2017 BONDS; (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNER OF THE
SERIES 2017 BONDS; OR (VI) ANY OTHER MATTER.
Certificated Bonds
DTC may discontinue providing its services as securities depository with respect to the Series 2017 Bonds
at any time if it is unwilling or unable to continue as depository by giving reasonable notice to the Institution and the
Trustee. In addition, the Institution may decide to discontinue use of the system of book-entry transfers through
DTC (or a successor securities depository). If for either reason the Book-Entry Only system is discontinued, Series
2017 Bond certificates will be delivered as described in the Indenture and the Beneficial Owner, upon registration of
certificates held in the Beneficial Owner’s name, will become the Bondowner. Thereafter, the Series 2017 Bonds
may be exchanged for an equal aggregate principal amount of the Series 2017 Bonds in other authorized
denominations and of the same maturity, upon surrender thereof at the principal Corporate Trust Office of the
Trustee. The transfer of any Series 2017 Bond may be registered on the books maintained by the Trustee for such
purpose only upon assignment in form satisfactory to the Trustee. For every such exchange or transfer of Series
2017 Bonds, whether temporary or definitive, the Institution or the Trustee may make a charge sufficient to
reimburse it for any tax, fee or other governmental charge required to be paid with respect to such exchange or
transfer, which sum or sums shall be paid by the person requesting such exchange or transfer as a condition
precedent to the exercise of the privilege of making such exchange or transfer. Except for Series 2017 Bonds for
which a notice of optional or mandatory tender has been given, the Trustee shall not be obliged to make any such
exchange or transfer of Series 2017 Bonds, during the period from each Record Date to the following Interest
Payment Date or, in the case of a proposed redemption of Series 2017 Bonds if such Series 2017 Bonds are eligible
to be selected or have been selected for redemption, during the 45 days next preceding the date fixed for such
redemption.
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2017 BONDS
General
Pursuant to the Indenture, the Institution will be obligated to pay or cause to be paid, the principal or
Redemption Price of and interest on the Series 2017 Bonds on the dates and at the places and in the manner provided
therein. In addition, the Indenture provides that the Institution shall pay amounts sufficient to provide Revenues (as
hereinafter defined) sufficient at all times: (i) to pay the principal of and interest on the Series 2017 Bonds as the
same respectively become due and payable by redemption or otherwise, and (ii) to pay the expenditures of the
Trustee incurred in relation to the Indenture.
Pledge under the Indenture
Under the Indenture, the Institution pledges and assigns to the Trustee all of the Institution’s interest in the
Series 2017 Note and the Revenues payable to the Trustee for the account of the Institution and any and all other
property conveyed, pledged, assigned or transferred as additional security for the Series 2017 Bonds. “Revenues”
are defined in the Indenture to include all amounts paid or payable to the Trustee for the account of the Institution
(excluding fees and expenses payable to the Trustee and the rights to indemnification of the Trustee) under and
pursuant to the Indenture and the Series 2017 Note. The Institution also pledges all moneys and securities deposited
and held from time to time by the Trustee in the funds and accounts established under the Indenture.
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The Master Indenture
Hackensack Meridian will execute and upon authentication thereof by the Master Trustee, deliver to the
Trustee the Series 2017 Note, to evidence and secure the payment obligations of Hackensack Meridian under the
Indenture. The Series 2017 Note will be issued in a principal amount equal to the aggregate principal amount of the
Series 2017 Bonds. Under the terms of the Master Indenture, the Series 2017 Note will be a joint and several
general obligation of Hackensack Meridian and any future Members of the Obligated Group. Payments under the
Series 2017 Note are scheduled to be made at the times and in the amounts required to pay debt service on the Series
2017 Bonds and will be credited against the loan payment requirements of Hackensack Meridian under the
Indenture. Payment of the Series 2017 Note is required to be in an amount sufficient to enable the Institution to
meet all of its obligations under the Series 2017 Bonds and the Indenture and certain costs and expenses described in
the Indenture.
Pursuant to the Master Indenture, Hackensack Meridian, as Combined Group Agent, has designated
HUMC, MHC, Palisades Medical Center, Inc. and Raritan Bay Medical Center as Designated Affiliates. Pursuant to
the Master Indenture, Hackensack Meridian, as the Combined Group Agent, shall cause each Designated Affiliate,
and use reasonable efforts to cause each other System Affiliates (subject to contractual and organizational
limitations), to pay, loan or otherwise transfer to the Combined Group Agent or other Member of the Obligated
Group such amounts as necessary to duly and punctually pay the principal of, premium, if any, and interest on all
Outstanding Obligations and any other payments due under any Obligation, on the dates, at the times and at the
places and in the manner provided in such Obligations and the Master Indenture, when and as the same become
payable, whether at maturity, upon call for redemption, by acceleration of maturity or otherwise.
The Combined Group Agent (or its designee Controlling Member, as such term is defined in the Master
Indenture) is required with respect to each Designated Affiliate, to either (a) maintain, directly or indirectly, control
of each Designated Affiliate, including the power to direct the management, policies, disposition of assets and
actions of such Designated Affiliate to the extent required to cause such Designated Affiliate to comply with the
terms and conditions of the Master Indenture, whether through the ownership of voting securities, by contract,
partnership interests, membership, reserved powers, or the power to appoint members, trustees or directors or
otherwise, or (b) execute and have in effect such contracts or other agreements that the Combined Group Agent or
Controlling Member, in its sole judgment, deems sufficient for it to cause such Designated Affiliate to comply with
the terms and conditions of the Master Indenture. Any Person will cease to be a Designated Affiliate upon the
declaration of the Combined Group Agent in an Officer's Certificate delivered to the Master Trustee, and upon such
declaration, such Person shall no longer be subject to any of the covenants applicable to a Designated Affiliate
thereunder. Notwithstanding anything to the contrary in the Master Indenture, no Person shall cease to be a
Designated Affiliate or a System Affiliate if any Outstanding Related Bonds have been issued for the benefit of such
Person until there is delivered to the Master Trustee an opinion of nationally recognized bond counsel to the effect
that, under then existing law, the cessation by such Person of its status as a Designated Affiliate or System Affiliate
will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of
interest payable thereon to which such Related Bond would otherwise be entitled. In addition, no Designated
Affiliate which generated at least 25% of the combined total revenues of the Combined Group and the System
Affiliates as set forth on the combined financial statements for the most recently completed Fiscal Year of the
System shall be declared to no longer be a Designated Affiliate by the Combined Group Agent unless the Combined
Group Agent shall have delivered an Officer's Certificate to the Master Trustee demonstrating that the Transaction
Test will be met, assuming the incurrence of $1.00 of additional Long-Term Indebtedness, after giving effect to such
proposed declaration by the Combined Group Agent.
In addition, the Master Indenture requires the Combined Group Agent to cause each Designated Affiliate to
comply with the terms and conditions of the Master Indenture which are applicable to such Designated Affiliate.
Under the Master Indenture, each member of the Combined Group (as defined in the Master Indenture) has
granted to the Master Trustee for the equal and ratable benefit of the holders of all Obligations issued under the
Master Indenture (including the Series 2017 Note) a first lien on and security interest in its Gross Revenues subject
to the provisions of the Master Indenture. Inasmuch as payments on Obligations issued under the Master Indenture
may (unless certain Events of Default exist under the Master Indenture) be made directly to the holders of such
Obligations, there may not be any amounts deposited in the Gross Revenues Account under the Master Indenture.
11
Gross Revenues is defined in the Master Indenture as all revenues, rents, profits, receipts, benefits, royalties, and
income of any Member of the Combined Group arising from goods or services provided by Members of the
Combined Group or arising in any manner with respect to, incident to or on account of the Members of the
Combined Group’s operations, including, without limitation, (i) the Members of the Combined Group’s rights under
agreements with insurance companies, Medicare, Medicaid, governmental units and prepaid health organizations,
including health care insurance receivables and rights to Medicare and Medicaid loss recapture under applicable
regulations to the extent not prohibited by applicable law, rules or regulations; (ii) gifts, grants, bequests, donations,
contributions and pledges to any Member of the Combined Group; (iii) insurance proceeds of any kind, and any
award, or payment in lieu of an award, resulting from condemnation proceedings; (iv) all proceeds from the sale or
other transfer of any goods, inventory and other tangible and intangible property, and all rights to receive the
foregoing, whether now owned or hereafter acquired by any Member of the Combined Group and regardless of
whether generated in the form of Accounts, accounts receivable, Contract Rights, Chattel Paper, Documents,
General Intangibles, Instruments, Investment Property, and proceeds of insurance; and (v) all proceeds of the
foregoing; excluding, however, gifts, grants, bequests, donations, contributions and pledges to any Member of the
Combined Group heretofore or hereafter made, and the income and gains derived therefrom, which are specifically
restricted by the donor or grantor to a particular purpose which is inconsistent with its use for payments required
under the Master Indenture or on any Obligations or Indebtedness.
The Members of the Obligated Group have covenanted in the Master Indenture (a) not to withdraw from or
permit other entities to join the Obligated Group, except as permitted under the Master Indenture, (b) not merge into,
or consolidate with, one or more corporations or other legal entities, allow one or more of such corporations or other
legal entities to merge into it, or sell or convey all or substantially all of its Property, unless certain conditions of the
Master Indenture are met, and (c) not to sell, lease, remove, release from the Lien of the Master Indenture, transfer,
assign, convey or otherwise dispose of any Property of the Material Combined Group Members unless certain
conditions of the Master Indenture are met. Hackensack Meridian may not withdraw from the Obligated Group so
long as any Obligations are Outstanding under the Master Indenture.
See “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE – FORM OF THE
MASTER INDENTURE – Section 403. Entrance into the Obligated Group,” “– Section 404. Cessation of Status as
a Member of the Obligated Group,” “ – Section 408. Permitted Reorganizations,” and “– Section 411. Permitted
Dispositions” in Appendix C hereto.
Limitation on Liens under Master Indenture
The Series 2017 Note is not secured by a mortgage or other lien on physical assets of the Members of the
Combined Group. Other than the Lien on Gross Revenues created pursuant to the Master Indenture, the Members of
the Combined Group covenant in the Master Indenture that they will not create or incur or permit to be created or
incurred or to exist any Lien, whether superior or inferior to the Lien of the Master Indenture, on the Gross
Revenues of such Member of the Combined Group except as provided therein. Additionally, no Material Combined
Group Member may create or incur or permit to be created or incurred or to exist any Lien on any other Property of
such Member, except for Permitted Encumbrances. A Material Combined Group Member under the Master
Indenture is any Member of the Combined Group whose total revenues as set forth on its financial statements for the
most recently completed Fiscal Year for such Member of the Combined Group exceed 15% of the combined total
revenues of the Combined Group and the System Affiliates as set forth on the combined financial statements for the
most recently completed Fiscal Year of the System. See “FORMS OF THE TRUST INDENTURE AND THE
MASTER INDENTURE – FORM OF THE MASTER INDENTURE – Section 412. No Lien on Gross Revenues;
Permitted Encumbrances” and the related definitions in Appendix C hereto
Other Indebtedness of the Obligated Group
The Members of the Obligated Group may incur additional indebtedness secured by purchase money
security interests or by liens, on a parity with, or subordinate to, the Obligations, upon compliance with the
applicable provisions of the Master Indenture. The additional indebtedness may be issued as Obligations issued
under the Master Indenture, for the payment of which the Members of the Obligated Group together with any future
Obligated Group members will be jointly and severally liable. See “FORMS OF TRUST INDENTURE AND THE
MASTER INDENTURE – FORM OF THE MASTER INDENTURE – Section 410. Permitted Indebtedness” in
12
Appendix C hereto for which limitations apply to Members of the Obligated Group and Material Combined Group
Members.
In addition, the New Jersey Economic Development Authority (“NJEDA”) Revenue Bonds (Hillcrest
Health Service System Project) Series 1997 (Capital Appreciation Bonds) (“1997 Bonds”), which were issued for
the benefit of Hackensack Meridian (f/k/a Hillcrest Health Service System, Inc.), are expected to remain outstanding
after the date of issuance of the Series 2017 Bonds and Series 2017A Bonds. The 1997 Bonds mature in each year
through January 1, 2022 at their respective accreted values and as of December 31, 2016 the aggregate accreted
value of the 1997 Bonds is $32,085,000. The related loan from NJEDA is a general obligation of Hackensack
Meridian. The 1997 Bonds are secured by (i) a debt service reserve fund and surplus fund established under the
related trust indenture, (ii) a mortgage and assignment of leases on a four-story office building and a parking garage
located on HUMC’s campus in Hackensack, New Jersey, and (iii) an assignment of collateral and security
agreement related to certain equipment leased to the HUMC. The payment obligations related to the 1997 Bonds
are also secured by a municipal bond insurance policy issued by Ambac Assurance Corporation. Hackensack
Meridian’s obligations related to the 1997 Bonds will not be secured by the Master Indenture but a failure to make
timely payments, as a general obligation of Hackensack Meridian, could result in the exercise of remedies including
on the specific collateral described above securing the payment obligations related to the 1997 Bonds. The bond
documents related to the 1997 Bonds do not include financial maintenance covenants to be satisfied by Hackensack
Meridian, do not conflict with the terms of the Master Indenture, and permit Hackensack Meridian to assign its
obligations in connection with the 1997 Bonds to a tax-exempt affiliate of Hackensack Meridian, without any thirdparty consent, although Hackensack Meridian has no current plans to do so.
See also “LONG TERM INDEBTEDNESS AND INTEREST RATE SWAP AGREEMENTS” in
Appendix A hereto for a description of the currently outstanding indebtedness of Hackensack Meridian that will
become secured by promissory notes and/or other Debt Obligations issued under and pursuant to the Master
Indenture simultaneously with the issuance and delivery of the Series 2017 Note. The Series 2017 Note, the Series
2017A Note and all such other Debt Obligations will be on parity with each other and will be equally and ratable
secured under the Master Indenture.
Additional Indebtedness
Any Member of the Combined Group may incur additional indebtedness, subject to the limitations set forth
in the Master Indenture. See Appendix C – “FORMS OF THE TRUST INDENTURE AND THE MASTER
INDENTURE – FORM OF THE MASTER INDENTURE.”
CERTAIN FINANCIAL COVENANTS
Pursuant to the Master Indenture, the Obligated Group has agreed to certain financial covenants, including
but not limited to the rate covenant described below.
Historic Annual Debt Service Coverage Ratio
Hackensack Meridian, as the Combined Group Agent, shall calculate the Income Available for Debt
Service of the Combined Group or, at the option of the Combined Group Agent, the System (if permitted by Section
103(b) of the Master Indenture), for each Fiscal Year as of the end of such Fiscal Year and the Historic Annual Debt
Service Coverage Ratio of the Combined Group or the System, as the case may be, for such Fiscal Year as of the
end of such Fiscal Year.
If in any Fiscal Year the Historic Annual Debt Service Coverage Ratio of the Combined Group or the
System, as the case may be, is less than 1.10 to 1, the Combined Group Agent shall at the expense of the Combined
Group retain a Consultant, in a timely manner but in no event later than ninety (90) days after the date on which the
Combined Group Agent determines that such Historic Annual Debt Service Coverage Ratio is less than 1.10 to 1, to
prepare a report and make recommendations with respect to the rates, fees and charges of the Combined Group or
the System, as the case may be, and the methods of operation of the Combined Group or the System, as the case may
13
be, and other factors affecting their financial condition in order to increase such Historic Annual Debt Service
Coverage Ratio to at least 1.10 to 1. Any Consultant so retained shall be required to submit such report and
recommendations within sixty (60) days after being retained. So long as the Combined Group has retained a
Consultant and has followed the report and recommendations of the Consultant to the extent permitted by applicable
laws, the Combined Group shall not be deemed to have violated this covenant.
A copy of the Consultant’s report and recommendations, if any, shall be filed with the Combined Group
Agent and the Master Trustee. Each Member of the Obligated Group shall follow and each Controlling Member
shall cause each Designated Affiliate to follow each recommendation of the Consultant applicable to it to the extent
feasible (as determined in the reasonable judgment of the Governing Body of such Member of the Obligated Group)
and permitted by law, applicable regulations and the legal obligations binding upon such Member of the Obligated
Group. The Members of the Obligated Group shall take such steps as they consider feasible to cause System
Affiliates that are not Members of the Obligated Group or Designated Affiliates to follow each recommendation of
the Consultant applicable to such System Affiliate.
The foregoing provisions notwithstanding, if in any Fiscal Year the Historic Annual Debt Service Coverage
Ratio of the Combined Group or the System, as the case may be, is less than 1.10 to 1, the Combined Group Agent
shall not be required to retain a Consultant to make such recommendations if: (a) there is filed with the Master
Trustee a written report of a Consultant which contains an opinion of such Consultant to the effect that applicable
laws or regulations have prevented the Combined Group or the System, as the case may be, from generating Income
Available for Debt Service during such Fiscal Year in an amount sufficient to produce a Historic Annual Debt
Service Coverage Ratio of the Combined Group or the System, as the case may be, of 1.10 to 1 or higher; (b) the
report of such Consultant indicates that the fees and rates charged by the System Affiliates or the Members of the
Combined Group, as the case may be, are such that, in the opinion of the Consultant, the System Affiliates or the
Members of the Combined Group, as the case may be, have generated the maximum amount of Revenues
reasonably practicable given such laws or regulations or other legal obligations; and (c) the Historic Annual Debt
Service Coverage Ratio of the Combined Group or the System, as the case may be, was at least 1.00 to 1 for such
Fiscal Year. The Combined Group Agent shall not be required to cause the Consultant’s report referred to in the
preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such
two Fiscal Years the Combined Group Agent provides to the Master Trustee an Officer’s Certificate or an opinion of
Counsel to the effect that the applicable laws and regulations underlying the Consultant’s report delivered in respect
of the previous Fiscal Year have not changed in any material way.
Notwithstanding anything else in the Master Indenture to the contrary, it shall be an Event of Default under
Section 501(c) of the Master Indenture if as of the end of any two consecutive Fiscal Years the Historic Annual Debt
Service Coverage Ratio of the Combined Group is less than 1.00 to 1. See “FORMS OF THE TRUST
INDENTURE AND THE MASTER INDENTURE – FORM OF THE MASTER INDENTURE – Section 407.
Annual Debt Service Coverage Ratio” in Appendix C hereto.
Potential for Additional Covenants For Existing Institutional Debt
Certain outstanding bonds (the “Institutional Debt”), which have been issued on behalf of certain System
Affiliates, are held by several institutional holders or secured by letter of credit banks (the “Institutional Holders”).
This debt may be either maintained, refunded or refinanced upon the issuance of the Series 2017 Bonds. If the
Institutional Debt remains outstanding, the relevant Institutional Holders may receive a promissory note or other
Debt Obligation of Hackensack Meridian issued under the Master Indenture and may also require that Hackensack
Meridian covenant to maintain certain additional requirements, solely for the benefit of the respective Institutional
Holder. Any of these covenants may be waived, modified or amended by the applicable Institutional Holder in its
sole discretion and without notice to or consent by the Trustee, the Master Trustee, the holders of the Series 2017
Bonds, the holders of any other Obligations outstanding under the Master Indenture or any other person. Violation
of any such covenant may result in an event of default under the Institutional Holder’s agreement with Hackensack
Meridian and, by virtue of cross default provisions under the Master Indenture, an Event of Default under the Master
Indenture. In such instance, an Institutional Holder may seek remedies under its agreement, which remedies may
include an acceleration of its promissory note or other Debt Obligation.
14
It should be noted that the total outstanding principal amount of the Institutional Debt is approximately
$674.2 million as of December 31, 2016, which represents approximately 47% of the amount of the outstanding
Obligations of the System. For the provisions governing an Institutional Holder’s right to enforce remedies under
the Master Indenture, see “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE – FORM
OF THE MASTER INDENTURE – Section 503. Remedies; Rights of Obligation Holders” in Appendix C hereto.
PLAN OF FINANCE
The Institution will use the proceeds of the Series 2017 Bonds to: (i) provide moneys to finance the general
corporate purposes of the Institution and other System Affiliates; and (ii) pay the costs of issuance of the Series 2017
Bonds.
Concurrently with the issuance of the Series 2017 Bonds, Hackensack Meridian is expected to issue the
Series 2017A Bonds in the aggregate principal amount of $620,000,000. The proceeds of the Series 2017A Bonds
are expected to be used by Hackensack Meridian, together with investment earnings and other available funds, to: (i)
refund, redeem and/or legally defease all of the Refunded Bonds, (ii) effectuate the Taxable Loan Refinancing, (iii)
reimburse Hackensack Meridian and/or its applicable affiliate for the costs of planning, development, acquisition,
construction, equipping and furnishing of the Project, and (iv) pay certain costs incurred in connection with the
issuance and sale of the Series 2017A Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” herein.
[Remainder of page intentionally left blank.]

Preliminary, subject to change.
15
ESTIMATED SOURCES AND USES OF FUNDS
The proceeds of the Series 2017 Bonds and the Series 2017A Bonds, together with other available funds as
described below, are expected to be used as follows:
Series 2017 Bonds
Series 2017A Bonds(1)
Sources of Funds
Par Amount
Net Original Issue Premium/Discount
Funds Released Upon Redemption of the Refunded Bonds
Total Sources of Funds
Uses of Funds
New Money Project Costs
General Corporate Purposes
Redemption and Escrow Deposit for Refunded Bonds
Costs of Issuance(2)
Total Uses of Funds
____________________
(1)
The Estimated Sources and Uses of the Series 2017A Bonds are provided for reference only. The Series
2017A Bonds are not subject to the terms hereof and are being offered pursuant to a separate offering document.
(2)
Includes amounts for Underwriters’ discount, legal, financial advisor, accounting and printing fees, and
associated bond issuance costs related to the Series 2017 Bonds and the Series 2017A Bonds.
[Remainder of page intentionally left blank.]
16
DEBT SERVICE REQUIREMENTS
The following table sets forth, for each ensuing fiscal year, the gross amounts required to be made available
for the payment of debt service on the existing Obligations, the Series 2017 Bonds and the Series 2017A Bonds.
The principal amounts of the Series 2017 Bonds will be payable on July 1, and interest will be payable thereon on
January 1 and July 1, commencing on January 1, 2018. Columns may not add to total due to rounding:
Year Ending
December 31
Series 2017 Bonds
Principal
Interest
Series 2017A
Bonds(1)
Existing
Debt
Service(2)(3)
Total Debt
Service
TOTAL
(1)
(2)
(3)
The Series 2017A Bonds are not subject to the terms hereof and are being offered pursuant to a separate offering document.
Debt Service after issuance of the Series 2017 Bonds and Series 2017A Bonds and provision for the payment of the
Refunded Bonds. Debt Service includes capital leases.
With respect to variable rate issues and balloon maturities, assumes an interest rate of 20-year average SIFMA through
________ (currently ____%) and smooth out provisions consistent with the Master Trust Indenture.
17
BONDHOLDERS’ RISKS
The discussion herein of risks to the registered owners of the Series 2017 Bonds is not intended as
dispositive, comprehensive or definitive, but rather is to summarize certain matters which could affect payment on
the Series 2017 Bonds. Other sections of this Offering Memorandum, as cited herein, should be referred to for a
more detailed description of risks described in this section, which descriptions are qualified by reference to any
documents discussed therein. Copies of all such documents are available for inspection at the principal office of the
Trustee.
Risk of Redemption or Acceleration
The Series 2017 Bonds are subject to redemption or acceleration prior to maturity in certain circumstances,
including but not limited to the failure of Hackensack Meridian to make timely payments under the Indenture.
Bondholders may not realize their anticipated yield on investment to maturity because the 2017 Bonds may be
redeemed or accelerated prior to maturity at par or at a redemption price that results in the realization of less than
anticipated yield to maturity.
Adequacy of Revenues
Except to the extent otherwise noted herein, the Series 2017 Bonds are payable solely from the payments
required to be made by Hackensack Meridian under the Indenture, as evidenced by the Series 2017 Note. The Series
2017 Note is an Obligation issued under the Master Indenture and is therefore an Obligation of the Combined
Group. To the extent the Combined Group makes payments on the Series 2017 Note, there will be a credit given for
Hackensack Meridian’s obligation to make loan payments under the Indenture. Therefore, Holders of the Series
2017 Bonds are dependent upon the creditworthiness of the Members of the Combined Group. No representation or
assurance can be made that revenues will be realized by the Combined Group in amounts sufficient to pay maturing
principal of, redemption premium, if any, and interest on the Series 2017 Bonds. The ability of Hackensack
Meridian to make payments under the Indenture and on the Series 2017 Bonds under the Indenture depends, among
other things, upon the capabilities of management of the Members of the Combined Group and the ability of the
Members of the Combined Group to maximize revenues under various third party reimbursement programs and to
minimize costs and to obtain sufficient revenues from their operations to meet such obligations. Revenues and costs
are affected by and subject to conditions which may change in the future to an extent and with effects that cannot be
determined at this time. The risk factors discussed below should be considered in evaluating the ability of
(i) Hackensack Meridian to make payments in amounts sufficient to meet its obligations under the Indenture, and
(ii) the ability of the Members of the Combined Group to make payments in amounts sufficient to meet their
obligations under the Master Indenture and the Series 2017 Note. This discussion is not, and is not intended to be,
exhaustive.
The ability of the Members of the Combined Group, if any, to make required payments on the Series 2017
Note is subject to, among other things, the capabilities of the management of the Members of the Combined Group
and future economic and other conditions, which are unpredictable and which may affect revenues and costs and, in
turn, the payment of principal of, premium, if any, and interest on the Series 2017 Note and the Series 2017 Bonds.
Future revenues and expenses of the Combined Group will be affected by events and conditions relating generally
to, among other things, demand for the Combined Group’s services, its ability to provide the services required by
patients, physicians’ relationships with the Combined Group, management capabilities, the design and success of the
Combined Group’s strategic plans, economic developments in the service area, the Combined Group’s ability to
control expenses, maintenance by the Members of the Combined Group of relationships with HMOs and PPOs (as
defined herein) and other third-party payor programs, competition, rates, costs, third-party reimbursement, the
Combined Group’s ability to transition from a fee-for-service to value-based payment models, the Combined
Group’s investment in information technology infrastructure and human resources to meet federal quality data
reporting requirements, future federal and State funding of health care reimbursement programs and potential future
modifications of said programs, legislation, governmental regulation, general economic conditions and other
conditions which are impossible to predict. Federal and state funding statutes and regulations are the subject of
intense legislative debate and are likely to change, and unanticipated events and circumstances may occur which
cause variations from the Combined Group’s expectations, and the variations may be material. THERE CAN BE
NO ASSURANCE THAT THE REVENUES OF THE MEMBERS OF THE COMBINED GROUP OR
18
UTILIZATION OF THEIR FACILITIES WILL BE SUFFICIENT TO ENABLE THE MEMBERS OF THE
COMBINED GROUP TO MAKE SUCH PAYMENTS.
No representation or assurance can be given that Hackensack Meridian will generate revenues sufficient to
allow payment of debt service on the Series 2017 Bonds when due.
None of the provisions, covenants, terms and conditions of the Indenture, the Master Indenture and the
Series 2017 Note issued pursuant thereto will afford any assurance that the principal and interest owing under the
Indenture and the Series 2017 Note (which, except for money held under the Indenture, constitute the sole source of
funds for the payment of the Series 2017 Bonds) will be paid as and when due, if the financial condition of the
Combined Group deteriorates to a point where the Members of the Combined Group are unable to pay their debts as
they come due, or otherwise become insolvent.
Health Care Industry Factors Affecting the Combined Group
The health care industry is highly dependent on a number of factors that may limit the ability of
Hackensack Meridian to meet its obligations under the Indenture and the Members of the Combined Group to meet
their obligations under the Master Indenture, many of which are beyond their control. Among other things,
participants in the health care industry are subject to significant regulatory requirements of federal, state and local
governmental agencies and independent professional organizations and accrediting bodies, technological advances
and changes in treatment modes, various competitive factors and changes in third-party reimbursement programs.
Discussed below are certain of these factors which could have a significant impact on the future operations and
financial condition of the Members of the Combined Group
The Combined Group’s ability to pay their obligations under the Indenture or the Master Indenture, as the
case may be, could be adversely affected by legislation, regulatory actions, economic conditions, increased
competition from other health care providers, changes in the demand for health care services, government and thirdparty payor reimbursement changes, demographic changes, and malpractice claims and other litigation. Neither of
the Underwriters has made any independent investigation of the extent to which any such factors may have an
adverse impact on the financial condition of the Members of the Combined Group.
Federal Legislative and Regulatory Initiatives
The discussion herein describes risks related to certain existing federal and state laws, regulations, rules and
governmental administrative policies and determinations to which the Combined Group and the healthcare industry
are subject. Several of the federal statutes and regulations described herein may be substantially modified or
repealed in whole or in part. During the November 2016 elections, several successful candidates for election to the
United States Congress, as well as President Trump, campaigned on promises to effect such modification or repeal.
With apparent alignment of views among a majority of the members of the Senate and House of Representatives and
the Administration, the coming congressional term is likely to be very active and may include legislation repealing
or rewriting the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (collectively, the laws are referred to as the “PPACA” or “Health Care Reform”), tax
reform, and financial services reform. Although it is uncertain whether or when legislation affecting such key areas
will be introduced or passed, such legislation could have a material impact on the Combined Group's operations,
financial condition and financial performance. Further, regulatory changes through adoption or repeal and executive
actions taken by the new Administration could have a material impact on the Combined Group's operations,
financial condition and financial performance, even in the absence of statutory changes.
The President and certain Congressional leaders have included a repeal of all or a portion of the PPACA in
early 2017 in statements concerning their respective legislative agendas, and Congress has already taken steps to
repeal and replace the PPACA. The repeal effort, to date, has focused on individual and employer mandates,
exchanges, insurance industry regulations, Medicaid expansion, and the taxes to pay for these elements of the
PPACA. The timing of such repeal and whether it would be in whole or in part is unclear. It is also unclear when
replacement plan would be implemented. A repeal could result in additional pressure on Medicaid and Medicare
funding and could have the effect of reducing the availability of health insurance to individuals who were previously
insured, resulting in greater numbers of uninsured individuals.
19
Patient Protection and Affordable Care Act and Healthcare Reform Initiatives
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act and on
March 30, 2010, the President signed the Health Care and Education Reconciliation Act of 2010, which included
amendments to the earlier law. The PPACA is intended to address disparities in access, cost, quality and the
delivery of healthcare to United States residents.
The changes to various aspects of the healthcare system in the PPACA are far-reaching and include
substantial adjustments to Medicare reimbursement, establishment of individual and employer mandates for health
insurance coverage, extension of Medicaid coverage to certain populations, provision of incentives for employerprovided healthcare insurance, restrictions on physician-owned hospitals, and increased efficiency and oversight
provisions
Some of the provisions of the PPACA took effect immediately, while others have been phased in over time,
ranging from one year to ten years. Most of the significant healthcare coverage reforms began in 2014. the PPACA
also requires the promulgation of substantial regulations with sweeping effects on the healthcare industry.
The PPACA reforms the sources and methods by which consumers will pay for healthcare for themselves
and their families. The PPACA also places new requirements on employers related to the provision of health
insurance for their employees and dependents. These reforms are expected to expand the base of consumers of
healthcare services. One of the primary goals of the PPACA is to provide or make available, or subsidize the
premium costs of, healthcare insurance for consumers who are currently uninsured (or underinsured) and who fall
below certain income levels. The PPACA proposes to accomplish that objective through various provisions,
including:
•
creating organized insurance markets (referred to as exchanges) in which individuals and small
employers can purchase healthcare insurance for themselves and their families or their employees
and dependents,
•
providing subsidies for premium costs to individuals and families based upon their income relative
to federal poverty levels,
•
mandating that individual consumers obtain and certain employers provide a minimum level of
healthcare insurance, and providing for penalties or taxes on consumers and employers that do not
comply with these mandates,
•
establishing insurance reforms that expand coverage generally through such provisions as
prohibitions on denials of coverage for pre-existing conditions and elimination of lifetime or
annual cost caps, and
•
expanding existing public programs, including Medicaid for individuals and families.
Some of the specific provisions of the PPACA that may affect hospital operations, financial performance or
financial conditions are described below. This listing is not comprehensive. The PPACA is complex and
comprehensive, and includes a myriad of new programs and initiatives and changes to previously existing programs,
policies, practices and laws. Additional PPACA programs and initiatives and changes to previously existing
PPACA programs, policies and laws will likely occur in the future.
•
With varying effective dates, the annual Medicare market basket updates for many providers,
including inpatient and outpatient hospital services, will be adjusted based on a ten year average of
national productivity and will be reduced by specified percentages each year.
•
In federal fiscal year 2014, Medicare disproportionate share hospital (“DSH”) payments (i.e.,
payments a provider receives from the federal government to help defray the cost of treating the
uninsured) were reduced by 75%; going forward the amount of these payments will be determined
20
by a formula that takes into account the national number of consumers who do not have healthcare
insurance and the amount of uncompensated care provided by a hospital. Medicare DSH payment
reductions are scheduled to continue through 2019. Medicaid DSH payments also were to be
reduced beginning in fiscal year 2014, but such reductions were delayed until fiscal year 2018.
•
Commencing October 1, 2010 through September 30, 2019, payments under the “Medicare
Advantage” programs (Medicare managed care) have been or will continue to be reduced, which
may result in increased premiums or out-of-pocket costs to Medicare beneficiaries enrolled in
Medicare Advantage plans and may also lead to decreased payments to providers by managed care
companies operating Medicare Advantage programs.
•
Medicaid programs have been expanded in some states, including New Jersey.
•
Under the Hospital Readmissions Reduction Program (“HRRP”) in effect prior to the PPACA,
Medicare reduces payments to hospitals for readmissions within 30 days of discharge of
beneficiaries with certain conditions, imposing a maximum penalty of a 3% reduction in Medicare
reimbursements. Such conditions include myocardial infarction, heart failure, pneumonia, chronic
obstructive pulmonary disease, hip and knee replacements and – beginning in 2017 – coronary
artery bypass graft surgery. Payment reduction penalties under the HRRP apply to all Medicare
patients, not just to beneficiaries with conditions subject to readmission penalties. Under the
PPACA, readmissions information is available to the public.
•
Beginning in fiscal year 2015, hospitals with high volumes of “hospital acquired conditions” have
had their payment for discharges reduced to 99% of the amount of payment that would otherwise
apply to such discharges. Federal payments to states for Medicaid services related to hospitalacquired conditions have been prohibited since federal fiscal year 2011.
•
The Centers for Medicare and Medicaid Services (“CMS”) of the U.S. Department of Health and
Human Services (“HHS”), the agency responsible for administering Medicare, has established a
value-based purchasing program. This program provides incentive payments to hospitals based on
their performance on certain quality and efficiency measures. Funding for this program comes
from the reductions to Medicare inpatient payments.
•
CMS has introduced numerous bundled payment models, including its first mandatory program,
the Comprehensive Care for Joint Replacement bundled payment model, which launched in April
of 2016. Several of Hackensack Meridian’ campuses are required to participate in this model,
which necessitates comprehensive care redesign. On December 20, 2016, CMS finalized the
Advanced Care Coordination Through Episode Payment Models (EPMs), Cardiac Rehabilitation
Incentive Model, and Changes to the Comprehensive Care for Joint Replacement Model rule,
which, among other things, expands the Comprehensive Care for Joint Replacement bundled
payment model to include other surgeries for hip and femur fractures. These rules are anticipated
to take effect on May 20, 2017.
•
In order to reduce waste, fraud, and abuse in public programs, the PPACA provides for provider
enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment
moratoria in areas identified as being at elevated risk of fraud in all public programs. It also
requires Medicare and Medicaid program providers and suppliers to establish compliance
programs. The PPACA requires the development of a database to capture and share healthcare
provider data across federal healthcare programs and provides for increased penalties for fraud and
abuse violations, and increased funding for anti-fraud activities. Healthcare fraud enforcement
activities have increased substantially under the PPACA, yielding the government billions of
dollars in recoveries annually.
•
On January 26, 2015, HHS announced a timetable for transitioning Medicare payments from the
traditional fee-for-service model to a value-based payment system. This schedule calls for tying
30% of traditional Medicare fee-for-service payments to quality or value through alternative
21
payment models, such as accountable care organizations or bundled payment arrangements
(meaning payments for multiple services during a single episode of care), by the end of 2016,
increasing to 50% by 2018. The goal of 30% was reached nearly one year ahead of schedule. In
addition, HHS has proposed that by 2016, 85% of all Medicare fee-for-service payments have a
component based on quality or efficiency of care, such as value-based purchasing or readmission
reductions, increasing to 95% by 2018. As of the date of such announcement, approximately 20%
of Medicare’s fee-for-service payments are made through alternative delivery models, and 80% of
fee-for-service payments have a component based upon quality or efficiency of care, up from
almost none in 2011.
•
The PPACA establishes an Independent Payment Advisory Board to develop proposals to improve
the quality of care and to recommend proposals to limit Medicare spending growth. Beginning
January 15, 2019, if the Medicare spending growth rate exceeds the target recommended by the
Independent Payment Advisory Board, then the Independent Payment Advisory Board is required
to develop proposals to reduce the growth rate and require the Secretary of HHS to implement
those proposals, unless Congress enacts legislation related to the proposals.
•
The PPACA imposes substantial new data reporting obligations on hospital initiatives to improve
the quality of care, reduce errors and improve health outcomes. Health care insurers now are
required to include quality improvement covenants in their contracts with hospital providers, and
will be required to report their progress on such actions to HHS. Commencing January 1, 2015,
health care insurers participating in the health insurance exchanges are allowed to contract only
with hospitals that have implemented programs designed to ensure patient safety and enhance
quality of care.
•
The PPACA immediately imposed additional requirements upon nonprofit hospitals to maintain
their tax-exempt status, including obligations to adopt and publicize a financial assistance policy;
limit charges to patients who qualify for financial assistance to the lowest amount charged to
insured patients; and control the billing and collection processes. Additionally, effective for tax
years commencing January 1, 2013, tax-exempt hospitals must conduct a community needs
assessment at least once every three tax years and adopt an implementation strategy to meet those
identified needs. Failure to satisfy these conditions may result in the imposition of fines and the
loss of tax-exempt status.
•
Payments to primary care physicians, including hospital-employed physicians, for services to
Medicaid beneficiaries were raised to 100% of Medicare rates for the same services in 2013 and
remained elevated through 2014. This program was not continued by the State of New Jersey and
beginning January 1, 2015, reimbursements to primary care physicians under Medicaid were
reduced to standard Medicaid rates.
Broadly speaking, the provisions of the PPACA that encourage or mandate healthcare coverage for
individuals can be expected to increase demand for health care and reduce the amount of uncompensated care that
the Members of the Combined Group provide. However, revisions to the Medicare reimbursement program could
reduce revenues. Therefore, the impact of the PPACA on the operations of the Combined Group cannot be currently
ascertained, and it may have a material impact, either positive or negative, on the Combined Group’s operations.
Efforts to repeal or substantially modify provisions of the PPACA continue. On June 28, 2012, the
Supreme Court upheld most provisions of the PPACA, while limiting the power of the federal government to
penalize states for refusing to expand Medicaid. The Supreme Court ruled on various legal challenges to portions of
the PPACA, finding that its individual mandate was constitutional as a valid exercise of Congress’ taxing power but
that its Medicaid expansion provisions were improperly coercive on the states to the extent existing Medicaid
funding was put at risk if a state opted out of the PPACA’s expansion of the current Medicaid program. In July
2014, two federal appeals courts issued conflicting rulings with respect to the PPACA on whether the federal
government could subsidize health insurance premiums in states that use the federal health insurance exchange. On
June 25, 2015, the Supreme Court of the United States issued its opinion in King v. Burwell holding that the tax
credit subsidies provided in the PPACA apply equally to state-run exchanges and the federal exchange, obviating the
22
potential disparate treatment of program participants nationally. Efforts to repeal or delay the implementation of the
PPACA continue in Congress and were a fundamental plank in the Republican Party platform for the 2016
Presidential cycle. On March 6, 2017, two bills (commonly referred to as the American Health Care Act or the
“AHCA”) were drafted and passed by the House Energy and Commerce Committee and the House Ways and Means
Committee, which are intended to be a replacement to the PPACA. On March 24, 2017, the AHCA was withdrawn
from review and approval by the House of Representatives due to a lack of support but future legislation may be
proposed. The ultimate outcomes of legislative attempts to repeal or amend the PPACA and other legal challenges
to the PPACA are unknown and their impact on the operations of the Combined Group cannot be determined at this
time.
Hackensack Meridian is analyzing the PPACA and will continue to do so in order to assess its effects on
current and projected operations, financial performance and financial condition. However, management of
Hackensack Meridian cannot predict with any reasonable degree of certainty or reliability any interim or ultimate
effects of the legislation and associated regulatory activity.
Other Legislation
The American Recovery and Reinvestment Act of 2009 (“ARRA”), also known as the “Stimulus Bill,”
contained a number of provisions that may impact hospital institutions. For example, the ARRA provided
approximately $19 billion for Medicare and Medicaid health information technology incentives. The incentives are
provided through the Medicare program and encourage physicians and hospitals to adopt and use certified electronic
health records in a meaningful way (as defined by the Secretary and may include reporting quality measures) before
2015. Providers who had not already adopted and used certified electronic health records in a meaningful were
subject to financial penalties. Additional financial penalties and incentives will be imposed on physicians and
hospitals who fail to satisfy heightened standards for meaningful use of electronic health records during a 2015
through 2017 reporting period under the Modified Stage 2 Electronic Health Record Incentive Program.
The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), was signed into law on April
16, 2015. MACRA created numerous changes to Medicare reimbursement and created new quality reporting
programs, as discussed further below (see Medicare Reimbursement). On May 9, 2016, CMS published a proposed
rule and request for comments in the Federal Register. The final rule went into effect on January 1, 2017 and alters
how physicians and other practitioners are paid by Medicare for services furnished to program beneficiaries.
Hackensack Meridian is evaluating this rule but cannot be determine at this time its effects on the financial
performance of the Members of the Combined Group.
General Health Care Industry Factors
Members of the Combined Group and the health care industry in general are subject to regulation by a
number of governmental agencies, including agencies which administer the Medicare and Medicaid programs,
federal, state and local agencies responsible for administration of health planning programs and the licensure of
health care providers and payors, and other federal, state and local governmental agencies. The health care industry
is also affected by federal, state and local policies developed to regulate the manner in which health care is provided,
administered and paid for nationally and locally. As a result, the health care industry is sensitive to legislative and
regulatory changes in such programs and is affected by reductions and limitations in governmental spending for
such programs as well as changing health care policies. In addition, Congress and other governmental agencies have
focused on the provision of care to indigent and uninsured patients, the prevention of “dumping” such patients on
other hospitals in order to avoid provision of unreimbursed care, the tax-exempt status of not-for-profit corporations
which engage in joint ventures and activities unrelated to their exempt purposes and other issues. The Members of
the Combined Group receive a significant portion of their revenues from government programs, and it is unlikely
that the Members of the Combined Group could ever attract sufficient numbers of private-pay patients to become
self-sufficient without reimbursements from governmental programs. The enactment of new legislation or the
adoption of new regulations in these areas could have an adverse effect on the results of operations of the Members
of the Combined Group. Some of the legislation and regulations affecting the health care industry are discussed in
this section.
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Increased Competition. The Members of the Combined Group may likely face increased competition in
the future. Increased competition could be caused by: (i) the development of alternative health care delivery
systems (e.g., health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), Accountable
Care Organizations (“ACOs”), clinically integrated networks (“CIN”) and patient-centered medical homes) in the
service areas of the Members of the Combined Group; (ii) competition with other hospitals to provide health care
services; (iii) competition for patients with delivery systems of HMOs, PPOs and large, multi-disciplinary physician
groups providing services at their own or other facilities; (iv) competition for enrollees between traditional insurers,
whose patients generally have a free choice of hospitals, and HMOs and PPOs, which may own their own hospitals
or substantially restrict the hospitals and physicians from which their enrollees may receive services or provide more
favorable in-network status to certain hospital and physicians, including through the development of tiered networks
such as the Horizon Omnia plan recently launched by New Jersey’s largest health insurance company;
(v) competition for patients between physicians, who generally use hospitals, and non-physician practitioners such
as nurse-midwives, advance practice nurses, chiropractors, physical and occupational therapists and others, who may
not generally use hospitals; (vi) competition from nursing homes, home health agencies, hospice programs,
ambulatory care facilities, ambulatory surgical centers, rehabilitation and therapy centers, physician group practices,
urgent care centers, and other non-hospital providers that provide services for which patients currently rely on
hospitals as health care moves from inpatient to outpatient and becomes less hospital-centric; (vii) competition with
other hospitals and licensed health facilities for qualified nursing and para-professional personnel; and
(viii) competition with other hospitals, large physician groups and HMOs, all of which are seeking different forms of
alignment transactions with physicians in the communities serviced by the Members of the Combined Group. Based
on recent changes in federal and state laws, the scope of practice of certain non-physician practitioners in New
Jersey and elsewhere has been expended, thereby creating even more competition for patients between physicians,
who generally use hospitals, and non-physician practitioners, who may not generally use hospitals.
The effects of such increased competition on the Combined Group’s revenue, including pressures for
increased discounts in contracts with alternate delivery or payment systems, cannot be predicted.
Joint Operating Agreements and Joint Ventures. Members of the Combined Group and affiliated
entities may enter into joint operating agreements or joint ventures with previously unrelated, tax-exempt health
systems or corporations to develop regionally-based health care delivery systems or networks. These joint operating
agreements and joint ventures provide for corporations to operate hospitals and other related health care assets,
subject to reserve powers vested in the corporate or sponsoring organizations. The parties to these joint operating
agreements and joint ventures remain separate corporations and retain title to their assets. Each joint operating
agreement and joint venture may provide for the annual sharing of net income and may impose certain operating and
organizational restrictions and conditions upon the parties thereto.
Members of the Combined Group and any affiliated entities may also be participants in ancillary joint
ventures with tax-exempt or for-profit entities. Participation in joint ventures, particularly joint ventures with forprofit entities, that do not meet requirements of the Code, potentially may (i) result in a finding of private benefit,
which could result in a loss of tax-exempt status, (ii) result in a finding of an excess benefit transaction, which could
result in the imposition of an excise tax on the insider involved in the transaction or on Combined Group
management that knowingly approved the transaction, or both, or (iii) result in a finding that the activity is unrelated
to the exempt purpose of a Member of the Combined Group and a determination that certain income received by the
tax-exempt organization from the joint venture with the for-profit entity is taxable. Management of the Combined
Group does not believe that participation by Members of the Combined Group or an affiliated entity in any such
presently existing ancillary joint venture will have a material adverse effect on a Member of the Combined Group’s
tax-exempt status or financial condition.
Inadequate Payments and Uncompensated Care. Each Member of the Combined Group is also at risk
for the provision of hospital or other health care services on an uncompensated basis. Consistent with its status as a
tax-exempt 501(c)(3) organization, the Members of the Combined Group generally pursues policies of providing
care to the poor and indigent without regard to ability to pay. Governmental agencies may also compel the
provision of uncompensated care. For example, State law imposes significant fines on a hospital that denies
appropriate care on the basis of the patient’s ability to pay or the source of payment. Moreover, Congress has
previously considered (and may again in the future) legislation which would require a hospital to perform a certain
amount of charity care to maintain its 501(c)(3) status. Also, pursuant to the PPACA, 501(c)(3) tax-exempt
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hospitals must develop and report on their financial assistance policies. As a result, each Member of the Combined
Group may be required to provide services for which it receives payment below cost, or for which it may receive no
payment, from the patient or third party payors. While each Member of the Combined Group attempts to provide
care to the poor and indigent in a prudent manner, the continuation or expansion of such policy, or the inability to
properly document its indigent care, could have an adverse financial effect on the Respective Members of the
Combined Group.
While the PPACA is designed to reduce uncompensated care by expanding health care coverage to a larger
portion of the population, improvements to coverage and access will take time. In addition, despite expansion of the
Medicaid program in some states under the PPACA, the Medicaid program, which plays an essential role in
ensuring the coverage of the American population, is dependent on the continued availability of federal and state
funding, which could be curtailed in the future in response to growing budget deficits at all governmental levels.
The continued availability, comprehensiveness of coverage and adequacy of reimbursement for care for the indigent
and disabled cannot be assured in the future.
State legislation enacted in 1992 established a Health Care Subsidy Fund (“HCSF”) to provide a
mechanism and a funding source to provide subsidies to certain hospitals for charity care and other forms of
uncompensated care. Budgetary pressures are likely to result in efforts to reduce or limit the amount of funding for
uncompensated care from general revenues of the State. Of note, the 2017 New Jersey State budget enacted on
June 30, 2016 effectively reduced the New Jersey’s charity care funding pool from $502 million to $302 million,
which will result in a decline in charity care subsidies for the year 2017. There can be no assurances that HCSF
funding available to the Members of the Combined Group will remain at its current level and there is a risk that it
may decline in the future.
Financial Distress of Private Health Plans. The Members of the Combined Group may also be affected
by the financial instability of the HMOs, PPOs and other third-party payors with which the Members of the
Combined Group contracts and/or from which it receives reimbursement for furnished health care services. For
example, if the regulators place a financially-troubled third-party payor into rehabilitation under State law, or if a
third-party payor files for protection under the federal bankruptcy laws, it is unlikely that health care providers will
be reimbursed in full for services furnished to enrollees of the third-party payor. Also, health care providers may be
required by law or court order to continue furnishing health care services to the enrollees of an insolvent third-party
payor, even though the providers may not be reimbursed in full for such services.
Managed Care and Integrated Delivery Systems
General. As a response to the increase in competition in the health care industry and to the increasing shift
of patients to managed care companies, many hospitals and health systems are pursuing strategies with physicians in
order to offer an integrated package of health care services, including physician and hospital services, to patients,
health care insurers, and managed care providers. These integration strategies take many forms. Further, many of
these integration strategies are capital intensive and may create certain business and legal liabilities for health care
providers such as the Members of the Combined Group.
Even when these activities are conducted by affiliates, the start-up costs for implementation of such
strategies, as well as operational deficits, are sometimes derived from the hospitals rather than from the affiliates.
Depending on the size and organizational characteristics of a particular strategy, these funding requirements may be
substantial. In some cases, the hospital may be asked to provide a financial guaranty for the debt of a related entity
which is carrying out an integrated delivery strategy or the hospital may have an ongoing financial commitment to
support operating deficits, which may be substantial on an annual or aggregate basis.
Further, Members of the Combined Group have entered into contractual arrangements with PPOs, HMOs,
and other managed care organizations (“MCOs”), pursuant to which the Members of the Combined Group agree to
provide or arrange to provide certain health care services for these organizations’ eligible enrollees. There can,
however, be no assurance that revenues received under such contracts will be sufficient to cover all costs of services
provided, which may have a material adverse effect on the operations or financial condition of the Members of the
Combined Group.
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State and Federal Laws. The Members of the Combined Group could be subject to a variety of laws and
regulations, affecting both MCOs and health care providers, including laws and regulations prohibiting, restricting,
or otherwise governing PPOs, third party administrators, physician-hospital organizations, independent practice
associations or other intermediaries; fee-splitting; the “corporate practice of medicine”; selective contracting (“any
willing provider” laws and “freedom of choice” laws); coinsurance and deductible amounts; insurance agencies and
brokerages; quality assurance and improvement, utilization review, and credentialing activities; provider and patient
grievances; mandated benefits; rate increases; payment of claims by electronic means; medical information privacy
laws; and many other areas. Integrated delivery systems also create risks under federal law and regulations,
including the Medicare Anti-Kickback Statute, the Stark Law and antitrust laws (as described below under
“Regulation of Health Care Industry”), and the rules applicable to tax-exempt organizations and their relationships
with for-profit entities.
Such requirements may impose operational, financial and legal burdens, costs and risks on the Members of
the Combined Group.
Contracted Managed Care Health Plans and Commercial Insurers. Some MCOs contract with
hospitals on an “exclusive” or a “preferred” provider basis. Under such plans, there may be financial incentives for
subscribers to use only those hospitals which contract with the plans. Under an exclusive provider plan, private
payors may limit coverage to those services provided by selected hospitals that have agreed to accept certain
typically discounted, reimbursement levels for such services. With this contracting authority, MCOs may
effectively create narrow networks and direct patients to their participating health care providers and away from
others. The ability of the Members of the Combined Group to secure and maintain contracts with MCOs, and with
HMOs and other plans participating under the Medicare Advantage and Medicaid programs will be critical to the
financial performance of the Members of the Combined Group. There can be no assurance that the Members of the
Combined Group will be successful in their ability to secure and maintain these contracts or that the contracts will
be profitable.
As a result of these developments, the volume of business of health care providers is increasingly
dependent upon the providers’ ability to attract and retain contracts with Managed Care Plans. The necessity for
obtaining such contracts also increases competition among health care providers on the basis of price as well as
quality. Also, recently there has been competition in contracting with Managed Care Plans for “population health”
or “population management” contracts, which provide bonuses to hospitals and other providers for meeting quality
metrics, cost savings or both. Termination, or expiration without renewal, of such contracts could have a material
adverse effect on the financial condition of the Combined Group. There can be no assurances that such contracts
will be renewed upon expiration or that such contracts will not be terminated prior to expiration. Conversely,
renewal of such contracts may maintain or increase business volume, but may result in reduced payments and lower
net income to the Combined Group.
MCOs that contract on a discounted fee-for-service or discounted fixed rate-per-day basis also exert strong
controls over the utilization of health care resources. Utilization management by MCOs has led to reduction in the
number of hospitalizations and the length of hospital stays, both of which may reduce patient service revenue to
hospitals. Furthermore, shortened hospital lengths of stay have not necessarily been accompanied with a reduced
demand for services while a patient is hospitalized and in fact may lead to more intensive hospital visits and
correspondingly increased costs to hospital providers.
Per diem rates, other risk-based payment systems and discounts pose major challenges to hospital
providers. In order to enter into such contracts, hospitals are required not only to anticipate the cost of rendering
specific services to patients, but also to estimate the likelihood and severity of illness or injury within the population
which the hospital serves. If payment under a MCO contract is insufficient to meet the hospital’s costs of caring for
the needs of the population it serves, the financial condition of the hospital may erode rapidly and significantly.
Often, MCO contracts are enforceable for the stated term, regardless of provider losses. Furthermore, MCO
contracts and insurance laws may require that a hospital continue to provide care for enrollees for a certain period of
time irrespective of whether the MCO has funds to make payment to the hospital.
Increasingly, physician practice groups, independent practice associations and other physician management
companies have become a part of the process of negotiating payment rates to hospitals by MCOs. This involvement
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has taken many forms but typically increases the competition for limited payment resources from MCOs. For
example, it is increasingly common for MCOs to enter into contracts with physicians that may give physicians
incentives in patient care decisions which may result in reduced hospital admissions and procedures.
Horizon Blue Cross Blue Shield of New Jersey, a commercial insurer with the largest market share in the
State of New Jersey, began offering a new insurance product in the Fall of 2015. This product was a two-tiered
insurance plan, which classified hospitals as “tier 1” and “tier 2” providers. Tier 1 providers have a much higher
rate of reimbursement from the insurer. Tier 2 hospitals have lower reimbursement rates from the insurer, which
shifts more of the cost sharing to patient consumers in the form of higher co-payments, co-insurance and
deductibles. There have been several lawsuits brought by the tier 2 hospitals regarding exclusion from the tier 1
classification. The litigation is ongoing. The tier 2 hospitals have also challenged the approval process used by the
Department of Banking and Insurance to approve the new plan. Lawmakers have also introduced bills which would
impose tougher regulations on tiered health plans. While the hospital Members of the Obliged Group are currently
classified as tier 1 providers in their plan, there is no guarantee that the Members will remain tier 1 providers, or
that they will be tier 1 providers under similar plans that will be available in the future, which could impact
reimbursement.
The PPACA includes insurance market reforms that, among other things, require individual and group
health insurance plans to offer coverage (including renewability) on a guaranteed basis. The PPACA prohibits preexisting conditions limitations, certain coverage limitations, lifetime and annual dollar limits for essential health
benefits, and requires coverage of certain preventive health benefits. Individuals are required to enroll in a health
plan through an employer, a federal government health program such as Medicare, Medicaid or Tricare, or to
purchase insurance through a health insurance exchange established by each state, or the federal government.
Subject to various compliance exceptions, individuals who do not enroll for coverage, and large employers who do
not offer affordable and adequate coverage, will be subject to tax penalties. It is unclear at this time whether the tax
penalties will result in substantial compliance with the mandate to obtain insurance, but initial reports are positive.
Survey results from the National Center for Health Statistics indicate that the uninsured rate for American adults has
steadily decreased from 22.3% in 2010, the year in which the PPACA was enacted, to 12.8% in 2015. As noted
under the section entitled “Patient Protection and Affordable Care Act and Healthcare Reform Initiatives,” the U.S.
Supreme Court has upheld the individual mandate provision.
The PPACA establishes the criteria for new Qualified Health Plans (“QHPs”) that may participate in the
state run exchanges. A QHP must meet certain minimum essential coverage requirements. Minimum essential
coverage requirements may be offered at one of five levels of coverage: bronze, silver, gold, platinum, or
catastrophic. Each QHP must agree to offer at least one plan at the silver and gold level. The PPACA sets forth the
minimum coverage offered under each plan level and limits the variations in premiums that may be charged for
exchange coverage on the basis of age and tobacco use. A QHP must also be certified by each exchange through
which the plan is offered, must be licensed in each state where it offers insurance, and the QHP must limit cost
sharing with the insured.
Under the PPACA, individuals with family income under 400% of the Federal Poverty Level (“FPL”) are
eligible for subsidized premiums, deductibles and co-pays for exchange plan coverage. Starting in 2014, individuals
and small employers became able to access coverage through the exchanges. By 2017, large employers will also be
able to use the exchanges to provide employer-based coverage to their employees if their state so elects. Although
existing health insurance plans may continue to offer coverage as grandfathered plans in the individual and group
markets, enrollment in such plans will be limited to those who were currently enrolled, their families, or new
employees and their families in the case of grandfathered employer-sponsored coverage. In February 2013, CMS
published the final rule outlining the exchange and issuer standards related to essential benefits and actuarial value.
The rule also finalizes a timeline for QHPs to be accredited in federally facilitated exchanges. In May 2014, CMS
published a final rule that covers policies regarding consumer notices, quality reporting and satisfaction surveys, the
small business health options program, standards for navigators and other matters. It is expected that CMS will
continue to publish rules regarding matters related to the exchanges over the next couple of years. At this time, it is
not possible to project what impact the exchanges will have on competition in the insurance markets, the cost of
coverage for employers, reimbursement rates for hospitals and physicians or the number of uninsured patients that
the Members of the Combined Group will still need to treat.
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Termination of Managed Care Contracts. HMO and PPO contracts (other than Medicare Advantage and
other Medicare and Medicaid HMO and PPO contracts) accounted for a substantial portion of the net patient service
revenue of Members of the Combined Group for the year ended December 31, 2016 (based on unaudited pro-forma
results). Contracts with MCOs can be terminated by the third-party payor at any time without the necessity of
showing cause upon approximately six months prior written notice. Termination of contracts between Members of
the Combined Group and MCOs could have an adverse effect on the financial performance of the Members of the
Combined Group.
Physician Contracting and Relations. Members of the Combined Group may wish to contract with
physician organizations (e.g., independent physician associations, physician-hospital organizations, etc.) (“POs”) to
arrange for the provision of physician and ancillary services. Because POs are separate legal entities with their own
goals, obligations to shareholders, financial status, and personnel, there are risks involved in contracting with the
POs.
The success of the Members of the Combined Group will be partially dependent upon its ability to attract
physicians to join the POs and to attract POs to participate in the network, and upon the physicians’, including the
employed physicians’, abilities to perform their obligations and deliver high quality patient care in a cost-effective
manner. There can be no assurance that the Members of the Combined Group will be able to attract and retain the
requisite number of physicians, or that such physicians will deliver high quality health care services. Without
impaneling a sufficient number and type of providers in Hackensack Meridian’ network, Members of the Combined
Group could fail to be competitive, could fail to keep or attract payor contracts, or could be prohibited from
operating until its panel provided adequate access to patients. Such occurrences could have a material adverse effect
on the business or operations of the Members of the Combined Group.
Medicare Reimbursement and Related Federal Legislation
Background. Congress is frequently engaged in debates over federal budget commitments, and, in
particular, the extent of the government’s financial commitment to the Medicare program. Any prospective changes
in Medicare payments to hospitals, including the potential reduction of funding levels and the transition of Medicare
enrollees into Medicare managed care plans, could have an adverse effect on the revenues of the Combined Group.
Medicare and Medicaid Programs. Medicare and Medicaid are the commonly used names for health
care reimbursement or payment programs governed by certain provisions of the federal Social Security Act
Amendments of 1965. The federal government uses reimbursement as a key tool to implement health care policies,
to allocate health care resources and to control utilization, facility and provider development and expansion, and
technology use and development. These programs reflect the national policy that persons who are aged and persons
who are poor should be entitled to receive medical care regardless of ability to pay. Medicare provides certain
health care benefits to beneficiaries who are 65 years of age or older, disabled or qualify for the End Stage Renal
Disease Program. Medicare Part A covers inpatient hospital, nursing home care and certain other services, including
home health care services in limited circumstances. Medicare Part B covers outpatient hospital services, certain
physician services, medical supplies and durable medical equipment. Medicare Part C, the Medicare Advantage
program (formerly known as the Medicare+Choice Program), enables Medicare beneficiaries who are entitled to
Part A and are enrolled in Part B to choose to obtain their benefits through a variety of private, managed care, riskbased plans. For the year ended December 31, 2016, approximately 55% of the Combined Group’s net patient
service revenue (based on unaudited pro-forma results) was derived from Medicare and Medicaid programs
(inclusive of revenues from Medicare Advantage and other Medicare and Medicaid HMO and PPO contracts).
Medicare is administered by CMS, which delegates to the states the process for certifying those
organizations to which CMS will make payment. HHS’s rule-making authority is substantial and the rules are
extensive and complex. Substantial deference is given by courts to rules promulgated by HHS.
Medicare claims are processed by non-governmental organizations or agencies that contract to serve as the
fiscal agent between providers and the federal government to locally process Medicare’s Part A and Part B claims.
These claims processors are known as “intermediaries” and “carriers, for Parts A and B, respectively.” They apply
the Medicare coverage rules to determine the appropriateness of claims. CMS selects organizations (generally
insurance companies) to act as intermediaries and carriers in various states or regions, and enters into a “prime
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contract” with each. Most Medicare hospital services are provided through a fixed rate per case program under the
reimbursement methods described below. Some Medicare recipients, however, enroll in Medicare Advantage
managed care plans, which may reimburse providers on a capitated basis. Health care providers that participate in
the Medicare program must agree to be bound by the terms and conditions of the program such as meeting the
quality standards for rendering covered services and adopting and enforcing policies to protect patients from certain
discriminatory practices. In December 2003, the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (“MMA”) was signed into law. This law provides for a new Medicare Part D, under which outpatient
prescription drug benefits became available to Medicare beneficiaries as of January 1, 2006 through a voluntary
enrollment program. On January 1, 2005, the MMA established a new Medicare Advantage program under Part C.
The Medicare Advantage program is designed to expand the number and types of private regional plans available to
beneficiaries as an alternative to traditional Parts A and B Medicare coverage.
The MMA authorized the replacement of fiscal intermediaries with Medicare Administrative Contractors
(“MACs”). MACs handle not only hospital claims, but also Part B claims from physicians, laboratories and other
suppliers. CMS adopted a policy that all providers and suppliers, with some exceptions, are assigned a MAC based
on geographic location. No assurance can be given on the impact, if any, transitions of MAC claim administration
may have on the Combined Group’s revenues.
Hospital Inpatient Services/Operating Expenditures. Medicare payments for operating expenses
incurred in the delivery of certain inpatient hospital services are based on a prospective payment system (“PPS”) that
essentially pays hospitals a fixed amount for each Medicare inpatient discharge based upon patient diagnosis and
certain other factors used to classify each patient into a Diagnosis Related Group (“DRG”).
CMS periodically promulgates regulations, such as its annual inpatient PPS rules, to adjust the rates paid to
hospitals based on its continuing experience with hospital operating and capital costs, and to implement various
quality improvement, patient safety and fraud and abuse programs. The PPACA expands programs to improve the
quality of care, with reductions in reimbursements in future years for excessive readmissions, medical errors and
preventable conditions such as hospital acquired infections. Many hospitals in New Jersey have already experienced
penalties for excessive readmissions. Depending on the mix of future services delivered, the overall result of these
changes to the inpatient PPS reimbursement rules may be to reduce Medicare reimbursement to the Members of the
Combined Group.
To partially offset the cost of repealing the sustainable growth rate system, as discussed below, MACRA
reduces Medicare payments to hospitals. A 3.2% increase in the base rate for inpatient hospital payments (scheduled
for fiscal year 2018 under the American Taxpayer Relief Act of 2012) will instead be phased in at 0.5% per fiscal
year, from 2018 through 2023. MACRA also reduces market basket updates for post-acute care providers by
limiting the 2018 post-acute care update to 1%. Changes to the reimbursement schedules may negatively impact the
revenue received by Members of the Combined Group for the cost of providing inpatient services.
Hospital Outpatient Services. Procedures, evaluations and management services, and drugs and devices
in outpatient departments are classified into one of approximately 750 groups called Ambulatory Payment
Classifications (“APCs”). Services provided within an APC are similar clinically and in terms of the resources they
require. Each APC has been assigned a weight derived from the median hospital cost of the services in the group
relative to the median hospital cost of the services included in the APC for mid-level clinic visits. CMS determines
the portion of the median labor related hospital costs and adjusts those costs for variations in hospital labor costs
across geographic regions.
Under outpatient PPS, the prospective payment system relating to outpatient services, a hospital with costs
exceeding the applicable payment rate would incur losses on such services provided to Medicare beneficiaries.
There can be no assurance that outpatient PPS payments will be sufficient to cover all of the Combined Group’s
actual costs of providing hospital outpatient services to Medicare patients.
Section 603 of the Bipartisan Budget Act of 2015 (“Section 603”) included a revision to the payment
system to be used to reimburse hospitals for outpatient services rendered at certain off-campus provider-based
departments (“PBDs”). Pursuant to Section 603, any services rendered at such off-campus PBDs from and after
January 1, 2017, will no longer be considered covered outpatient department services reimbursable under the
29
Hospital Outpatient Prospective Payment System (“OPPS”). Rather, they will be reimbursed under the lower fee
schedule of an “applicable payment system” to be determined by CMS. Section 603 will apply to all off-campus
PBDs, except PBDs that were billing as a hospital department as of November 2, 2015 (“grandfathered PBDs”),
which will continue to be reimbursed under the higher OPPS. Section 603 does not apply to on-campus PBDs, offcampus inpatient remote locations of a hospital (or hospital departments within 250 yards of such remote locations)
or dedicated emergency departments.
On July 6, 2016, CMS issued a proposed rule implementing numerous changes to the 2017 Hospital OPPS
and Ambulatory Surgical Center Payment System, including rules implementing the change in reimbursement of
PBDs pursuant to Section 603. The comment period expired on September 6, 2016. The proposed rule establishes
the Medicare Physician Fee Schedule (“MPFS”) as the “applicable payment system” to be used for nongrandfathered off-campus PBDs in 2017. Under the proposed rule, if a grandfathered PBD relocates its physical
address, it will lose its grandfathered status and services performed there will be reimbursed under the MPFS. In
addition, under the proposed rule, if a grandfathered PBD adds new services lines beyond those within the clinical
family of services furnished and billed prior to November 2, 2015, such new services will be reimbursed under the
MPFS. For non-grandfathered off-campus PBDs, since CMS does not have a system that allows hospitals to bill
directly under the MPFS, CMS has proposed two options for hospitals to bill for services provided at such locations
during 2017. First, the physicians/practitioners providing services at such locations may bill for services rendered at
such locations under the MPFS and the hospital and physician will be need to determine how to allocate the payment
received for such services. Second, the hospital may enroll the non-grandfathered off-campus PBD separately under
Medicare as a freestanding facility or supplier and bill directly under the MPFS. CMS solicited comments on and is
exploring operational changes that would allow non-grandfathered off-campus PBDs to bill Medicare directly for its
services under a Part B payments system other than OPPS beginning in 2018. On November 1, 2016, CMS released
the policy changes, quality provisions and payment rates final rule. Under the rule, hospitals will have very limited
ability to replace or expand their existing off-campus hospital out-patient departments or expand the scope of
services provided in such facilities and continue to be reimbursed under OPPS. It also establishes reduced
reimbursement for services provided at new off-campus hospital out-patient departments established after November
2, 2015. Section 603 and the implementing regulations could have a negative impact on future reimbursement of the
Members of the Combined Group.
Beginning in 2021, the Secretary may expand the MIPS program (discussed further below) to incorporate
social workers, psychologists, dieticians, nutritionists, physician and occupational therapists, speech pathologists
and audiologists. This may also negatively impact payments to Members of the Combined Group for the provision
of these services.
Hospital Capital Expenditures. Medicare payments for capital costs are based upon a PPS system similar
to that applicable to operating costs. Prospective payment for capital costs based on the federal rate was transitioned
in over a ten-year period. Under PPS, payments for capital costs are calculated by multiplying the federal rate by
the DRG weight for each discharge and by a geographical adjustment factor. The payments are subject to further
adjustment by a disproportionate share hospital factor that contemplates the increased capital costs associated with
providing care to low income patients, and an indirect medical education factor that contemplates the increased
capital costs associated with medical education programs.
There can be no assurance that payments under the PPS inpatient capital regulations will be sufficient to
fully reimburse the Members of the Combined Group for their capital expenditures.
Medical Education Costs. Under PPS, teaching hospitals receive additional payments from Medicare for
certain direct and indirect costs related to their graduate medical education (“GME”) programs. Direct graduate
medical education (“DGME”) payments compensate teaching hospitals for the cost directly related to educating
residents. Such costs include the residents’ stipends and benefits, the salaries and benefits of supervising faculty,
other costs directly attributable to the GME program, and allocated overhead costs. Payment for direct medical
education costs are calculated based upon set formulae taking into account hospital-specific medical education costs
associated with each resident, the number of full-time equivalent residents, and the proportion of Medicare inpatient
days to non-Medicare inpatient days. Indirect medical education payments compensate teaching hospitals for the
higher patient care costs they incur relative to non-teaching hospitals. Those indirect payments are issued as a
percentage adjustment to the PPS payments. The calculation for both the direct and indirect parts of Medicare
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payments for GME include certain limitations on the number and classification of full-time equivalent residents
reimbursed by Medicare. President Obama’s fiscal year 2015 and 2016 budgets both proposed reducing the indirect
GME adjustment by 10%, which would have reduced Medicare medical education payments by approximately
$14.6 billion over 10 years. MACRA extended funding for the GME programs through 2017. It is not known if
funding for the program will be granted in future budgets.
The formulae used to determine payments for medical education do not necessarily reflect the actual costs
of such education, and the federal government will continue to evaluate its policy on graduate medical education and
teaching hospital payments. There can be no assurance that payments to the Members of the Combined Group
under the Medicare program will be adequate to cover its direct and indirect costs of providing medical education to
interns, residents, fellows and allied health professionals.
The PPACA includes some changes to funding for primary care residency programs and provides grants to
establish teaching health centers, which are community-based ambulatory patient care centers. The PPACA also
establishes other programs to encourage the training and development of more primary care residents (including
family medicine, internal medicine, pediatrics, obstetrics and gynecology, psychiatry and geriatrics) and the primary
care workforce.
Physician Payments. Payment for physician fees is covered under Part B of Medicare. Under Part B,
physician services are reimbursed in an amount equal to the lesser of actual charges or the amount determined under
a fee schedule known as the “resource-based relative value scale” or “RBRVS”. RBRVS sets a relative value for
each physician service; that value is then multiplied by a geographic adjustment factor and a nationally-uniform
conversion factor to determine the amount Medicare will pay for each service.
In October 2011, the Medicare Payment Advisory Commission (“MedPAC”) recommended to Congress
that the Sustainable Growth Rate (“SGR”) system be fully repealed and replaced by a different methodology for
determining the nationally-uniform conversion factor. With the enactment of the MACRA, the SGR System was
repealed. Beginning in July 2015 and continuing through 2019, the Medicare Physician’s Fee Schedule (“PFS”)
increases by 0.5% annually. The PFS will then remain at the same reimbursement level for five years (2020-2025).
Beginning in 2026, the PFS will be increased either by (i) 0.25% annually for providers participating in the MeritBased Incentive Payment System, or (ii) 0.75% annually for providers participating in Alternative Payment Models.
In 2019, penalties under Medicare’s current quality reporting programs (the Physician Quality Reporting
System, Electronic Health Records Incentive Program, and the Physician Value-Based Modifier) will end and be
replaced with the Merit-Based Incentive Payment System (“MIPS”). MIPS combines the Physician Quality
Reporting System, Electronic Health Records Incentive Program, and Physician Value-Based Modifier into a single
payment adjustment. The payment adjustment can be an increase or a decrease. The MIPS creates four categories
which will be used to calculate the payment adjustment:
1.
–
Quality (which will be 50% of the total adjustment in 2019 and decrease to 30% of the total
adjustment by 2021);
2.
–
Resource Use (which will be 10% of the total adjustment in 2019 and increase to 30% of the total
adjustment by 2021);
3.
–
Clinical Improvement (which will be 15% of the total adjustment); and
4.
–
Electronic Health Record Use (which will be 25% of the total adjustment).
The range of potential payment adjustments based on performance increases each year through 2022. In
2019, adjustments may range from -4% up to +12%. By 2022, the range will be -9% up to +27%. The program is
designed to be budget neutral, meaning the total negative adjustments will equal total positive adjustments across all
providers. Additionally, high performers are eligible to share in an additional pool of bonus funds.
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Alternatively, providers may participate in the Alternative Payment Models (“APMs”). APMs are
programs that involve more than nominal financial risk on behalf of the provider. MACRA had created an advisory
panel to consider proposals for new payments models and coverage for telehealth services in APMs. By April 1,
2017, the Secretary must establish criteria for the panel to use in making recommendations on the APMs. By July 1,
2017, MedPAC must submit a report to Congress on how physician spending and ordering patterns relate to
spending under Parts A, B, and D. A final report is due by July 1, 2021.
From 2019 through 2024, providers qualifying for APMs will receive an annual lump sum bonus of 5% of
PFS payments. To qualify for APM participation, providers must meet a certain threshold for the percentage of
revenue received through qualifying APMs, which will increase over time. Providers are also required to report
quality measures and use electronic health records. Providers who have not reached these thresholds, but whose
revenue is close to the required threshold may be exempt from adjustments.
The specific parameters of these programs are still being developed by CMS. The new quality reporting
programs may negatively impact the reimbursement amounts received by Members of the Combined Group for the
cost of providing physician services.
In July 2014, CMS proposed to transition all 10-day and 90-day global billing codes to 0-day global codes
in 2017 and 2018, respectively. Under this proposal, medically reasonable and necessary visits would have been
billed separately during the preoperative and postoperative periods outside the day of the surgical procedure.
MACRA preserved the 10-day and 90-day global billing period for over 4,000 surgical service codes, reversing the
recently adopted CMS rule.
There can be no assurance that payments to the Members of the Combined Group for the services of their
employed physicians or other employed health care professionals will be sufficient to fully reimburse such Members
of the Combined Group for their cost of providing the services of such professionals.
Outlier Payments. As noted above, hospitals are eligible to receive additional payments under the
inpatient PPS for individual cases incurring extraordinarily high costs. Historically, the amount of an outlier
payment was based, in part, on the hospital charges for a particular case as compared to that hospital’s cost-tocharge ratio. As the hospital specific cost-to-charge ratio was calculated based on the most recently settled cost
report, it was typically many months or years old and out of date.
Following an audit of aggressive pricing strategies at one of the nation’s largest hospital chains, and a
determination that some hospitals might be manipulating current hospital charge data to maximize reimbursement
from Medicare under the outlier payment provisions, the Office of the Inspector General of HHS (“OIG”) began
investigating past outlier billing practices, and CMS amended the regulations on how outlier payments were to be
calculated in the future. The methodology for calculating outlier payments is designed to prevent hospitals from
manipulating the outlier formula to maximize reimbursement and allows for recovery of overpayments in certain
cases.
The OIG continues to scrutinize outlier payments in an effort to determine whether outlier payments to the
hospitals were paid in accordance with Medicare regulations or whether such payments were the result of potentially
abusive billing practices. While the Members of the Combined Group believe that they have calculated their outlier
payments appropriately, there can be no assurance that a Member of the Combined Group will not become the
subject of an investigation or audit with respect to its past outlier payments, or that such an audit would not have a
material adverse impact on such Member of the Combined Group. Moreover, there can be no assurance that any
future revisions to the formula for calculating outlier payments will not reduce the payments to the Members of the
Combined Group, or that any such reduction will not have a material adverse impact on the Members of the
Combined Group.
Medicare Managed Care Program. Individuals entitled to Medicare Part A benefits, and who are
enrolled in Medicare Part B, with the exception of individuals who suffer from end stage renal disease, may elect
coverage under either the traditional Medicare fee for service program (Parts A and B) or a Medicare managed care
(Part C) program.
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The shift of Medicare eligible beneficiaries from traditional Part A and Part B coverage to Part C Medicare
Advantage programs is intended to increase competitive pressure to improve benefits, reduce premiums and reduce
costs. These changes may result in reduced utilization of health care services and have a material negative impact
upon the Combined Group’s revenue.
ICD-10. On October 1, 2015, Medicare changed its billing and coding system to ICD-10. The code set has
been expanded from a combination of five numbers and letters to a combination of nine numbers and letters. ICD-10
has greatly increased the specificity required when billing Medicare for services rendered. ICD-9 contained
approximately 13,000 codes and ICD-10 has increased the number of codes to approximately 68,000. In an effort to
assist providers with the transition to ICD-10, CMS is initially allowing flexibility with coding. Ending
September 30, 2016, there was no denial or audit based solely on the specificity of the ICD-10 code as long as the
ICD-10 code used was from an appropriate family of codes. Thereafter, accurate ICD-10 coding has become
mandatory. It is expected that the transition to ICD-10 will delay payments to providers. The new required level of
specificity in coding may negatively impact the reimbursement amounts received by Members of the Combined
Group.
Audits, Exclusions, Fines and Enforcement Actions. Hospitals participating in Medicare are subject to
audits and retroactive audit adjustments under the Medicare program. Based on an audit, a Medicare contractor may
conclude, among other things, that a charge was improper for many reasons, such as (for example): that a patient
discharge has been claimed under an incorrect MS-DRG, that services may not have been provided under the direct
supervision of a physician (to the extent so required), that a patient should not have been characterized as an
inpatient, that certain services provided prior to admission as an inpatient should not have been billed as outpatient
services, or that certain required procedures or processes were not satisfied or that the services were not properly
documented or did not satisfy Medicare rules regarding the provision of the service (such as medical necessity). As
a consequence, payments may be disallowed retroactively. Under certain circumstances, payments made may be
determined to have been made as a consequence of improper claims subject to the federal False Claims Act or other
federal statutes, subjecting the hospital to civil or criminal sanctions.
Members of the Combined Group are also subject to Recovery Audit Contractor (“RAC”) audits under a
program originally established under section 306 of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. RACs are private companies that contract with CMS on a contingency fee basis to
conduct audits of claims and to identify and correct Medicare overpayments. RAC review is not intended to replace
the level of analysis conducted by the Medicare Administrative Contractors; rather, it creates a supplemental level of
review. The RAC program is intended to detect and correct improper Medicare payments by reviewing claims data
received from a hospital’s fiscal intermediary every 45 days. The RAC auditors are authorized to look back three
years from the date the claim was paid, but in no event earlier than October 1, 2007, and to review the
appropriateness of each claim by applying the same standards and guidance as would a Medicare contractor at the
time. A hospital’s failure to submit a requested medical record to a RAC within 45 days, absent good cause for
delay, results in disallowance of a claim and demand for recoupment of any reimbursement paid.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”) was signed
into law to address the federal deficit and the budget sequestration provisions of the Budget Control Act of 2011.
The Taxpayer Relief Act postponed the budget sequestration provisions of the Budget Control Act of 2011 for two
months to allow Congress to attempt to reach a budget compromise. With no budget compromise forthcoming, on
March 1, 2013, the President issued a sequestration order, requiring across-the-board reductions in Federal spending.
Accordingly, on March 8, 2013, CMS announced that Medicare claims for payment with a date of service or date of
discharge on or after April 1, 2013, incurred a two percent (2%) reduction in Medicare payment. In late
December 2013, a budget agreement was signed into law that raised the sequestration caps for fiscal years 2014 and
2015 in exchange for extending the sequestration through 2023. On November 2, 2015, President Obama signed
into law the “Bipartisan Budget Act of 2015,” which extended sequestration for an additional year, through fiscal
year 2025. The law also provides a uniform 2% reduction for 2024 instead of applying different rates during the
first and second halves of the fiscal year, but the FY 2025 sequestration will be “front loaded” (that is, a 4%
reduction will apply during the first 6 months of the fiscal year and no reduction will be imposed during the second
half of the fiscal year). In the future, Congress and the Administration may or may not reach budget deals to lessen
the impact or end sequestration. It is impossible to predict, however, whether any such further budget deals will be
made and whether such budget deals or the failure to do so would impact federal spending on the Medicare and
33
Medicaid programs. Likewise, it is not possible to predict whether additional budget control measures will be made
to the Medicare payment system in light of Federal budgetary pressures.
New Models for Care Under Health Care Reform. Among various other programs, the PPACA directed
HHS to establish and implement various ACO programs, including the Medicare Shared Savings Program that
promotes accountability for the care of Medicare beneficiaries and encourages coordination of care and other
efficiencies through ACOs. Under the Shared Savings Program, Medicare providers are offered a financial
incentive to band together in an ACO with the shared goals of improving the quality of care provided to Medicare
beneficiaries and coordinating care to achieve cost savings. If an ACO realizes savings in Medicare expenditures as
compared to an expenditure benchmark established by CMS for the ACO’s assigned patients, and meets or exceeds
quality performance standards established by CMS, it will be paid a share of Medicare’s savings. The Shared
Savings Program became effective on January 1, 2012.
CMS released final regulations on ACOs on October 20, 2011 setting forth governance standards,
application requirements and acceptance standards, and options for sharing in any savings or losses. On June 9,
2015, CMS released final rule provisions amending the Shared Savings Program. Several other federal agencies
simultaneously released final guidance regarding ACOs. CMS and OIG jointly released an interim final rule with a
comment period granting ACOs participation in the Shared Savings Program waivers with respect to certain federal
laws in connection with the Shared Savings Program, including the Stark Law, the Anti-Kickback Law, and certain
provisions of the CMP Law. The Federal Trade Commission and the United States Department of Justice jointly
released a final enforcement policy that sets forth an antitrust “safety zone” for ACOs that meet the CMS eligibility
criteria for the program and are highly unlikely to raise significant competitive concerns. The IRS released a fact
sheet in connection with the ACO final rule, which serves as a follow-up to Notice 2011-20 regarding the proposed
ACO regulations, which stated that tax-exempt organizations that participate in an ACO with for-profit entities will
not jeopardize their tax-exempt status or be subject to unrelated business income tax if certain requirements are met.
Several hospitals and physician groups in New Jersey have formed ACOs that have been approved to
participate in the Medicare Shared Savings Program, including Meridian Accountable Care Organization, LLC and
Hackensack Physician – Hospital Alliance Accountable Care Organization LLC. It is unclear what effect current or
future participation in the Medicare Shared Savings Program by any Members of the Combined Group or other
hospitals and physicians throughout New Jersey will have on the Members of the Combined Group and their
revenues.
Medicaid Reimbursement
Medicaid and Other State Health Care Programs. Unlike Medicare which is an exclusively federal
program, Medicaid is a cooperative federal-state program of medical care for the poor and other Medicaid-eligible
groups (e.g., Supplemental Security Income recipients). States obtain federal matching funds for their Medicaid
programs by obtaining the approval of CMS of a “state plan” which conforms to Title XIX of the Social Security
Act and its implementing regulations. Within broad national guidelines which the Federal government provides,
each of the states establishes its own eligibility standards, determines the type, amount, duration, and scope of
services, sets the rate of payment for services, and administers its own program. Thus, the Medicaid program varies
considerably from state to state, as well as within each state over time. After its state plan is approved and provided
the state plan provides certain basic and/or optional services, a state is entitled to federal matching funds for
Medicaid expenditures.
Medicaid is designed to pay providers for care given to the indigent and other persons who qualify based
on certain conditions. Medicaid is funded by federal and state appropriations and is administered by an agency of
the applicable state. Under the PPACA, eligibility for Medicaid has been expanded in some states, including New
Jersey, to cover individuals with income at or below 133% of the FPL. Current Medicaid eligibility is based on a
combination of both income and the categorical classification of the individuals seeking benefits (i.e. families with
children, pregnant women, etc.).
Medicaid Payments to Health Care Providers. Medicaid operates as a vendor payment program.
Subject to federally-imposed upper limits and specific restrictions, states may either pay providers directly or may
pay for Medicaid services through various prepayment arrangements (see “Medicaid Managed Care” below).
34
Providers participating in Medicaid must accept Medicaid payment rates as payment in full. States must make
additional payments to qualified hospitals that provide services to a disproportionately large number of Medicaid,
low income and/or uninsured patients. These payments are referred to as a DSH adjustment. Often DSH payments
are insufficient to cover a hospital’s costs in providing care to such patients, and there can be no assurance that any
future DSH payments will cover the Combined Group’s costs.
Under the PPACA, there will be incremental decreases to the Medicare and Medicaid payments for
disproportionate share hospitals totaling $36 billion over the period of fiscal years 2014 to 2024, based on an
assumption that the law’s new coverage and access provisions will substantially reduce uncompensated care
provided by hospitals. Under the PPACA, annual Medicaid DSH payment reductions were scheduled to start in
2014, but the start date was delayed under MACRA until fiscal year 2018. Reductions are scheduled to occur
through 2025.
States may impose nominal deductibles, coinsurance, or co-payments on some Medicaid recipients for
certain services. Emergency services, family planning services, pregnancy-related services and preventative
services for children are exempt from such co-payments. Certain Medicaid recipients must be excluded from this
cost sharing including but not limited to: pregnant women (states may choose to exempt all services provided to
pregnant women), children under age 18 (or 19, 20 or 21 at the state’s option), hospital or nursing home patients
who are expected to contribute most of their income to institutional care, hospice patients and categorically needy
HMO enrollees.
Medicaid Managed Care. In New Jersey, the Medicaid managed care program is administered by the
State’s Department of Human Services (“DHS”). Under this program, DHS contracts with managed care companies
to arrange for the provision of health care services to most of the Medicaid recipients in the State. The managed
care companies are paid a fixed amount per enrollee per month by the State. These companies in turn negotiate rates
for services with hospitals and other health care providers. There can be no assurance that the negotiated rates will
cover expenses incurred in providing care to the Medicaid patients.
For Supplemental Security Income (“SSI”) recipients and other Medicaid-eligible groups not enrolled in a
managed care program, hospitals are reimbursed for inpatient services using DRG rates. These rates are based on
the average cost of hospital care for Medicaid patients at New Jersey hospitals. Because hospitals are reimbursed
the median rate per case, there can be no assurance that Medicaid revenues will cover expenses for Medicaid
patients. Further reduction in Medicaid payments and/or the conversion of Medicaid recipients to managed care
Medicaid coverage would reduce the amount of reimbursement that the Members of the Combined Group receive
for providing services to Medicaid beneficiaries. There can be no assurances that the Members of the Combined
Group can reduce the costs associated with treating Medicaid patients to offset these potential reimbursement
reductions.
The PPACA and Medicaid. Some of the PPACA’s major modifications to the Medicaid program include
the following changes. Subsequent to litigation in 2012, states have the option under the PPACA to expand
Medicaid program eligibility to cover individuals with household income at or below 133% of the FPL, plus a 5%
income disregard. Over half of the states, including New Jersey, have elected to expand coverage. The federal
government is responsible for the cost of this coverage expansion in the initial three years. Thereafter, each state
that participates in the Medicaid expansion will share in the financial burden of the expanded coverage. Finally, as
previously discussed, the PPACA mandates that Medicaid DSH payments be reduced annually beginning fiscal year
2014 (delayed by MACRA until fiscal year 2018), which may have an adverse effect upon the revenue of the
Combined Group.
Medicaid DSH Verification and Reporting Requirements
CMS Regulations at 42 CFR 455.301 and 455.304(d) require states to verify Medicaid DSH payments.
New Jersey’s Medicaid DSH verification is executed under an independent accountant’s report and includes an
examination of the hospital’s payment and cost related to inpatient and outpatient Medicaid fee-for-service,
Medicaid managed care, the uninsured and the underinsured. Federal law limits Federal Financial Participation
(“FFP”) for DSH payments through the hospital-specific DSH limit. Under the hospital-specific DSH limit, FFP is
not available for DSH payments that are more than the hospital's cost. It should be noted that significant costs, such
35
as hospital-subsidized physician costs for treating Medicaid and uninsured patients are not recognized in the
Medicaid DSH cost, as well as the treatment of reducing Medicaid DSH costs by certain grants, results in the cost of
treating this population to be understated.
Future Federal Legislation
Future legislation, regulation, or other actions by the federal government are expected to continue the trend
toward more restrictive limitations on reimbursement for health care services. Legislation has been introduced in
Congress, and is now pending, which would dramatically change the way in which healthcare services are insured
and paid for throughout the United States. If enacted, such legislation would very likely result in limitations on
health care revenues, reimbursement and costs or charges. At present, no determination can be made concerning
whether, or in what form, such legislation will be enacted into law. Similarly, the impact of future cost control
programs and future regulations upon the Combined Group’s forecasted financial performance cannot be determined
at this time.
Any future changes to the Medicare and Medicaid programs could result in substantial reductions in the
amounts of Medicare and Medicaid payments to health care providers in the future which could substantially reduce
the revenues available to the Members of the Combined Group, and any reduction in the levels of payment in these
government payment programs could substantially adversely affect the Combined Group’s financial condition and
ability to fulfill its obligations securing the Series 2017 Bonds.
From time to time, Congress considers the issue of organizations whose income is exempt from federal
income taxation, such as the Members of the Combined Group. Such studies may result in additional requirements
which the Members of the Combined Group must meet in order to maintain their tax-exempt status. One proposal
which has been made concerns reporting requirements to the Internal Revenue Service (“IRS”) by tax-exempt
hospitals about their provision of charity care. Congress can at any time impose additional requirements on taxexempt organizations. Should Congress impose any new requirements on tax-exempt organizations, such as the
Members of the Combined Group, including any requirements relating to charity care, it is not certain that (i) the
Member of the Combined Group would be able to meet such requirements, or (ii) if it should meet such
requirements, it would not suffer adverse economic consequences in so doing.
Regulation of Health Care Industry
General. The Members of the Combined Group, and the health care industry in general, are subject to
regulation by a number of governmental agencies, including those that administer the Medicare and Medicaid
programs, federal, state and local agencies responsible for administration of health care planning programs, and
other federal, state and local governmental agencies. As a result, the health care industry is sensitive to legislative
and regulatory changes in such programs, and is affected by reductions and limitations in government spending for
such programs as well as changing health care policies. Over the past several years, Congress has consistently
attempted to curb the growth of federal spending on health care programs. In addition, Congress and governmental
agencies have focused on the provision of care to indigent and uninsured patients, the prevention of the transfer of
such patients to other hospitals in order to avoid the provision of uncompensated care, activities of tax-exempt
institutions that are unrelated to their exempt purposes and other issues. Some of the legislation and regulations
affecting the health care industry are discussed below.
Additionally, laws, regulations and accreditation standards require that hospitals meet various detailed
standards relating to the adequacy of medical care, equipment, personnel, operating policies and procedures,
maintenance of adequate records, utilization, rate setting, compliance with building codes and environmental
protection laws, and numerous other matters. Failure to comply with applicable regulations can jeopardize a
hospital’s licenses, ability to participate in the Medicare and Medicaid programs and ability to operate as a hospital.
These laws and regulations, as well as similar laws and regulations now in effect, and the adoption of additional
laws, regulations and accreditation standards in these and other areas could have an adverse effect on the Combined
Group’s ability to generate revenues in sufficient amounts to timely pay the Series 2017 Bonds.
Federal “Fraud and Abuse” Laws and Regulations. Section 1128(b) of the Social Security Act (the
“Anti-Kickback Law”) prohibits the knowing and willful offer, solicitation, payment or receipt of remuneration in
36
exchange for or as an inducement to make or influence a referral of a patient for goods or services, or the purchase,
lease, order or arrangement for the provision of goods or services, that may be reimbursed under Medicare,
Medicaid or other health benefit programs funded by the federal government. The scope of the Anti-Kickback Law
is very broad, and it potentially implicates many practices and arrangements common in the health care industry,
including space and equipment leases, personal services contracts, purchase of physician practices, joint ventures,
and relationships with vendors. Penalties for violation of the Anti-Kickback Law include criminal prosecution with
imprisonment up to 5 years, civil penalties of up to $50,000 for each violation and damages of up to three times the
amount of the illegal remuneration, as well as exclusion from the federal health care programs. Under the PPACA,
a violation of the Anti-Kickback Law is deemed to be a violation of the federal False Claims Act. A May 12, 2014
proposed rule from the OIG provides that for violations of the Anti-Kickback Law, penalties may be imposed for
“each offer, payment, solicitation, or receipt of remuneration and that each action constitutes a separate violation.”
Current safe harbor regulations are narrowly drawn and do not cover all of the practices and arrangements that
health care providers may consider legitimate business arrangements that do not violate the Anti-Kickback Law.
Compliance with the safe harbor regulation is not mandatory, and the failure to comply with all elements of an
applicable safe harbor does not indicate that an arrangement violates the law. However, arrangements that do not
comply with all of the strict requirements of the safe harbors, though not necessarily illegal, may nevertheless face
an increased risk of investigation or prosecution.
In light of the narrowness of the safe harbor regulations, there can be no assurances that the Members of the
Combined Group will not be found to have violated the Anti-Kickback Law, and if such a violation were found, that
any sanctions imposed would not have a material adverse effect upon the future operations and financial condition
of the Combined Group, or the status of the applicable Members of the Combined Group, as organizations described
in Section 501(c)(3) of the Code.
Restrictions on Referrals. Section 1877 of the Social Security Act (the “Stark Law”) prohibits a
physician (or an immediate family member of the physician) who has a financial relationship with an entity that
provides certain “designated” health services from referring Medicare and Medicaid patients to that entity for the
provision of such health services, with limited exceptions. Financial relationships include direct or indirect
ownership or investment interests, as well as compensation arrangements. These restrictions currently apply to
referrals for several designated health services and goods, including clinical laboratory services, physical therapy
services, occupational therapy services, radiology or other diagnostic services, durable medical equipment, radiation
therapy services, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics and prosthetic
devices, home health services, outpatient prescription drugs, and inpatient and outpatient hospital services.
The Stark Law is a strict liability statute. Intent behind violations does not matter and even technical
violations can result in harsh penalties. Sanctions for violations of the Stark Law include refunds of the amounts
collected for services rendered pursuant to a prohibited referral, civil money penalties of up to $15,000 for each
claim arising out of such referral, plus up to three times the reimbursement claimed, and exclusion from the
Medicare program. The Stark Law also provides for a civil penalty of up to $100,000 for entering into an
arrangement with the intent of circumventing its provisions. In addition, knowing violation of the Stark Law may
also serve as the basis for liability under the federal False Claims Act. As required under the PPACA, CMS released
a protocol under which health care providers can make self-disclosures of actual and potential Stark violations, with
reduced penalties for self-disclosure violations. CMS released this protocol on September 23, 2010.
The Stark Law and its accompanying regulations do not specifically refer to Medicaid, however the United
States Department of Justice (“DOJ”) has applied the Stark Law to health care services covered by Medicaid, and
CMS has indicated that it believes that the Stark Law already applies to Medicaid, although it does not state that in
its regulations. Numerous federal district and appellate courts have likewise held that the Stark Law applies to
health services covered by Medicaid. Although the Stark Law only applies to Medicare (and possibly also
Medicaid), a number of states (including New Jersey) have passed similar statutes pursuant to which similar types of
prohibitions are made applicable to all other health plans or third-party payors.
Some federal courts, including federal circuit courts, have opined on the Stark Law as it applies to
arrangements between hospitals and physicians, and these decisions have added some uncertainty to the
interpretation of the Stark Law. Because of the complexity of the Stark Law and the evolving nature of quality
improvement and cost-reduction efforts, there can be no assurances that the Members of the Combined Group will
37
not be found to have violated the Stark Law or the state law equivalent. If such violation were found to have
occurred, any sanctions imposed could have a material adverse effect upon the future operations and financial
condition of the Combined Group. The Members of the Combined Group attempt to comply with the Stark Law in
structuring their relationships with physicians. However, because of the complexity of the Stark Law and the lack of
final, comprehensive regulatory guidance on many of its provisions, there can be no assurances that the Members of
the Combined Group will not be found to have violated the Stark Law. If such violation were found to have
occurred, any sanctions imposed could have a material adverse effect upon the future operations and financial
condition of the Combined Group.
Federal False Claims Acts and Civil Money Penalties Law. There are multiple federal laws concerning
the submission of inaccurate or fraudulent claims for reimbursement and errors or misrepresentations on cost reports
by hospitals and other providers. The coding, billing and reporting obligations of Medicare providers are extensive,
complex and highly technical. In some cases, errors and omissions by billing and reporting personnel may result in
liability under one of the federal False Claims Acts or similar laws, exposing a health care provider to civil and
criminal monetary penalties, as well as exclusion from participation in the Medicare and Medicaid programs.
The federal False Claims Act prohibits knowingly submitting a false or fraudulent claim for payment to the
United States. This statute is violated if a person acts with actual knowledge, or in deliberate ignorance or reckless
disregard of the falsity of the claim. Penalties under the federal False Claims Act currently include fines of up to
$11,000 per violation occurring prior to November 2, 2015 and up to $21,563 (subject to annual escalations based
on the Consumer Price Index) per violation occurring on or after November 2, 2015, plus treble damages, potentially
resulting in penalties aggregating in the multiple millions of dollars for ongoing claims submission errors. Anyone
who knowingly makes a false statement or representation in any claim to Medicare, Medicaid or other federally
funded programs may be subject to criminal penalties, including fines and imprisonment. Moreover, the PPACA
revised the Social Security Act to state that retention of Medicare, Medicaid and other federally funded overpayment
more than 60 days after the overpayment is identified constitutes a federal False Claims Act violation. The PPACA
also provides that a violation of the Anti-Kickback law is also deemed to be a federal False Claims Act violation.
CMS issued final regulations effective March 14, 2016, implementing the PPACA’s provisions for Medicare Part A
and B providers and suppliers, which expand the overpayment reporting and return obligations, and include a 6-year
look-back period, a change from the former 4-year look-back period. The final rule departed from the federal False
Claims Act’s well-established requirement of “actual knowledge,” “reckless disregard,” or “deliberate ignorance” to
provide that the 60-day deadline for reporting a Medicare overpayment is triggered whenever an entity has
determined “or should have determined through the exercise of reasonable diligence” that there was an
overpayment. Rule-making has not been initiated to implement the PPACA provision as it relates to provider
obligations under traditional Medicaid. However, the PPACA provision is self-implementing, meaning that all
persons that it covers have an obligation to report and refund overpayments within the time limit set out in the
statute. On May 19, 2014, CMS issued a final rule implementing the above PPACA provision for Medicare Part C
and D. That final rule also includes a 6-year look-back provision. On June 1, 2015, CMS published a proposed rule
covering (among other things) the return of overpayments by Medicaid managed care plans. A final rule was
published on May 6, 2016, which includes provisions for the prompt return of identified overpayments.
The federal False Claims Act includes “whistleblower” provisions under which a person who believes that
someone is violating the federal False Claims Act can file a sealed complaint against the alleged violator in the name
of the United States government. The nature of the allegations is not revealed to the target during the time the DOJ
investigates the complaint and determines whether to join in the suit. The initial sealing period is for 60 days but is
often extended for months or even years while the DOJ conducts its investigation. If the DOJ decides not to join in
the suit, the original whistleblower nonetheless can proceed. If the case is successful, the whistleblower is entitled
to between 15% and 30% of the proceeds of any fines or damages paid, the percentages vary depending on whether
or not the United States has joined the suit. Although the federal False Claims Act has been in effect for many
years, in recent years there has been a significant increase in the number of whistleblower allegations filed under the
federal False Claims Act, a large number of which involve the health care and pharmaceutical industries.
Additionally, on April 29, 2013, CMS issued a proposed rule that would increase the reward for a successful
whistleblower, which is intended to incentivize individuals to report suspected fraud. On December 5, 2014, CMS
adopted a final rule, which included a statement that it “may finalize provisions relating to the Incentive Reward
Program in future rule making.” There has been no further action on this proposed rule to date.
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On May 9, 2014, the OIG issued a proposed rule that provided, in part, that there would be no statute of
limitations period applicable to the OIG’s exclusion authority, unlike the OIG’s other administrative remedies which
have a six-year statute of limitations, even when the exclusion is based on a violation of another statute that has a
specific limitations period. The proposed rule also expanded the OIG’s authority to impose permissive exclusions
pursuant to the PPACA. On January 12, 2017, the OIG published a final rule revising and expanding its authority to
exclude individuals and entities from participation in federal health care plans, and in response to extensive
comments objecting to no time limitations for exclusions, the OIG adopted a 10-year statute of limitations period for
exclusion actions.
On June 16, 2016, the United States Supreme Court decided Universal Health Services v. United States ex
rel. Escobar. This case analyzed whether a violation of the FCA occurs when a defendant submitting a claim that
includes specific representations about the goods or service provided, fails to disclose non-compliance with material
statutory, regulatory or contractual requirements that makes those representations misleading with respect to those
goods or services (the implied false certification theory). The Supreme Court ruled that the implied false
certification theory can be a basis for liability under the FCA and liability under the FCA, for failing to disclose
violations of legal requirements does not turn upon whether those requirements were expressly designated as
conditions of payments.
The Civil Money Penalties Law under the Social Security Act (“CMP Law”) provides for the imposition of
civil money penalties against any person who submits a claim to Medicare, Medicaid or any other federal health care
program that the person knows or should know: (a) is for items or services not provided as claimed; (b) is false or
fraudulent; (c) is for services provided by an unlicensed or uncertified physician or by an excluded person;
(d) represents a pattern of claims that are based on a billing code higher than the level of service provided; or (e) is
for services that are not medically necessary. Penalties under the CMP Law include a fine of $10,000-$50,000 for
each item or service claimed, damages of up to three times the amount claimed for each item or service, and
exclusion from participation in the federal health care programs. The CMP Law also provides for the imposition of
penalties against a hospital that knowingly makes a payment to a physician as an inducement to reduce or limit
services provided to federal program beneficiaries. On May 12, 2014, the OIG issued a proposed rule that would
codify expanded conduct covered by the CMP pursuant to the PPACA. New prohibited acts include: (a) failing to
grant OIG timely access to records; (b) ordering or prescribing while excluded when the excluded person knows or
should know that the items or services may be paid for by a Federal healthcare program; (c) making false
statements, omissions, or misrepresentations in an enrollment or similar bid or application to participate in a Federal
healthcare program; (d) failing to report and return a known overpayment; and (e) making or using a false record or
statement that is material to a false or fraudulent claim. If an excluded individual is employed/contracted with and
he or she provides items or services that are not separately billed, the OIG will calculate penalties based on the
number of days of employment/contract with a penalty of not more than $10,000 per day. Finally, the proposed rule
provides for a default penalty of up to $10,000 for each day a person fails to report and return an overpayment after
the 60-day window under the federal False Claims Act, but the OIG asked for input on whether the penalty should
be $10,000 for each item or service for which there was an identified overpayment. This provision would allow the
OIG to impose penalties even when the DOJ or a whistleblower could not make the showing under the federal False
Claims Act that the defendant “knowingly and improperly” avoided repayment. On December 7, 2016, the OIG
issued a final rule which updates the CMP regulations to include a new CMP for violations of the 60-day
overpayment refund rule, to impose CMPs and exclusions on providers and vendors and adopted the majority of the
other provisions in its proposed rule.
Under an interim final rule published on June 14, 2016, the penalty amounts were increased using the
Consumer Price Index to account for inflation. This rule also clarified that CMPs may be imposed for upcoding
claims. The rule also proposes changes to the definition of “knowing.” Historically, regulations have applied a
‘‘knows or should know’’ standard of proof with regard to false claims and other prohibited acts. The ‘‘should
know’’ standard historically placed a duty on providers to use reasonable diligence to ensure that claims submitted
to the government are true and accurate. Under the revised definition for ‘‘should know or should have known’’,
individuals and entities would only be liable under the CMP authority if they acted with actual knowledge, or with
reckless disregard or deliberate ignorance of information supporting the truth or falsity of a claim or other fraud. No
specific intent to defraud would be required. The rule also added that the term ‘‘knowingly’’ will be applied to the
presentment of a claim under the CMP statute consistent with the standard of knowledge set forth in the False
Claims Act.
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The threats of large monetary penalties and exclusion from participation in Medicare, Medicaid and other
federal health care programs, and the significant costs of mounting a defense, create serious pressures on providers
who are targets of false claims actions or investigations to settle. Therefore, an action under the False Claims Act,
CMP Law or Program Fraud Civil Remedies Act could have an adverse financial impact on the Combined Group,
regardless of the merits of the case.
Expanded Enforcement Activity. Congress enacted The Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”) in August 1996 as part of a broad health care reform effort. Among other things, HIPAA
established a program administered jointly by the Secretary of HHS and the United States Attorney General
designed to coordinate federal, state and local law enforcement programs to control fraud and abuse in connection
with the federal health care programs.
On January 25, 2013, HHS released the final HIPAA “Omnibus Rule”, which implements a number of
provisions of HITECH. Among other things, the Omnibus Rule revises the standard for requiring notification to
individuals following a HIPAA breach. It also further restricts the use of protected health information for marketing
and further enhances government enforcement mechanisms and remedies for HIPAA violations.
The Department of Health and Human Services’ Office for Civil Rights is currently conducting Phase 2 of
its HIPAA compliance audit program. It includes desk audits of select HIPAA privacy and security rule provisions,
followed by on-site audits as their resources allow. Auditors will be looking for compliance with updated protocols
pursuant to the Omnibus Rule and specifically focusing on arrangements with business associates (as defined under
the Omnibus Rule).
The Members of the Combined Group are actively engaged in continuing compliance efforts with HIPAA
and HITECH and their accompanying regulations. However, no guarantee can be made that the Members of the
Combined Group will remain HIPAA compliant in the future. The financial costs of compliance with HIPAA, as
amended by HITECH, and their accompanying regulations are substantial.
In addition, in HIPAA, Congress greatly increased funding for health care fraud enforcement activity,
enabling the OIG to substantially expand its investigative staff and the Federal Bureau of Investigation to plan to
quadruple the number of agents assigned to health care fraud. The result has been a dramatic increase in the number
of civil, criminal and administrative prosecutions for alleged violations of the laws relating to payment under the
federal health care programs, including the Anti-Kickback Law and the False Claims Act. This expanded
enforcement activity, together with the whistleblower provisions of the False Claims Act, have significantly
increased the likelihood that all health care providers, including the Members of the Combined Group, could face
inquiries or investigations concerning compliance with the many laws governing claims for payment and cost
reporting under the federal health care programs.
Exclusions from Medicare or Medicaid Participation. The term “exclusion” means that no Medicare or
state health care program payment (including Medicaid and the Maternal and Child Health programs) will be made
for any services rendered by the excluded party or for any services rendered on the order or under the supervision of
an excluded physician. The Secretary of HHS is required to exclude from program participation for not less than
five years any individual or entity who has been convicted of (1) a program related crime, (2) patient neglect or
abuse, (3) health care fraud against any federal, state or locally financed health care program, or (4) an offense
relating to the illegal manufacture, distribution, prescription, or dispensing of a controlled substance.
The Secretary of HHS also may exclude individuals or entities under certain other circumstances, such as
an unrelated conviction of fraud, theft, embezzlement, breach of fiduciary duty, or other financial misconduct
relating either to the delivery of health care in general, or to participation in a federal, state or local government
program. The excluded person/entity and the entity that enters into a contract with the excluded person/entity are
subject to a civil money penalty of up to $10,000 for each item or service furnished by the excluded individual, and
the responsible party is required to pay three times the amount claimed for each item or service. Any action to
exclude Members of the Combined Group from participation in the Medicare program or any state health care
program could have a material adverse impact on the Combined Group.
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HIPAA’s Administrative Simplification Provisions. In addition to the expanded enforcement activity
noted above, the “Administrative Simplification” provisions of HIPAA mandate the use of uniform standard
electronic formats for certain administrative and financial health care transactions, the adoption of minimum security
standards for individually identifiable health information maintained or transmitted electronically, and compliance
with privacy standards adopted to protect the confidentiality of personal health information. The Administrative
Simplification provisions apply to health care providers, health plans, and healthcare clearinghouses (collectively
“Covered Entities”).
Various requirements of HIPAA apply to virtually all healthcare organizations, and significant civil and
criminal penalties may result from a failure to comply with the Administrative Simplification regulations.
Compliance required changes in information technology platforms, major operational and procedural changes in the
handling of data, and vigilance in the monitoring of ongoing compliance with the various regulations. The financial
costs of compliance with the Administrative Simplification regulations are substantial.
The Member of the Combined Group are actively engaged in maintaining compliance with the HIPAA
regulations. However, in light of the complexity of the regulations, and the lack of guidance from HHS with respect
to numerous provisions of the regulations, it is impossible to accurately assess the financial and operational impact
HIPAA will have on the Combined Group.
The HITECH Act.
ARRA appropriated approximately $20 billion for the development and
implementation of health information technology standards and the adoption of electronic health care records.
ARRA includes the Health Information Technology for Economic and Clinical Health Act (“HITECH”), which
contains a number of provisions that affect HIPAA’s privacy and security provisions applicable to Covered Entities
and their business associates.
Under HITECH, Covered Entities that use an “electronic health record” are required to account for
disclosures of protected health information, including disclosures for treatment, payment and health care operations.
Covered Entities must comply with strict reporting procedures in connection with breaches of protected health
information. A covered entity must report any breach of information involving over 500 individuals in a state to
HHS and the local media. All other breaches must be reported annually to HHS.
HITECH includes provisions requiring Covered Entities to agree to a patient request to restrict disclosure
of information to a health plan, if the information pertains solely to an item or service for which the provider was
paid out of pocket in full. In addition, if a Covered Entity maintains an electronic health record, it must provide
individuals with a copy of the protected health information maintained in the record in an electronic format, if
requested. HITECH also includes a prohibition on the payment or receipt of remuneration in exchange for protected
health information without specific patient authorization, except in limited circumstances, and places additional
restrictions on the use and disclosures of protected health information for marketing communications and
fundraising communications.
HITECH revises the civil monetary penalties associated with violations of HIPAA, and provides state
attorneys general with authority to enforce the HIPAA privacy and security regulations in some cases, through a
damages assessment of $100 per violation or an injunction against the violator. The revised civil monetary penalties
range: (a) in the case of violations due to willful neglect, from a minimum of $10,000 or $50,000 per violation
depending on whether the violation was corrected within 30 days of the date the violator knew or should have
known of the violation, and (b) in the case of all other violations, from a minimum of $100 to $1,000 per violation.
On January 25, 2013, HHS released the final HIPAA “Omnibus Rule”, which implements a number of
provisions of HITECH. Among other things, the Omnibus Rule revises the standard for requiring notification to
individuals following a HIPAA breach. It also further restricts the use of protected health information for marketing
and further enhances government enforcement mechanisms and remedies to HIPAA violations.
The Members of the Combined Group are actively engaged in continuing compliance efforts with HIPAA
and HITECH and their accompanying regulations. However, no guarantee can be made that the Members of the
Combined Group will remain HIPAA compliant in the future. The financial costs of compliance with HIPAA, as
amended by HITECH, and their accompanying regulations are substantial.
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Cybersecurity Concerns. Information technology systems may be vulnerable to breaches, hacker attacks,
computer viruses, physical or electronic break-ins and other similar events or issues. The Federal Bureau of
Investigation has expressed concern that health care systems are a prime target for such cyber-attacks due to the
mandatory transition from paper records to EHRs and a higher financial payout for medical records in the black
market. Such events or issues could lead to the inadvertent disclosure of protected health information or other
confidential information or could have an adverse effect on the ability of the Members of the Combined Group to
provide health care services.
Health care providers are increasingly a primary target of cyber criminals seeking the private information
of patients and employees, including protected health information, social security numbers and financial
information. Breaches of hospital information technology systems may result in fines imposed by HHS under
HIPAA and potential tort actions by individuals adversely impacted by such breaches. Additionally, the Federal
Trade Commissions (“FTC”) in a July 29, 2016 ruling upheld its jurisdiction to enforce data security requirements
against a health care company irrespective of evidence of particularized harm to customers. Although the ultimate
implications of the recent FTC ruling remain unclear, it suggests that HHS and FTC may exert parallel jurisdiction
over data security with respect to health care providers. Due to the increasing prevalence of cyber-crime, there can
be no assurance that the Members of the Combined Group will not be exposed to fines and other liability in the
event of a cyber-attack or security breach, and in the event of the occurrence of a cyber-attack or breach, that any
sanctions imposed or liability incurred would not have a material adverse effect upon the future operations and
financial condition of the Combined Group.
Emergency Medical Treatment and Labor Act. In 1986, Congress enacted the Emergency Medical
Treatment and Labor Act (“EMTALA”), in response to allegations of inappropriate hospital transfers of indigent
and uninsured emergency patients. EMTALA imposes strict requirements on hospitals in the treatment and transfer
of patients with emergency medical conditions.
EMTALA requires hospitals to provide a medical screening examination to any individual who comes to
the hospital’s emergency department for treatment, without regard to ability to pay, to determine whether the
individual suffers from an emergency medical condition within the meaning of EMTALA. A participating hospital
may not delay providing a medical screening examination in order to inquire about method of payment or insurance
status. If an emergency medical condition is present, the hospital must provide such additional medical examination
and treatment as may be required to stabilize the emergency medical condition. If the hospital deems it in the best
interest of the individual to transfer the individual to another medical facility, the treating physician must execute a
transfer certificate complying with the standards of EMTALA and must provide a medically appropriate transfer.
If a hospital violates EMTALA, whether knowingly and willfully or negligently, it is subject to a civil
money penalty of up to $50,000 per violation. Failure to satisfy the requirements of EMTALA may also result in
termination of the hospital’s provider agreement with Medicare. EMTALA does not create a private cause of action
for individuals or hospitals who suffer harm as a result of an EMTALA violation, but EMTALA does not limit or
replace any professional liability claims that may arise under State law. A hospital that suffers financial loss as a
result of another hospital’s violation of EMTALA may also bring a civil action under State law. Enforcement
activity has increased dramatically in recent years, and because of the broad interpretation of the reach of EMTALA,
there can be no assurance that the Members of the Combined Group will not have been found to have violated
EMTALA, and if such a violation were found, that any sanctions imposed would not have a material adverse effect
upon the future operations and financial condition of the Combined Group.
Transparency in Pricing. The PPACA requires hospitals to establish and make public a list of the
hospital’s standard charges for items and services, including DRGs. CMS issued a final rule which became effective
on October 1, 2014 to implement this PPACA provision. It provides hospitals with flexibility in choosing how to
comply with the pricing transparency requirements. Hospitals can either make public a list of their standard charges
or make public their policy for allowing the public to view such a list in response to an inquiry. Hospitals should
update the information at least annually. A 2006 executive order required four federal agencies to make available
the prices that they, their health insurance issuers or their health insurance plans pay for procedures to providers in
the health care programs with which the agency, issuer or plan contracts. CMS also has made “outcomes” reporting
a condition of Medicare participation. These are examples of a trend in which hospitals will be required to divulge
proprietary information to the general public in order to participate in federal health care programs. The disclosure
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of proprietary information may have a negative impact on the ability of the Members of the Combined Group to gain
advantages in negotiations with payors. This, in turn, could negatively influence the revenues of the Combined
Group. Due to the relative novelty of these disclosure requirements, it is impossible to predict the effect, if any, that
cost and outcomes reporting will have on the finances of the Combined Group.
Transparency and Reporting under the Physician Payment Sunshine Act. The PPACA amended the
Social Security Act to require applicable manufacturers of drugs, devices, biologicals or medical supplies
(“Applicable Manufacturers”) covered under Medicare, Medicaid, or the State Children’s Health Insurance Program
(“SCHIP”) to report annually certain payments or other transfers of value made to physicians and teaching hospitals
(the, “Physician Payment Sunshine Act” or “Sunshine Act”). One of the purposes of the Sunshine Act is to promote
transparency in the collaborative efforts among physicians, teaching hospitals and Applicable Manufacturers. The
payments that are reported on an annual basis are now made available for public review through the CMS Open
Payments website. It is unclear what, if any, effect this expanded reporting and disclosure requirement may have on
the Combined Group. However, the disclosures may lead to increased scrutiny, and oversight, which may result in
increased exposure under the “Fraud and Abuse Laws” as described more fully above.
Antitrust Laws. Hackensack Meridian, like other providers of health care services, is subject to antitrust
laws. Those laws generally prohibit agreements and activities that restrain trade. Those laws also prohibit the
acquisition or maintenance of a monopoly through anticompetitive practices. The legality of particular conduct
under the antitrust laws depends on the specific facts and circumstances and cannot be predicted. Antitrust liability
can arise in a number of different contexts, including medical staff privilege disputes, third-party payor contracting,
joint ventures and affiliations between health care providers, and mergers and acquisitions by health care providers.
Actions can be brought by federal and state enforcement agencies seeking criminal and civil remedies and, in some
instances, by private plaintiffs seeking treble damages for harm from allegedly anticompetitive behavior.
Recent judicial decisions have permitted physicians who are subject to disciplinary or other adverse actions
by a hospital at which they practice, including denial or revocation of medical staff privileges, to seek treble
damages from the hospital under the federal antitrust laws. The Federal Health Care Quality Improvement Act of
1986 provides immunity from liability for money damages for members of hospital peer review committees under
certain circumstances, but courts have differed over the nature and scope of this immunity. In addition, hospitals
occasionally indemnify medical staff members who incur costs as defendants in lawsuits involving medical staff
privilege decisions. Recent court decisions have also permitted recovery by competitors claiming harm from a
hospital’s use of its market power to obtain unfair competitive advantage in expanding into ancillary health care
businesses. Antitrust liability in any of these contexts can be substantial, depending upon the facts and
circumstances involved.
In 1993, the United States Department of Justice and the Federal Trade Commission issued “Statements of
Antitrust Enforcement Policy in the Health Care Area,” and these statements have been revised from time to time.
The statements generally describe certain analytical principles which the agencies will apply to certain factual
situations and also establish certain “antitrust safety zones”. Conduct within the safety zones will not be challenged
by the agencies, absent extraordinary circumstances. Many activities frequently engaged in by health care providers
fall outside of the zones but are not challenged, and failure to fall within a safety zone does not mean that a
participant will be investigated or prosecuted, or even that the activity violated the antitrust laws. There can be no
assurance that federal or state enforcement authorities or private parties will not assert that Hackensack Meridian, or
any transaction in which it is involved, is in violation of the antitrust laws.
National Investigations. The OIG continues to conduct national investigations of perceived fraud and
inappropriate billing by hospitals participating in the Medicare program in such areas as medical education
payments, billing for patients transferred from one acute care hospital to another acute care hospital, DRG upcoding,
outlier payments, and outpatient services provided in the days immediately preceding inpatient admission. These
national investigations, which are included in the OIG annual work plan, have historically resulted in large
recoveries from Medicare eligible hospitals. There can be no assurance that the Members of the Combined Group
will not become the subject of one or more of these investigations, or that the government will not determine that a
Member of the Combined Group is required to repay moneys paid by federal health care programs following any
such investigation.
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Corporate Compliance. The sentencing of organizations for federal health care crimes is governed by the
U.S. Sentencing Guidelines (the “Guidelines”), which permit the imposition of extremely large fines in many
instances. The Guidelines permit the fine to be reduced significantly if the provider had in place at the time of the
crime an effective corporate compliance program and/or accepts responsibility for its actions. Under new guidance
issued by the DOJ in September of 2015, the DOJ is focusing on individual accountability in civil and criminal
enforcement actions and corporations, including healthcare entities, will no longer being given credit for cooperating
in a government investigation unless it investigates and identifies the corporate employees responsible for the
conduct giving rise to the investigation and provides the government with all non-privileged evidence implicating
those employees. As a result of the current environment of increased enforcement against health care fraud and
abuse, health care organizations have established compliance programs to prevent or detect violations of federal law.
The OIG issued a Compliance Program Guideline for Hospitals in 1998 and Supplemental Compliance Program
Guidance for Hospitals in 2005 to assist hospitals in the development and implementation of effective controls and
to promote adherence to applicable federal and state laws and program requirements of federal, state and private
health plans.
The Members of the Combined Group adopted a formal corporate compliance program (the “Compliance
Program”), which is designed to meet the OIG’s Compliance Program Guidelines for Hospitals. It governs the
conduct of employees, physicians, vendors and other specified persons and entities (collectively, “Covered
Persons”). Under the Compliance Program, among other things, each Member of the Combined Group (i) reaffirms
its continuing commitment to compliance with all federal health care program requirements, including the
submission of accurate claims for reimbursement in accordance with federal health care program requirements,
(ii) requires all Covered Persons to comply with all federal health care programs, (iii) sets forth its expectation that
all Covered Persons shall report to the Compliance Officer suspected violations of federal health care programs,
(iv) designate the potential consequences for failure by Covered Persons to comply with the Compliance Program
and other policies and procedures of Hackensack Meridian, (v) provide for on-going compliance education for
Covered Persons and (vi) provide for a method to keep confidential any reports by a Covered Person of a suspected
violation of the Compliance Program.
State Regulatory Issues.
Health care providers are subject to a variety of New Jersey State law issues as described below:
False Claims. The New Jersey Insurance Fraud Prevention Act (“FPA”) prohibits a person’s or entity’s
submission of false or misleading claims for payment or approval by an insurance company, and allows the State to
recover substantial damages from persons or entities that knowingly present or cause to be presented a false or
misleading claim for payment or approval by an insurance company. Any person or entity that violates the FPA
may be liable for, among other things, a penalty of $5,000 for the first violation, $10,000 for the second violation,
and $15,000 for each subsequent violation. In addition to or as an alternative to the civil sanctions provided in the
FPA, the Attorney General of the State may bring a criminal action under applicable statutes.
Health Care Claims Fraud. N.J.S.A. 2C:21 4.3 and N.J.S.A. 2C:51 5 complement the FPA and prohibit a
practitioner (a physician or health care professional as defined by the statute) from submitting of bills or claims for
payment reimbursement of health care services that contain false, fictitious, fraudulent and misleading statements of
material fact, or omissions of material fact. In addition to other criminal penalties allowed by other applicable laws,
under this body of law, a practitioner may be guilty of the crime of health care claims fraud. Practitioners can be
guilty of a crime in the second or third degree depending upon the severity of the claims fraud, may be subject to a
fine of up to five times the pecuniary benefit obtained or sought to be obtained, and may be subject to imprisonment,
if convicted. A practitioner may, in some cases, also have his or her license revoked or suspended.
State False Claims Act. Effective March 13, 2008, the New Jersey False Claims Act authorizes a person to
bring an action against any other person who knowingly causes the State to pay a false claim. A person who
violates this law is subject to civil penalties in the amounts set forth in the federal False Claims Act and be liable for
treble damages. The Act contains “whistleblower” provisions similar to the federal Civil False Claims Act. (See
“Federal Civil False Claims Act and Civil Money Penalties Law” above). The Act also amends the existing
Medicaid fraud statute so that civil penalties for Medicaid fraud committed under that statute are consistent with,
and supplement, those under the New Jersey False Claims Act.
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As noted above under “Federal False Claims Act and Civil Money Penalties Law”, the potential imposition
of large monetary penalties, criminal sanctions, and the significant costs of mounting a defense, create serious
pressures to settle on providers who are targets of false claims actions or investigations. Therefore, an action under
the FPA or the New Jersey False Claims Act could have a material adverse financial impact on the Combined
Group, regardless of the merits of the case.
State Anti-Kickback Law. The New Jersey Board of Medical Examiners’ regulations contain provisions
which prohibit Board licensees from, directly or indirectly, giving or receiving from any licensed or unlicensed
source a gift of more than nominal (negligible) value, or any fee, commission, rebate, bonus or other compensation
however denominated, which a reasonable person would recognize as having been given or received in appreciation
for or to promote certain conduct by a licensee, including making or receiving a referral to or from another for
professional services. Provisions of State law make it a criminal offense to offer, solicit or receive any kickback,
rebate or bribe in order to induce business for which reimbursement is provided under the Medicaid or other State
health care programs. Violation of the State Anti-Kickback Law may lead to civil and criminal penalties, as well as
exclusion from the Medicaid program. Each Member of the Combined Group attempts to comply with the
provisions of these regulations. However, at the present time, there can be no assurance that a Member of the
Combined Group or the physicians with which it has relationships with will not be found to have violated these State
Anti-kickback prohibitions. The mere allegation of such a violation, or if such violation were found to have
occurred, or any sanctions imposed, could have a material adverse effect upon the operations and financial condition
of the Combined Group.
State Anti-Referral Law. The New Jersey law governing referrals by physicians, which is commonly
referred to as the “Codey Law”, and regulations promulgated thereunder by the New Jersey Board of Medical
Examiners (the “BME”), prohibit the referral of a patient for “health care services” provider by practitioners who
have, or whose immediate family members have, a “significant beneficial interest” in an entity providing such
services. A “health care services” provider includes an entity that provides on an inpatient or outpatient basis testing
or diagnosis, or treatment of human disease or dysfunction or dispensing of drugs or medical devices for the
treatment of human disease or dysfunction, and also includes the following businesses: bioanalytical laboratory;
pharmacy; home health care agency; home infusion therapy company; rehabilitation facility; nursing home; hospital;
or facility which provides radiological or other diagnostic imaging services; physical therapy services; ambulatory
surgery; or ophthalmic services. A “significant beneficial interest” means any “financial interest”, including an
equity or ownership interest in a practice or a commercial entity holding itself out as offering health care services. A
“financial interest”, in turn, means any monetary interest held by a Board licensee personally or through immediate
family in a health care service to which the Board licensee’s patients are referred, other than the ownership of space
leased to the entity under prevailing rates or any interest held in publicly traded securities. There are various
exceptions to these prohibitions and some of the defined terms. Violations of the Codey Law could result in civil
and criminal penalties and could also result in a physician’s loss of his or her license to practice medicine in New
Jersey. Violations of the Codey Law could be a basis for a claim under the New Jersey False Claims Act or the FPA
by a third party payor based upon the implied false certification theory.
Health Claims Authorization Processing and Payment Act. Carriers and health care providers must comply
with New Jersey’s Health Claims Authorization, Processing and Payment Act (“HCAPPA”) which contains
provisions relating to handling of claims, claims payment appeals, prior authorization processes, utilization
management (“UM”) appeals rights and obligations, and information about clinical guidelines and claims
submissions procedures. Carriers and health care providers have an obligation to meet certain requirements of the
HCAPPA with respect to both claims payment and the establishment of an independent claims arbitration program
to be administered through the New Jersey Department of Banking and Insurance. No assurance can be given at this
time as to the impact, if any, of the provisions of the HCAPPA to the operations and financial condition of the
Combined Group.
Certificate of Need
State law requires a health care facility, under certain circumstances, to obtain a Certificate of Need from
the New Jersey Department of the Health prior to the initiation of certain new health care services, bed additions,
bed reductions, or conversions, and certain transfers of ownership. The existence of Certificate of Need
requirements may limit the ability of the Members of the Combined Group to initiate certain types of projects or
45
services which might enhance their competitive position or revenue sources. Over the past several years, relaxation
of Certificate of Need rules have allowed health care providers to expand certain activities without adhering to the
more rigorous requirements previously imposed. One of the purposes of these changes is to increase opportunities
for competition in the health care market. Although these changes may increase opportunities of the Combined
Group to provide additional services, they also may increase its exposure to competition from other health care
providers.
Health Care Facility Approvals/Licensure Risks
Health care facilities are subject to extensive regulation/oversight and may require approvals from State
agencies, such as the Department of Health, in order to provide health care services. Such approvals include, but are
not limited to, construction plan approval and amendments to health care facilities licenses.
State Children’s Health Insurance Program
The State Children’s Health Insurance Program (“SCHIP”) provides federal matching funds to states that
cover a portion of the costs of health care coverage, primarily for low-income children. CMS administers SCHIP,
but each state creates its own program based on minimum federal guidelines, or the state may apply for a waiver,
which allows the state to create its own program using the federal funds, but often with different criteria for
eligibility.
New Jersey’s SCHIP program, NJ FamilyCare, covers children in households with income levels up to
350% of FPL. Under New Jersey’s waiver program, NJ FamilyCare also covers parents and guardians with income
levels up to 133% of FPL. Because of the state budget shortfall in New Jersey, eligibility requirements are subject
to change. DHS submitted a comprehensive Medicaid waiver to the federal government, which was approved on
October 2, 2012, and makes several eligibility, payment, and delivery reforms to NJ Family Care that may have an
adverse effect upon the revenues of the Combined Group. The waiver lasts for five years, but may be extended.
While generally considered to be beneficial for both patients and providers because it reduces the number
of uninsured children, it is difficult to assess the fiscal impact of SCHIP payments on the Members of the Combined
Group. Moreover, each state must periodically submit its SCHIP plan to CMS for review to determine if it meets
the federal requirements. If a state does not meet the federal requirements, it may lose its federal funding for its
program. From time to time Congress and/or the President seek to expand or contract SCHIP. Most recently, the
PPACA authorized an extension of the SCHIP program through September 30, 2017, and beginning on October 1,
2015, the already enhanced SCHIP federal matching rate was increased by 23%, bringing the average federal
matching rate to 93%. The enhanced federal matching rate will continue until September 30, 2019. The loss of
federal approval for a state’s program or a reduction in the amounts available under SCHIP could have an adverse
impact on the financial condition of the Combined Group.
Other State Legislation
In 2008, the New Jersey State Legislature enacted several pieces of legislation adopting reforms that were
aimed at improving the financial condition of New Jersey hospitals and preserving access to care for residents of
New Jersey. The reforms included the creation of stabilization grants for hospitals in danger of reducing services or
closing, mandating training of hospital board members on the delivery of health care services, requiring annual
public meetings of hospital boards, limiting the amount that hospitals may charge low-income uninsured patients,
and authorizing the New Jersey Department of Health to monitor the financial performance of hospitals and to
intervene in the management of financially distressed hospitals. In February 2013, New Jersey elected a fully
federally run exchange under the PPACA. In 2013, New Jersey expanded coverage of its Medicaid program under
the PPACA. The federal government will fully fund the expansion for the first three years and after that New Jersey
will become responsible for covering a percentage of the cost of the expansion, increasing each year until 2020
when it becomes responsible for covering 10% of the expanded coverage. However, future legislative action is
required in order to make the Medicaid expansion permanent.
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Future State Legislation
From time to time, the New Jersey State Legislature considers certain reforms aimed at containing health
care costs and increasing coverage. Such reforms often include provisions to (i) provide more affordable coverage
through expanded government health care programs, (ii) subsidize low-income residents to enable them to purchase
health care coverage and (iii) study and implement payment system reforms. At this time, it is impossible to
measure the overall financial impact that current and future legislation (if enacted) will have on the Combined
Group.
Environmental Laws and Regulations
Health care systems are subject to a wide variety of federal, state and local environmental and occupational
health and safety laws and regulations. Among the types of regulatory requirements faced by health care systems
and hospitals are air and water quality control requirements applicable to asbestos, polychlorinated biphenyls, and
radioactive substances; requirements for providing notice to employees and members of the public about hazardous
materials handled by or located at a health care facility; and requirements for training employees in the proper
handling and management of hazardous materials and wastes.
In their role as owners and/or operators of properties or facilities, hospitals may be subject to liability for
investigating and remedying any hazardous substances located on the property, including any such substances that
migrate off the property. Typical health care system operations include, without limitation, the handling, use,
storage, transportation, disposal and/or discharge of medical and/or other hazardous materials, wastes, pollutants or
contaminants. As a result, health care system operations are particularly susceptible to the risks associated with
compliance with such laws and regulations. Failure to comply may result in damage to individuals, property or the
environment; may interrupt operations and/or increase their cost; may result in legal liability, damages, injunctions
or fines; and may result in investigations, administrative proceedings, penalties or other government agency actions.
At the present time, Hackensack Meridian is not aware of any pending or threatened environmental claim,
investigation or enforcement action which, if determined adversely, would have material adverse consequences on
the Members of the Combined Group.
Insurance Coverage Limits
The Indenture and the Master Indenture require Hackensack Meridian to maintain prescribed levels of
professional liability and property hazard insurance and Hackensack Meridian is currently complying with such
requirements. Hackensack Meridian believes that its present insurance coverage limits are sufficient to cover any
reasonably anticipated malpractice or property hazard exposures. No assurance can be given, however, that
Hackensack Meridian will always be able to procure or maintain such levels of insurance in the future.
The Members of the Combined Group are occasionally named as a defendant in malpractice actions and
there remains a risk that individual or aggregate judgments or settlements will exceed coverage limits of the
Members of the Obligated, or that some allegations or damages will not be covered by existing insurance coverages
of the Members of the Combined Group. To the extent that the professional liability insurance coverage maintained
by the Members of the Combined Group is inadequate to cover settlements or judgments against it, claims may have
to be discharged by payments from current funds and such payments could have a material adverse impact on the
Combined Group.
Medical Professional Liability Insurance Market
Underwriting results are generating substantial premium increases and coverage reductions in the medical
professional liability insurance marketplace. A rise in claim severity is driving the deterioration. As a result of the
market deterioration, health care providers have experienced substantial premium increases, reductions in coverage
and coverage availability, more stringently enforced policy terms, and increases in required deductibles or selfinsured retentions. Several regional medical professional liability insurance carriers have taken substantial charges
to their surplus capital, have had their financial ratings reduced, and/or have been subject to state insurance
department takeover for rehabilitation or liquidation. The effect of these developments has been to significantly
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increase the operating costs of hospitals. In addition, the dramatic increase in the cost of professional liability
insurance in the State may have the effect of causing established physicians to leave the market and of preventing
new physicians from establishing their practices in the area. There can be no assurance that the reduction in
coverage availability and the rising cost of professional liability coverage will not adversely affect the operations or
financial condition of the Combined Group.
Physician and Registered Nurse Recruitment
Hospitals and health systems are experiencing significant challenges to the recruitment and retention of
qualified health care providers, particularly primary care providers.
The health care industry is facing a nationwide shortage of nursing professionals, including registered
nurses. At the same time, enrollment in nursing programs has declined, and the skill level of those who are enrolling
in nursing programs is declining as more individuals opt to enroll in non-baccalaureate programs. Additionally, the
average age of the existing workforce has risen substantially over the last two decades. As a result of these factors,
the health care industry is facing a severe nursing shortage. A shortage of nursing staff could result in escalating
labor costs, delays in providing care, and patient care management issues, among other adverse effects. Although
legislation has been introduced at both the state and federal level to mitigate the impact of the existing and projected
nursing shortages, there can be no assurance that a nursing shortage will not adversely affect the operations or
financial condition of the Combined Group.
Likewise, the ability of the Members of the Combined Group to generate revenues could be adversely
affected should it be unable to attract and retain a sufficient number of qualified physicians, for specialties or subspecialties needed to deliver desired services or other health care professionals.
Licensing, Surveys, Accreditations and Audits
On a regular basis, health care facilities, including those of the Members of the Combined Group, are
subject to numerous legal, regulatory, professional and private licensing, certification and accreditation
requirements. Those requirements include, but are not limited to, requirements relating to Medicare and Medicaid
participation and payment, state licensing agencies, private payors, The Joint Commission (a private nonprofit
corporation that accredits health care programs and providers in the United States), the National Labor Relations
Board and other federal, state and local government agencies. Renewal and continuance of certain of these licenses,
certifications and accreditations is based on inspections, surveys, audits, investigations or other reviews, some of
which may require or include affirmative action or response by the Members of the Combined Group. These
activities are generally conducted in the normal course of business of health care facilities. Nevertheless, an adverse
result could be the cause of loss or reduction in a facility’s scope of licensure, certification or accreditation, third
party payor contracts or reduction in payments received. Hackensack Meridian currently expects no difficulty in
renewing or maintaining currently held licenses, certifications or accreditations that are material to its operations.
There can be no assurance that the requirements of present or future laws, regulations, certifications, licenses or
third party payor contracts will not materially and adversely affect the future operations of the Combined Group.
The IRS and State, county and local taxing authorities audit and investigate hospital operations to confirm
that such organizations are in compliance with applicable tax rules and regulations. These audits may result in
disputes about issues ranging from sales tax collections to qualifications of a hospital’s exemption from property or
income taxation. The IRS undertakes audits and reviews of the operations of tax-exempt hospitals with respect to
such matters as their generation of unrelated business taxable income or relating to inurement of or under private
benefit to non-501(c)(3) entities, proper classification of workers as employees, and joint ventures. In some cases,
the tax-exempt status of hospitals has been questioned as a result of activities deemed to violate the tax laws or other
statutes. In addition, the OIG also undertakes audits and reviews of Medicare billing practices and other regulatory
matters. In some cases, hospitals have incurred substantial liabilities including interest and penalties as a result of
the findings or settlement of such audits.
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Maintenance of 501(c)(3) Status
Hackensack Meridian has been determined to be a tax-exempt organization described in Section 501(c)(3)
of the Code. Maintaining that status is contingent upon compliance with general rules promulgated in the Code and
related regulations regarding the organization and operation of tax-exempt entities, including their operation for
charitable and educational purposes and their avoidance of transactions that would cause their assets to inure to the
benefit of private persons. The IRS has indicated that it intends to issue “compliance checks” relating to postissuance compliance of tax-exempt bonds issued for exempt organizations.
As a tax-exempt organization, Hackensack Meridian is limited in its use of practice income, guarantees,
reduced rent on medical office space, below-market rate interest loans, joint venture programs and other means of
recruiting and maintaining physicians. The IRS scrutinizes a broad variety of contractual relationships commonly
entered into by hospitals and affiliated entities and has issued detailed hospital audit guidelines suggesting that field
agents scrutinize numerous activities of hospitals in an effort to determine whether any action should be taken with
respect to limitations on, or revocation of, their tax-exempt status or assessment of additional tax. Hackensack
Meridian conducts diverse operations involving private parties and has entered into arrangements, directly or
through affiliates, that are of the kind that the IRS has indicated that it will examine in connection with audits of taxexempt hospitals. Therefore, there can be no assurances that certain of its transactions would not be challenged by
the IRS.
The IRS has issued limited guidance that addresses joint ventures and other common arrangements between
exempt health care organizations and non-exempt individuals or entities. Hackensack Meridian believes that its
arrangements with private persons and entities are generally consistent with guidance by the IRS, but there can be no
assurance concerning the outcome of an audit or other investigation given the limited authority interpreting the
range of activities undertaken by Hackensack Meridian.
The IRS has taken the position that hospitals that are in violation of the Anti-Kickback Law may also be
subject to revocation of their federal tax-exempt status. As a result, tax-exempt entities such as Hackensack
Meridian that have, and will continue to have, extensive transactions with physicians are subject to an increased
degree of scrutiny and perhaps enforcement by the IRS.
Although Hackensack Meridian has covenanted to maintain its status as a tax-exempt organization, loss of
tax-exempt status would likely have a significant adverse effect on any such organization and its operations. Any
suspension, limitation or revocation of the tax-exempt status of Hackensack Meridian or assessment of significant
tax liability could have a material adverse effect on Hackensack Meridian and might lead to loss of tax exemption of
interest on the Series 2017 Bonds.
It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to
taxation of exempt organizations. Since such actions and proposals have been made, they have been vigorously
challenged and contested. There can be, however, no assurance that future changes in the laws and regulations of
the federal, state or local governments will not materially and adversely affect the operations and revenues of
Hackensack Meridian by requiring it to pay income or real estate taxes.
There have also been numerous Congressional hearings in the past several years held by the House Ways
and Means Committee, the Senate Finance Committee and other committees investigating various activities and
practices of tax-exempt and other health care organizations, including hospital pricing systems, hospital billing and
collection practices, unaudited business income and prices charged to uninsured patients. It cannot be determined at
this time whether any legislation will be enacted in response to congressional hearings and investigations and, if so,
what form any such legislation would take and what its impact would be on Hackensack Meridian.
Other legislative changes or judicial actions with respect to matters relating to the tax-exempt status of
nonprofit corporations, including the provision of free care to the indigent and the exemption from property taxes of
such corporations, could be enacted. There can be no assurance that the future changes in federal, state or local
laws, rules, regulations and policies governing tax-exempt entities will not have adverse effects on the future
operations of Hackensack Meridian.
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Competition Among Health Care Providers
Increased competition from a wide variety of sources, including specialty hospitals, other hospitals and
health care systems, HMOs, inpatient and outpatient health care facilities, long-term care and skilled nursing
services facilities, clinics, physicians and others, may adversely affect the utilization and revenues of hospitals.
Existing and potential competitors may not be subject to various restrictions applicable to hospitals, and
competition, in the future, may arise from new sources not currently anticipated or prevalent.
Specialty facilities or ventures that attract an important segment of an existing hospital's admitting
specialists or services that generate a significant source of revenue may be particularly damaging. For example,
some large hospitals may have significant dependence on heart surgery or orthopedic programs, as revenue streams
from those programs may cover significant fixed overhead costs. If a significant number of such a hospital's heart
surgeons or orthopedists were to develop their own specialty hospital or surgery center (alone or in conjunction with
a growing number of specialty hospital operators and promoters), taking with them their patient base, the hospital
could experience a rapid and dramatic decline in net revenues that is not proportionate to the number of patient
admissions or patient days lost. It is also possible that the competing specialty hospital, as a for-profit venture,
would not accept indigent patients or other payors and government programs, leaving low-pay patient populations in
the full-service hospital. In certain cases, such an event could have a material adverse effect on the operations,
results of operations and financial condition of the hospital.
Freestanding ambulatory surgery centers may attract significant commercial outpatient services
traditionally performed at hospitals. Commercial outpatient services, currently among the most profitable for
hospitals, may be lost to competitors that can provide these services in an alternative, less costly setting. Full-service
hospitals rely upon the revenues generated from commercial outpatient services to fund other less profitable
services, and the decline of that business may result in reduced income. Competing ambulatory surgery centers,
which are often for-profit businesses, may not accept indigent patients or low paying programs and would leave
these populations to receive services in the full-service, nonprofit hospital setting. Consequently, hospitals are
vulnerable to competition from ambulatory surgery centers.
Additionally, scientific and technological advances, new procedures, drugs and applications, preventive
medicine and outpatient health care delivery may reduce utilization and revenues of hospitals in the future or
otherwise lead the way to new avenues of competition. In some cases, hospital investment in facilities and
equipment for capital-intensive services may be lost as a result of rapid changes in diagnosis, treatment or clinical
practice brought about by new technology or new pharmacology. The growth of e-commerce also may result in a
shift in the way that health care is delivered, i.e. from remote locations. For example, physicians will be able to
provide certain services over the internet and pharmaceuticals and other health services may now be purchased
online. Additionally, other service providers in competition with the Members of the Combined Group may compete
through these same electronic mediums by advertising their services and providing easy registration for competing
services over the internet.
Real Estate Tax Exemptions for Nonprofit Corporations
The real property tax exemptions afforded to certain nonprofit health care providers by various state and
local taxing authorities have been challenged on the theory that the health care providers were not sufficiently
engaged in charitable activities. These challenges have been based on a variety of grounds, including allegations of
aggressive billing and collection practices and excessive financial margins.
Until recently, states have not been as active as the IRS in scrutinizing the income tax exemption of health
care organizations. Legislation that would result in further regulation and supervision of nonprofit corporations
generally is introduced from time to time in state legislatures. The loss by certain Members of the Combined Group
of federal tax exemption could very well trigger a challenge to its state or local tax exemption. Depending on the
circumstances, such a challenge, if successful, could be material and adverse.
State and local taxing authorities undertake audits and reviews of the operations of tax-exempt health care
providers with respect to their real property tax exemptions. In some cases, particularly where authorities are
dissatisfied with the amount of services provided to the indigent, or where space is used by private individuals or
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for-profit entities, the real property tax-exempt status of the health care providers has been questioned. The majority
of the real property of the Members of the Combined Group is currently treated as exempt from state and local real
property taxation.
In June 2015 the Tax Court of New Jersey ruled in favor of the Town of Morristown in a lawsuit filed
against the Town by Atlantic Health System Hospital Corp., the parent of Morristown Medical Center, in upholding
the Town’s denial of property tax exemptions for Morristown Medical Center for the years 2006 through 2008 on
the basis that Morristown Medical Center had conducted and operated its for-profit and not-for-profit activities in
such an integrated and entangled manner such that its overall operations were essentially that of a for-profit
corporation. The Tax Court’s ruling was limited solely to the exemption from property taxes under State law. The
amount of property tax to be paid by Morristown Medical Center following the ruling of the Tax Court was not
determined and the case was settled by the parties. Since the issuance of the Tax Court’s decision in the Morristown
case, several New Jersey municipalities have filed suit against tax-exempt hospitals located within their borders
seeking to impose real estate taxes on the hospitals. In the wake of the ruling, municipal tax authorities throughout
the State have served non-profit hospitals with property tax assessments, including several of Hackensack
Meridian’s affiliated hospitals. In January of 2016, the New Jersey Legislature approved legislation which would
have amended the tax exemption statute and would have required all hospitals in New Jersey to make community
service contributions to their host municipality. The law was pocket vetoed by New Jersey Governor Christie, who
has suggested a two-year freeze on property tax collections by municipalities from hospitals while the issue
undergoes further study. This proposal is currently being evaluated by the New Jersey legislation.
It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to
taxation of nonprofit corporations. There can be no assurance that future changes in the laws and regulations of the
State or local government will not materially adversely affect the consolidated financial condition of the Combined
Group by requiring payment of income, property or other taxes. See Appendix A – “INFORMATION
CONCERNING HACKENSACK MERIDIAN HEALTH – MISCELLANEOUS - Litigation” for further discussion.
Community Benefit Initiatives
The IRS has also undertaken a community benefit initiative directed at hospitals. The IRS Hospital
Compliance Project Final Report issued in 2009 determined that the reporting of community benefit by nonprofit
hospitals varied widely, both as to types of programs and expenditures classified as community benefit and the
measurement of community benefits. As a result, the IRS issued revised Form 990 that includes Schedule H,
effective for tax years beginning after March 23, 2010, which is designed to provide uniformity regarding types of
programs and expenditures reported as community benefits by nonprofit hospitals. As the IRS collects and reviews
information from hospitals about the levels and types of community benefit provided, the IRS may issue a more
stringent interpretation of community benefit. Findings from Schedule H reports may also revive proposals in
Congressional committees which, from time to time, have been made to codify the requirements for hospitals’ taxexempt status, including requirements to conduct a regular community needs analysis and to provide minimum
levels of charity care. Additionally, the PPACA contains new requirements for nonprofit hospitals in order to
maintain their tax-exempt status, which includes a requirement to conduct a periodic community health needs
assessment (“CHNA”), among other requirements.
Intermediate Sanctions
The Code Section 4958 (“Intermediate Sanctions”) imposes penalty excise taxes in cases where an exempt
organization is found to have engaged in an “excess benefit transaction” with a “disqualified person.” Such penalty
excise taxes may be imposed in lieu of revocation of exemption or in addition to such revocation in cases where the
magnitude or nature of the excess benefit calls into question whether the organization has continued to function as a
charity. The tax is imposed on the disqualified person receiving the excess benefit. An additional tax may be
imposed on any officer, director, trustee or other person having similar powers or responsibilities who knowingly
participated in the transaction willfully or without reasonable cause.
“Excess benefit transactions” include transactions in which a disqualified person receives unreasonable
compensation for services or receives other economic benefit from the organization that exceeds fair market value.
“Disqualified persons” include “insiders” such as board members and officers, senior management, and members of
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the medical staff, who in each case are in a position to substantially influence the affairs of the organization; their
family members; and entities which are more than 35% controlled by a disqualified person. The legislative history
sets forth Congress’ intent that compensation of disqualified persons shall be presumed to be reasonable if it is:
(1) approved by disinterested members of the organization’s board or compensation committee; (2) based upon data
regarding comparable compensation arrangements paid by similarly situated organizations; and (3) adequately
documented by the board or committee as to the basis for its determination. A presumption of reasonableness will
also arise with respect to transfers of property between the exempt organization and disqualified persons if a similar
procedure with approval by an independent board is followed.
Intermediate Sanction penalties can also be assessed in situations where the exempt organization, or an
entity controlled by the organization, provides an economic benefit to a disqualified person without maintaining
contemporaneous written substantiation of the organization’s intent to treat the benefit as compensation. If the
written contemporaneous substantiation requirements are not satisfied and unless the organization can establish that
it provided the economic benefit in exchange for consideration other than the performance of services (i.e., a bona
fide loan), the IRS shall deem such transactions as an “automatic” excess benefit transaction without regard to
whether: (1) the economic benefit is reasonable; (2) any other compensation the disqualified person may have
received is reasonable; or (3) the aggregate of the economic benefit and any other compensation the disqualified
person may have received is reasonable. There is no defense to the assessment of automatic excess benefit
penalties.
The imposition of a penalty excise tax in lieu of revocation based upon a finding that an exempt
organization engaged in an excess benefit transaction is likely to result in negative publicity and other consequences
that could have a material adverse effect on the operations, property, or assets of the organization.
Bond Audits
IRS officials have recently indicated that more resources will be invested in audits of tax-exempt bonds in
the charitable organization sector, with specific review of private use. In addition, the IRS has sent several hundred
post-issuance compliance questionnaires to nonprofit corporations that have borrowed on a tax-exempt basis
regarding their post-issuance compliance with various requirements for maintaining the federal tax exemption of
interest on their bonds. The questionnaire includes questions relating to the borrower’s (i) record retention, which
the IRS has particularly emphasized, (ii) qualified use of bond-financed property, (iii) arbitrage yield restriction and
rebate requirements, (iv) debt management policies and (v) voluntary compliance and education.
IRS
representatives indicate that after analyzing responses from the first wave of questionnaires, thousands more will be
sent.
The IRS has also added a new schedule (Schedule K) to IRS Form 990. This schedule requests detailed
information related to all outstanding bond issues of nonprofit borrowers, including information regarding operating,
management and research contracts as well as private use compliance.
Secondary Market
There can be no assurance that there will be a secondary market for the purchase or sale of the Series 2017
Bonds. From time to time there may be no market for the Series 2017 Bonds depending upon prevailing market
conditions, including the financial condition or market position of firms that may make the secondary market, the
evaluation of the capabilities of the Members of the Combined Group, and the financial condition and results of
operations of the Members of the Combined Group.
In addition, the occurrence of the events described above in “BONDHOLDERS’ RISKS ― Event of
Taxability” may also have an adverse effect on the secondary market value of the Series 2017 Bonds.
Affiliation, Merger, Acquisition and Divestiture
Hackensack Meridian evaluates and pursues potential acquisition, merger and affiliation candidates as part
of the overall strategic planning and development process. As part of its ongoing planning and property
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management functions, Hackensack Meridian reviews the use, compatibility and business viability of many of the
operations of its system, and from time to may pursue changes in the use of, or disposition of, the facilities.
Likewise, Hackensack Meridian occasionally receives offers from, or conducts discussions with, third parties about
the potential acquisition of operations or properties which may become subsidiaries or affiliates of Hackensack
Meridian in the future, or about the potential sale of some of the operations and properties which are currently
conducted or owned by the members of the system. Discussions with respect to affiliation, merger, acquisition,
disposition, or change of use of facilities are held from time to time with other parties. These may be conducted
with acute care hospital facilities and may relate to potential affiliation. As a result, it is possible that the current
organization and assets of the Combined Group may change from time to time.
Mergers, such as the integration of HUHN, Meridian and the other System Affiliates, carry certain inherent
risks, including, but not limited to, risk that all merged entities will not perform in accordance with management’s
expectations, risk of potential difficulties arising in connection with the integration of operations and risk of human
resource challenges potentially jeopardizing key staff retention. There can be no assurance that the Members of the
Combined Group will be successful in their ability to minimize and effectively manage such risks.
General Economic Factors
Credit Facilities. The Combined Group has and will continue to carry variable rate indebtedness in the
future which shall be secured by a letter of credit. Future credit conditions may impact the ability of the Combined
Group to extend or replace the liquidity and credit facilities securing such variable rate indebtedness.
Investments. The Combined Group has significant holdings in a broad range of investments. Market
fluctuations may affect the value of those investments and those fluctuations historically have been at times material.
Pension Funding Impact. Changes in market interest rates and debt and equity market fluctuations also
potentially could have an impact on the Combined Group’s pension fund liabilities and its requirements for funding
its related pension. Like any other entity with pension fund liabilities, the Combined Group finds that increases or
decreases in interest rates have an impact on the assumed earnings rates on pension assets needed to match pension
fund liabilities, which accordingly affects the levels of actuarial pension investment assets required to meet future
pension obligations. Consequently, any substantial and sustained decline in long-term interest rates could have the
effect of increasing the current pension funding requirements of the Members of the Combined Group. In addition,
the Pension Protection Act of 2006 (the “PPA”) has accelerated the minimum funding requirements for many
defined benefit pension plans. This change, together with new rules for measuring pension plan assets and
liabilities, including new actuarial assumptions and asset valuation rules included in the PPA, has generally
increased employers’ required minimum funding contributions to pension plans.
Potential Effects of Bankruptcy
If a Member of the Combined Group were to file a petition for relief under the federal Bankruptcy Code,
the filing would act as an automatic stay against the commencement or continuation of judicial or other proceedings
against the petitioner and its property.
Any petitioner for relief may file a plan for the adjustment of its debts in a proceeding under the federal
Bankruptcy Code which could include provisions modifying or altering the rights of creditors generally, or any class
of them, secured or unsecured. The plan, when confirmed by the court, would bind all creditors who had notice or
knowledge of the plan and discharge all claims against the petitioner provided for in the plan. No plan may be
confirmed unless certain conditions are met, including that the plan is in the best interests of creditors, is feasible
and has been accepted by each class of claims impaired thereunder. Each class of claims will be deemed to have
accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of
the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be
confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors
impaired thereunder and does not discriminate unfairly.
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Enforceability of Obligations Under the United States Bankruptcy Code and Under Fraudulent Conveyance
Laws
The rights and remedies of Bondholders are subject to various provisions of the Federal Bankruptcy Code.
A filing under the United States Bankruptcy Code would operate as an automatic stay of the commencement or
continuation of any judicial or other proceeding against the Combined Group or any future member of the Combined
Group, and its property, and as an automatic stay of any act or proceeding to enforce a lien upon its property.
The Combined Group may file a plan for the adjustment of its debts in any such proceeding which could
include provisions modifying or altering the rights of creditors generally, or any class of them, secured or unsecured.
The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges
all claims against the debtor provided for in the plan. No plan may be confirmed unless certain conditions are met,
among which are that the plan is in the best interests of creditors, is feasible and has been accepted by each class of
claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and
more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its
favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable
with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.
The Obligated Group is liable for all obligations issued pursuant to the Master Indenture. The enforcement
of such liability may be limited to the extent that any payment or transfer by the Members of the Obligated Group
would render them insolvent or would conflict with, not be permitted by, or be subject to recovery for the benefit of
other creditors, under applicable state or federal laws.
Certain Matters Relating to the Enforceability of the Master Indenture
The accounts of the Members of the Combined Group and any future members of the Combined Group will
be combined for financial reporting purposes and will be used in determining whether various covenants and tests
contained in the Master Indenture (including tests relating to the issuance of additional Indebtedness) are met. This
is the case notwithstanding uncertainties as to the enforceability of the joint and several obligations of the Members
of the Obligated Group to make payments on the obligations issued under the Master Indenture, including, without
limitation, the Series 2017 Note issued to evidence and secure the obligations of Hackensack Meridian pursuant to
the Indenture, which uncertainties bear on the availability of the assets of the Members of the Obligated Group for
such payments.
Counsel to Hackensack Meridian will give an opinion or opinions concurrently with the delivery of the
Series 2017 Bonds that the Indenture and the obligations of Hackensack Meridian thereunder are enforceable against
Hackensack Meridian in accordance with its terms, and that the Master Indenture and the Obligations issued
thereunder, including the Series 2017 Note, are enforceable against Hackensack Meridian in accordance with their
terms. Such opinion will be qualified as to the enforceability of the provisions of the Indenture, the Master
Indenture and the Obligations by limitations imposed by state and federal laws, rulings and decisions relating to
equitable remedies regardless of whether enforceability is sought in a proceeding at law or in equity, fraudulent
conveyances and fraudulent transfers, the ability of one charitable corporation to pledge its assets to secure the debt
of another, and bankruptcy, reorganization, insolvency, receivership or other similar laws affecting the rights of
creditors generally from time to time in effect or by equitable principles, or as otherwise limited by state and federal
laws prohibiting, limiting or restricting any liens on Gross Revenues derived from the Medicare or Medicaid
programs or other federal healthcare programs, the ability of a charitable corporation to pledge its assets to secure
the debt of another, the use or pledge of any assets subject to a direct, express or charitable trust or any restrictions
under state and federal privacy laws.
A member of the Obligated Group may not be required to make a payment or use its assets to make a
payment in order to provide for the payment under the Indenture or the Series 2017 Note, or a portion thereof, the
proceeds of which were not lent or otherwise disbursed to such member, to the extent that such payment or use
would render the member insolvent or which would conflict with, not be permitted by or which is subject to
recovery for the benefit of other creditors of such member under applicable law. There is no clear precedent in the
law as to whether such payments or use of assets by a member of the Obligated Group may be voided by a trustee in
bankruptcy in the event of a bankruptcy of such member or by third party creditors in an action brought pursuant to
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state fraudulent conveyances statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under
state fraudulent conveyances statutes, a creditor of a related guarantor, may avoid any obligation incurred by a
related guarantor if, among other bases therefor, (i) the guarantor has not received fair consideration or reasonably
equivalent value in exchange for the guaranty and (ii) the guaranty renders the guarantor insolvent, as defined in the
United States Bankruptcy Code or state fraudulent conveyances statutes, or the guarantor is undercapitalized.
Application by courts of the tests of “insolvency,” “reasonably equivalent value” and “fair consideration”
has resulted in a conflicting body of case law. It is possible that, in an action to force a member of the Obligated
Group to make a payment under the Indenture or on the Series 2017 Note for which it was not a direct beneficiary, a
court might not enforce such a payment in the event it is determined that the member of the Obligated Group against
which payment is sought is analogous to a guarantor of the debt of the member of the Obligated Group who
benefited from the borrowing and that sufficient consideration for the member’s obligation was not received or that
the incurrence of such obligation has rendered or will render the member insolvent.
In addition, there exists common law authority and authority under state statutes for the ability of the state
courts to terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various
grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes or
has taken some action which renders it unable to carry out such purposes. Such court action may arise on the court’s
own motion or pursuant to a petition of the state attorney general or such other persons who have interests different
from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to
see to the application of their funds to their intended charitable uses.
Enforceability of Lien on Gross Revenues
The Series 2017 Note provides that Hackensack Meridian shall make payments sufficient to pay the
principal of the Series 2017 Bonds and the interest thereon as the same become due. The obligation of Hackensack
Meridian to make such payments is secured in part by a lien granted by the Combined Group on Gross Revenues as
provided in the Master Indenture. Such lien is on a parity with the lien on Gross Revenues securing all other
Obligations that may be issued in the future, as well as other Obligations that may be issued pursuant to the Master
Indenture, including Guarantees.
Gross Revenues is defined to include all revenues, rents, profits, receipts, benefits, royalties, and income of
any Member of the Combined Group arising from goods or services provided by Members of the Combined Group
or arising in any manner with respect to, incident to or on account of the Members of the Combined Group’s
operations, including, without limitation, (i) the Members of the Combined Group’s rights under agreements with
insurance companies, Medicare, Medicaid, governmental units and prepaid health organizations, including health
care insurance receivables and rights to Medicare and Medicaid loss recapture under applicable regulations to the
extent not prohibited by applicable law, rules or regulations; (ii) gifts, grants, bequests, donations, contributions and
pledges to any Member of the Combined Group; (iii) insurance proceeds of any kind, and any award, or payment in
lieu of an award, resulting from condemnation proceedings; (iv) all proceeds from the sale or other transfer of any
goods, inventory and other tangible and intangible property, and all rights to receive the foregoing, whether now
owned or hereafter acquired by any Member of the Combined Group and regardless of whether generated in the
form of Accounts, accounts receivable, Contract Rights, Chattel Paper, Documents, General Intangibles,
Instruments, Investment Property, and proceeds of insurance; and (v) all proceeds of the foregoing; excluding,
however, gifts, grants, bequests, donations, contributions and pledges to any Member of the Combined Group
heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the
donor or grantor to a particular purpose which is inconsistent with its use for payments required under the Master
Indenture or on any Obligations or Indebtedness.
To the extent that Gross Revenues are derived from payments by the federal government under the
Medicare or Medicaid program, any right to receive such payments directly may be unenforceable. The Social
Security Act and state regulations prohibit anyone other than the individual receiving care of the Combined Group
member providing service from collecting Medicare and Medicaid payments directly from the federal or state
government. In addition, Medicare and Medicaid receivables may be subject to provisions of the Assignment of
Claims Act of 1940 which restricts the ability of a secured party to collect accounts directly from government
agencies. With respect to receivables and revenues not subject to the lien, or where such lien was unenforceable, the
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Master Trustee would occupy the position of an unsecured creditor. Counsel to the Combined Group has not
provided an opinion with regard to the enforceability of the lien on Gross Revenues of the Combined Group, where
such Gross Revenues are derived from the Medicare and Medicaid programs.
In the event of bankruptcy of a member of the Combined Group, transfers of property made by such
member at a time that it was insolvent in payment of or to secure an antecedent debt, including the payment of debt
or the transfer of any collateral, including receivables and Gross Revenues on or after the date which is 90 days (or,
in some circumstances, one year) prior to the commencement of the case under the Bankruptcy Code, may be
subject to avoidance as preferential transfers. Under certain circumstances a court may have the power to direct the
use of Gross Revenues to meet expenses of such member before paying debt service on the Series 2017 Note that
secures the Series 2017 Bonds.
The value of the security interest in the Gross Revenues could be diluted by the incurrence pursuant to the
Master Indenture of Additional Indebtedness secured equally and ratably with (or in certain cases senior or
subordinate to) the Series 2017 Note that secures the Series 2017 Bonds as to the security interest in the Gross
Revenues. See Appendix C – “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE –
FORM OF THE MASTER INDENTURE.
Matters Relating to Security
The remedies available to the Trustee or the registered owners of the Series 2017 Bonds upon an event of
default under the Indenture are in many respects dependent upon judicial actions which are often subject to
discretion and delay. Under existing constitutional and statutory law and judicial decisions, including, specifically,
the United States Bankruptcy Code, the remedies provided in the Indenture may not be readily available or may be
limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2017 Bonds and the
delivery of the Indenture will be qualified as to the enforceability of the various legal instruments by limitations
imposed by general principles of equity and by bankruptcy, reorganization, insolvency or other similar laws
affecting the rights of creditors generally. The enforceability of the Indenture and the Series 2017 Bonds is subject
to bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and other state and federal laws
affecting the enforcement of creditors’ rights and to general principles of equity. A claim for payment of the
principal of or interest on the Series 2017 Bonds could be made subject to any statutes that may be constitutionally
enacted by the United States Congress or the state legislatures affecting the time and manner of payment of debt or
imposing other constraints upon enforcement of debt obligations.
Certain amendments to the Indenture may be made with the consent of the owners of a majority of the
aggregate principal amount of the Series 2017 Bonds then Outstanding. Such amendments may adversely affect the
security of the Bondholders, and such majorities of owners may be composed wholly or partially of the owners of
Additional Bonds. In addition, upon compliance with certain conditions set forth in the Master Indenture,
amendments to certain of the operational, procedural or financial covenants set forth in the Master Indenture may be
effected without consent of the holders of Obligations, including the Bondholders. Such amendments may adversely
affect the security for the Series 2017 Note that secures the Series 2017 Bonds.
The enforceability of the obligations of the members of the Combined Group to make payments on the
Series 2017 Note is subject to certain limitations including (i) state and federal bankruptcy laws relating to
fraudulent conveyances if, among other things, a member of the Combined Group is determined not to have received
fair consideration or reasonably equivalent value for its obligation to make such payment and is rendered insolvent
as a result of such obligation; (ii) restrictions on the use of assets subject to a direct, express or charitable trust;
(iii) corporate or related purposes of the member of the Combined Group which are inconsistent with the corporate
or related purposes for the issuance of the Series 2017 Note; (iv) requests for payments from a member of the
Combined Group which would result in the cessation or discontinuance of any material portion of the health care or
related services previously provided; and (v) applicable usury laws.
Derivative Products
The Members of the Combined Group may use interest rate hedging arrangements in connection with
certain Obligations (as defined in the Master Indenture). Such arrangements may be used to manage exposure to
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interest rate volatility, but may expose the Members of the Combined Group to additional risks, including the risk
that a counterparty may fail to honor its obligation.
Swap agreements are subject to periodic “mark-to-market” valuations. A swap agreement may, at any
time, have a positive or negative value to the Members of the Combined Group, such value, if negative could result
in the Combined Group posting collateral related to such mark-to-market valuations. If the Members of the
Combined Group were to choose to terminate a swap agreement or if a swap agreement were terminated pursuant to
an event of default or a termination event as described in the swap agreement, the Members of the Combined Group
could be required to pay a termination payment to the swap provider, and such payment could adversely affect the
Members of the Combined Group’s financial condition.
Risks Related to Variable Rate or Private Placement Indebtedness
Hackensack Meridian, like many tax-exempt health care entities, have historically incurred variable rate
indebtedness. Generally, the interest cost of variable rate indebtedness is lower than for fixed rate debt of a
comparable maturity. In order for variable rate indebtedness to have the desired result of lower borrowing costs, the
variable rate indebtedness commonly requires credit enhancement such as bond insurance or a bank letter of credit.
Any such indebtedness therefore will bear interest at rates that are directly related to the ratings accorded to, and to
investor perceptions of, the financial strength of the applicable provider of credit enhancement. In addition,
Hackensack Meridian, like many tax-exempt health care entities, have incurred indebtedness purchased by private
placement purchasers in non-public transactions. Such indebtedness generally bears interest at an initial rate and is
subject to mandatory tender at the end of the initial holder’s purchase period. Similar to the failure to extend or
replace a credit facility, the failure to remarket private placement bonds could result in such obligations bearing
interest at a penalty rate or default rate, increasing the debt service obligation of Hackensack Meridian.
The applicable providers of credit enhancement and the purchasers of private placement bonds often are the
beneficiaries of covenants in addition to those set forth in the Master Indenture. Bondholders may not be informed
of the terms of such covenants and these additional covenants could restrict the ability of the Members of the
Combined Group to enter into certain transactions and the violation of such covenants could result in an event of
default under the applicable additional agreement which may result in a default under the Master Indenture.
General Factors Affecting the Combined Group’s Revenues
The following factors, among others, may unfavorably affect the operations of health care facilities,
including those of the Combined Group, to an extent and in a manner that cannot be determined at this time:
1.
Employee strikes and other adverse actions that could result in a substantial reduction in revenues
with corresponding decreases in costs. Hospitals and their employees fall within the scope of, and are subject to, the
National Labor Relations Act. Accordingly, labor relationships with hospital and nursing home employees are
regulated by the federal government. Employees may organize, bargain collectively and strike.
2.
advances.
Reduced need for hospitalization or other services arising from future medical and scientific
3.
Reduced demand for the services that might result from decreases in population of the service area
of the Combined Group.
4.
Increased unemployment or other adverse economic conditions in the service area of the
Combined Group which could increase the proportion of patients who are unable to pay fully for the cost of their
care. In addition, increased unemployment caused by a general downturn in the economy of the Combined Group’s
service area or the State of New Jersey or by the closing of one or more major employers in such service area may
result in a loss of health insurance benefits for a portion of the Combined Group’s patients.
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5.
Cost, availability and sufficiency of any insurance such as medical professional liability, directors’
and officers’ liability, property, automobile liability, and commercial general liability coverages that health care
facilities of a similar size and type generally carry.
6.
Adoption of legislation that would establish a national healthcare program.
7.
Cost and availability of energy.
8.
Potential depletion of the Medicare trust fund.
9.
The occurrence of terrorist activities or natural disasters, including floods and earthquakes, may
damage the facilities of the Combined Group, interrupt utility service to the facilities, or otherwise impair the
operation of the Combined Group and the generation of revenues from its facilities. The facilities of the Members
of the Combined Group are covered by general property insurance in an amount which management considers to be
sufficient to provide for the replacement of such facilities in the event of a natural disaster.
10.
Any increase in the quantity of indigent care provided which is mandated by law or required due
to increased need of the community in order to maintain the charitable status of the Members of the Combined
Group.
11.
Factors such as: (i) the cost and availability of insurance, such as workers’ compensation, fire and
general comprehensive liability; (ii) uninsured acts of God; and (iii) increased costs and possible liability exposure
arising out of potential environmental hazards.
12.
Technological advances in recent years have accelerated the trend toward the use of sophisticated
diagnostic and treatment equipment in hospitals. The availability of certain equipment may be a significant factor in
hospital utilization, but purchase of such equipment may be subject to health planning agency approval and to the
ability of the Combined Group to finance such purchases.
13.
Imposition of wage and price controls for the health care industry or an increase in the minimum
14.
Developments adversely affecting the federal or state tax-exemption of municipal bonds.
15.
Acts of terrorism.
wage.
16.
Changes in accounting rules which could result in the reclassification of assets and transactions
which are subject to the terms of the Master Indenture.
17.
Changes in the governmental requirements concerning how patients are treated. These regulations
are embodied in patients’ bills of rights and similar programs being promulgated with greater frequency, and
changes in licensure requirements. All of these programs can increase the cost of doing business and consequently
adversely affect the financial condition of the Combined Group.
Additional Members of the Obligated Group
In the future, additional entities may become members of the Obligated Group pursuant to the terms and
provisions of the Master Indenture. Thereupon, the Bondholders’ risks discussed above may be relevant to such
new members of the Obligated Group, if any.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
In the opinion of Bond Counsel to the Obligated Group, interest on the Series 2017 Bonds (i) is included in
gross income for Federal income tax purposes pursuant to the Code and (ii) is not excluded from New Jersey taxable
income.
The following discussion is a brief summary of the principal United States Federal income tax
consequences of the acquisition, ownership and disposition of Series 2017 Bonds by original purchasers of the
Series 2017 Bonds who are “U.S. Holders,” as defined herein. This summary (i) is based on the Code, Treasury
Regulations, revenue rulings and court decisions, all as currently in effect and all subject to change at any time,
possibly with retroactive effect; (ii) assumes that the Series 2017 Bonds will be held as “capital assets;” and (iii)
does not discuss all of the United States Federal income tax consequences that may be relevant to a Holder in light
of its particular circumstances or to Holders subject to special rules, such as insurance companies, financial
institutions, tax-exempt organizations, dealers in securities or foreign currencies, persons holding the Series 2017
Bonds as a position in a “hedge” or “straddle,” Holders whose functional currency (as defined in Section 985 of the
Code) is not the United States dollar, Holders who acquire Series 2017 Bonds in the secondary market, or
individuals, estates and trusts subject to the tax on unearned income imposed by Section 1411 of the Code.
Holders of Series 2017 Bonds should consult with their own tax advisors concerning the United States
Federal income tax and other consequences with respect to the acquisition, ownership and disposition of the Series
2017 Bonds as well as any tax consequences that may arise under the laws of any state, local or foreign tax
jurisdiction.
Original Issue Discount
In general, if Original Issue Discount (“OID”) is greater than a statutorily defined de minimis amount, a
Holder of a Series 2017 Bond must include in Federal gross income (for each day of the taxable year, or portion of
the taxable year, in which such Holder holds such Series 2017 Bond) the daily portion of OID, as it accrues
(generally on a constant yield method) and regardless of the Holder’s method of accounting. “OID” is the excess of
(i) the “stated redemption price at maturity” over (ii) the “issue price.” For purposes of the foregoing: “issue price”
means the first price at which a substantial amount of the Series 2017 Bond is sold to the public (excluding bond
houses, brokers, or similar persons or organizations acting in the capacity of underwriter, placement agents or
wholesalers); “stated redemption price at maturity” means the sum of all payments, other than “qualified stated
interest,” provided by such Series 2017 Bond; “qualified stated interest” is stated interest that is unconditionally
payable in cash or property (other than debt instruments of the issuer) at least annually at a single fixed rate; and “de
minimis amount” is an amount equal to 0.25 percent of the Series 2017 Bond’s stated redemption price at maturity
multiplied by the number of complete years to its maturity. A Holder may irrevocably elect to include in gross
income all interest that accrues on a Series 2017 Bond using the constant-yield method, subject to certain
modifications.
Bond Premium
In general, if a Series 2017 Bond is originally issued for an issue price (excluding accrued interest) that
reflects a premium over the sum of all amounts payable on the Series 2017 Bond other than “qualified stated
interest” (a “Premium Bond”), that Premium Bond will be subject to Section 171 of the Code, relating to bond
premium. In general, if the Holder of a Premium Bond elects to amortize the premium as “amortizable bond
premium” over the remaining term of the Premium Bond, determined based on constant yield principles (in certain
cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be
required to be determined on the basis of an earlier call date that results in the highest yield on such bond), the
amortizable premium is treated as an offset to interest income; the Holder will make a corresponding adjustment to
the Holder’s basis in the Premium Bond. Any such election is generally irrevocable and applies to all debt
instruments of the Holder (other than tax-exempt bonds) held at the beginning of the first taxable year to which the
election applies and to all such debt instruments thereafter acquired. Under certain circumstances, the Holder of a
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Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed
for an amount less than or equal to the Holder’s original acquisition cost.
Disposition and Defeasance
Generally, upon the sale, exchange, redemption, or other disposition (which would include a legal
defeasance) of a Series 2017 Bond, a Holder generally will recognize taxable gain or loss in an amount equal to the
difference between the amount realized (other than amounts attributable to accrued interest not previously
includable in income) and such Holder’s adjusted tax basis in the Series 2017 Bond.
The Obligated Group may cause the deposit of moneys or securities in escrow in such amount and manner
as to cause the Series 2017 Bonds to be deemed to be no longer outstanding under the Indenture (a “defeasance”).
See Appendix C – “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE – FORM OF
THE TRUST INDENTURE.” For Federal income tax purposes, such defeasance could result in a deemed exchange
under Section 1001 of the Code and a recognition by such owner of taxable income or loss, without any
corresponding receipt of moneys. In addition, the character and timing of receipt of payments on the Series 2017
Bonds subsequent to any such defeasance could also be affected.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to non-corporate Holders of the Series 2017
Bonds with respect to payments of principal, payments of interest, and the accrual of OID on a Series 2017 Bond
and the proceeds of the sale of a Series 2017 Bond before maturity within the United States. Backup withholding
may apply to Holders of Series 2017 Bonds under Section 3406 of the Code. Any amounts withheld under the
backup withholding rules from a payment to a beneficial owner, and which constitutes over-withholding, would be
allowed as a refund or a credit against such beneficial owner’s United States Federal income tax provided the
required information is furnished to the Internal Revenue Service.
U.S. Holders
The term “U.S. Holder” means a beneficial owner of a Series 2017 Bond that is: (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the income of which is subject to United States
Federal income taxation regardless of its source, or (iv) a trust whose administration is subject to the primary
jurisdiction of a United States court and which has one or more United States fiduciaries who have the authority to
control all substantial decisions of the trust.
Miscellaneous
Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or
state level, may adversely affect the market price or marketability of the Series 2017 Bonds.
Prospective purchasers of the Series 2017 Bonds should consult their own tax advisors regarding the
foregoing matters.
ERISA CONSIDERATIONS
Persons who are fiduciaries (each a “Plan Fiduciary”) of employee benefit plans under the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) or tax qualified retirement plans and individual
retirement accounts under the Code (collectively, “Plans”) should give appropriate consideration to the facts and
circumstances that are relevant to an investment in Series 2017 Bonds, including the role that such an investment in
Series 2017 Bonds would play in a Plan’s overall investment portfolio. Each Plan Fiduciary, before deciding to
invest in Series 2017 Bonds, should consider whether such an investment in Series 2017 Bonds is a prudent
investment for the Plan, including whether such an investment would reasonably further the Plan’s investment
purposes, whether the Series 2017 Bonds have appropriate risk and return characteristics, whether the investments of
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the Plan, with such an investment in Series 2017 Bonds, would be sufficiently diversified so as to minimize the risk
of large losses, whether the Series 2017 Bonds are sufficiently liquid to meet the Plan’s current cash needs, whether
the rate of interest on the Series 2017 Bonds is consistent with the Plan’s funding objectives, and whether an
investment in the Series 2017 Bonds complies with the documents of the Plan and related trust, to the extent such
documents are consistent with ERISA.
ERISA and the Code generally prohibit certain transactions between a Plan and persons who, with respect
to the Plan, are Plan Fiduciaries or other “parties in interest” within the meaning of ERISA or “disqualified persons”
within the meaning of the Code. Such prohibited transactions include the use of plan assets for the benefit of a Plan
Fiduciary or other party in interest or disqualified person, for example, by causing the Plan to make an investment
from which such a Plan Fiduciary or other party in interest or disqualified person would receive a fee or other
consideration. A Plan Fiduciary considering an investment in Series 2017 Bonds should determine whether it or any
other person affiliated with the Plan may currently have a relationship with the Institution, the other Members of the
Obligated Group, the Trustee or the Underwriters, or with any person affiliated with any of them, that would cause
the Plan’s investment in Series 2017 Bonds to be a prohibited transaction.
All Plan Fiduciaries, in consultation with their advisors, should carefully consider the impact of ERISA and
the Code on an investment in any Series 2017 Bond including the applicability of the fiduciary responsibility and
prohibited transaction provisions of ERISA and the Code or other similar laws to such in investment.
UNDERWRITING
The Institution has entered into a Contract of Purchase with Goldman, Sachs & Co. and J.P. Morgan
Securities LLC (collectively, the “Underwriters”), pursuant to which the Underwriters have agreed to purchase the
Series 2017 Bonds from the Institution at an aggregate purchase price of $__________ (consisting of the principal
amount of the Series 2017 Bonds of $__________, less Underwriters’ discount of $__________).
The Contract of Purchase pursuant to which the Series 2017 Bonds are being sold provides that the
Underwriters will purchase not less than all of the Series 2017 Bonds and that the Obligated Group will indemnify
the Underwriters against losses, claims, damages, and liabilities arising out of any incorrect statements of
information, including the omission of material facts, contained in this Offering Memorandum pertaining to the
Obligated Group. The Underwriters’ obligations to make such purchase is subject to certain terms and conditions
set forth in the purchase contract, the approval of certain legal matters by counsel and certain other conditions.
The Underwriters may offer and sell the Series 2017 Bonds to certain dealers and others at a price lower
than the initial offering price. The offering price of Series 2017 Bonds may be changed from time to time by the
Underwriters.
J.P. Morgan Securities LLC (“JPMS”), one of the Underwriters of the Series 2017 Bonds, has entered into
negotiated dealer agreements (each, a “Dealer Agreement”) with each of Charles Schwab & Co., Inc. (“CS&Co.”)
and LPL Financial LLC (“LPL”) for the retail distribution of certain securities offerings, including the Series 2017
Bonds, at the original issue prices. Pursuant to each Dealer Agreement, each of CS&Co. and LPL may purchase
Series 2017 Bonds from JPMS at the original issue price less a negotiated portion of the selling concession
applicable to any Series 2017 Bonds that such firm sells.
The Underwriters and their respective affiliates are full service financial institutions engaged in various
activities, which may include sales and trading, commercial and investment banking, advisory, investment
management, investment research, principal investment, hedging, market making, brokerage and other financial and
non-financial activities and services. Certain of the Underwriters and their respective affiliates have provided, and
may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with
the issuer, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their respective affiliates,
officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade
securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their
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own account and for the accounts of their customers, and such investment and trading activities may involve or
relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or
otherwise) and/or persons and entities with relationships with the issuer. The Underwriters and their respective
affiliates may also communicate independent investment recommendations, market color or trading ideas and/or
publish or express independent research views in respect of such assets, securities or instruments and may at any
time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and
instruments.
FINANCIAL ADVISOR
The System has retained Raymond James & Associates, Inc. (the "Financial Advisor") New York, New
York, as financial advisor in connection with the issuance of the Series 2017 Bonds. Although the Financial
Advisor has assisted in the preparation of this Offering Memorandum, the Financial Advisor was not and is not
obligated to undertake, and has not undertaken to make, an independent verification and assumes no responsibility
for the accuracy, completeness or fairness of the information contained in this Offering Memorandum.
CERTAIN RELATIONSHIPS
The Underwriters and their affiliates are financial institutions engaged in various activities, which may
include securities trading, commercial and investment banking, financial advisory, investment management,
principal investment, hedging, financing and brokerage activities. The Underwriters and their affiliates have, from
time to time, performed, and may in the future perform, various investment banking services for the Members of the
Obligated Group, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their affiliates may make or
hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and
financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the
accounts of their customers and may at any time hold long and short positions in such securities and instruments.
Such investment and securities activities may involve securities and instruments of the Members of the Obligated
Group.
Kenneth W. Hitchner, III, a board member of Hackensack Meridian Health Network, is an employee of
Goldman, Sachs & Co. or its affiliates.
CONTINUING DISCLOSURE
The Members of the Obligated Group have entered into continuing disclosure undertakings in connection
with tax-exempt revenue bonds issued for the benefit of the Members of the Obligated Group and the Institution is
expected to do so in connection with the issuance of the Series 2017A Bonds (collectively, “Continuing Disclosure
Undertakings”). Holders and prospective purchasers of the Series 2017 Bonds may obtain copies of the information
provided by the Institution and the other Members of the Obligated Group under those Continuing Disclosure
Undertakings on the MSRB’s EMMA System. While each Continuing Disclosure Undertaking terminates when the
related bonds are paid or deemed paid in full, the Institution covenants in the Indenture that unless otherwise
available on EMMA or any successor thereto or to the functions thereof pursuant to the Continuing Disclosure
Undertakings, copies of the Institution’s and its affiliates’ unaudited quarterly consolidated financial statements, and
consolidated annual audited financial statements, will either be posted on the Institution’s website, posted on
EMMA, or filed with the Trustee.
62
APPROVAL OF LEGALITY
Legal matters incident to validity of the Series 2017 Bonds and certain other matters are subject to the
approving opinion of McCarter & English, LLP, Newark, New Jersey, counsel to the Obligated Group. Certain other
legal matters will be passed upon for the Underwriters by their counsel, Hawkins Delafield & Wood LLP, Newark,
New Jersey.
INDEPENDENT ACCOUNTANTS
The financial statements of (i) Hackensack Meridian Health, Inc., for the six-month period ending
December 31, 2016, set forth in Appendix B-1 to the Preliminary Offering Memorandum and to the Offering
Memorandum; (ii) financial statements of Hackensack University Medical Center as of December 31, 2016 and
2015 and for the years then ended, set forth in Appendix B-2 to the Preliminary Offering Memorandum and to the
Offering Memorandum; (iii) the financial statements of Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc. as of December 31, 2016 and 2015 and for the years then ended, set forth in Appendix B-3 to
the Preliminary Offering Memorandum and to the Offering Memorandum; and (iv) the financial statements of
HackensackUMC Palisades and Affiliates (Successor) and Palisades Healthcare System, Inc. (Predecessor) for the
period March 1, 2016 to December 31, 2016 (Successor) and January 1, 2016 to February 29, 2016 (Predecessor),
set forth as Appendix B-4 to the Preliminary Offering Memorandum and to the Offering Memorandum have been
audited by PricewaterhouseCoopers, LLP, independent accountants, as stated in their reports appearing therein.
DESCRIPTION OF RATINGS
S&P Global Ratings, a business of Standard & Poor’s Financial Services, LLC (“S&P”) and Fitch Ratings
(“Fitch”) have assigned their long-term ratings of “A+” with a positive outlook and “___”, respectively, to the Series
2017 Bonds.
Explanations of the significance of each rating may be obtained from S&P at 55 Water Street, 38th Floor,
New York, New York and from Fitch at One State Street Plaza, New York, New York 10004. Each such rating
reflects only the views of the respective rating agency, and an explanation of the significance of the ratings may be
obtained from the rating agency. Generally, rating agencies base their ratings on information and material furnished
by the Obligated Group and on investigations, studies and assumptions made by the rating agencies. There is no
assurance such ratings will continue for any given period of time or that such ratings will not be revised downward
or withdrawn entirely by one or more of the rating agencies, if in the judgment of any such rating agency,
circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect
on the market price of the Series 2017 Bonds. The Underwriters have not agreed to take any action with respect to
any proposed rating change or to bring such rating change, if any, to the attention of the owners of the Series 2017
Bonds. A securities rating is not a recommendation to buy, sell or hold securities.
63
LITIGATION
For information on litigation with respect to the Members of the Obligated Group, see Appendix A –
“INFORMATION CONCERNING HACKENSACK MERIDIAN HEALTH– MISCELLANEOUS - Litigation.”
MISCELLANEOUS
All quotations from and summaries and explanations of the Indenture, the Master Indenture, the
Supplemental Master Indenture, the Series 2017 Note and the Series 2017 Bonds, and of other statutes and
documents contained herein do not purport to be complete, and reference is made to said documents and statutes for
full and complete statements of their provisions. Copies in reasonable quantity of the Indenture, the Master
Indenture and the Supplemental Master Indenture may be obtained upon request directed to the Underwriters or the
Institution.
Any statements in this Offering Memorandum involving matters of opinion are intended as such and not as
representations of fact. This Offering Memorandum is not to be construed as a contract or agreement between the
Institution and the Holders of any of the Series 2017 Bonds.
Attached hereto as Appendix A is certain information relating to the Institution and the Obligated Group.
The Financial Statements included in Appendix B-1 through Appendix B-4 contain the consolidated financial
statements of the System and include financial information for non-obligated System Affiliates. Appendices A and
B have been provided by the Obligated Group.
Appendix C – “FORMS OF THE TRUST INDENTURE AND THE MASTER INDENTURE” has been
prepared and provided by Counsel to the Obligated Group.
All Appendices are incorporated as an integral part of this Offering Memorandum.
64
The execution and delivery of this Offering Memorandum has been duly authorized by the Institution.
HACKENSACK MERIDIAN HEALTH, INC.
By:
65
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APPENDIX A
Information Concerning Hackensack Meridian Health
TABLE OF CONTENTS
OVERVIEW OF HACKENSACK MERIDIAN HEALTH ........................................................... 1
MISSION AND VISION ................................................................................................................ 2
NETWORK LOCATIONS ............................................................................................................. 2
MERGER SYNERGIES, COMMONALITIES AND RATIONALE ............................................ 3
INTEGRATION MANAGEMENT OFFICE ................................................................................. 3
STRATEGIC PRIORITIES ............................................................................................................ 5
CONTINUUM OF CARE .............................................................................................................. 7
CORPORATE STRUCTURE ........................................................................................................ 8
GOVERNANCE ............................................................................................................................. 9
MANAGEMENT.......................................................................................................................... 12
OPERATING DIVISIONS OF HMH .......................................................................................... 16
FACILITIES OVERVIEW ........................................................................................................... 17
SPECIALTY CLINICAL SERVICES ......................................................................................... 20
EDUCATIONAL AFFILIATIONS .............................................................................................. 26
STRATEGIC JOINT VENTURES, PARTNERSHIPS AND OTHER AFFILIATIONS ........... 28
AWARDS AND RECOGNITION ............................................................................................... 31
PHYSICIAN ALIGNMENT AND STRATEGY ......................................................................... 33
TEAM MEMBERS / EMPLOYEES ............................................................................................ 34
SERVICE AREA AND COMPETITION .................................................................................... 35
POPULATION HEALTH INITIATIVES .................................................................................... 38
MANAGED CARE ...................................................................................................................... 40
UTILIZATION ............................................................................................................................. 41
FINANCIAL PERFORMANCE .................................................................................................. 41
MANAGEMENT’S DISCUSSION OF FINANCIAL PERFORMANCE .................................. 44
PRO-FORMA FINANCIAL RATIOS ......................................................................................... 45
SOURCES OF PATIENT REVENUE ......................................................................................... 47
PENSION BENEFITS .................................................................................................................. 47
INVESTMENTS ........................................................................................................................... 50
LONG TERM INDEBTEDNESS AND INTEREST RATE SWAP AGREEMENTS................ 51
MISCELLANEOUS ..................................................................................................................... 52
CERTAIN STATEMENTS IN THIS OFFERING DOCUMENT THAT RELATE TO
HACKENSACK MERIDIAN HEALTH, INC., INCLUDING, BUT NOT LIMITED TO,
STATEMENTS IN THIS APPENDIX A – “INFORMATION CONCERNING HACKENSACK
MERIDIAN HEALTH”, ARE FORWARD-LOOKING STATEMENTS THAT ARE BASED
ON THE BELIEFS OF, AND ASSUMPTIONS MADE BY, THE MANAGEMENT OF
HACKENSACK MERIDIAN HEALTH. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
THAT MAY CAUSE THE ACTUAL RESULTS OR PERFORMANCE OF HACKENSACK
MERIDIAN HEALTH TO BE MATERIALLY DIFFERENT FROM ANY EXPECTED
FUTURE RESULTS OR PERFORMANCE. SUCH FACTORS INCLUDE, BUT ARE NOT
LIMITED TO, ITEMS DESCRIBED UNDER THE HEADING “BONDHOLDERS' RISKS” IN
THE FOREPART OF THIS OFFERING DOCUMENT.
OVERVIEW OF HACKENSACK MERIDIAN HEALTH
On July 1, 2016, Hackensack University Health Network, Inc. (“HUHN”) and Meridian
Health System, Inc. (“Meridian”) completed the merger of two health networks to form
Hackensack Meridian Health, Inc. (“HMH” or the “Network”), uniting two significant health
care networks in New Jersey.
HMH is a nonprofit health care organization that is a comprehensive and integrated
health care network in New Jersey (the “State”), offering a full range of medical services,
research and life-enhancing care. HMH combines academic medical centers with communitybased care and services. HMH comprises 13 hospitals, including two academic medical centers,
two children's hospitals and nine community hospitals, various physician practices, more than
120 ambulatory care centers, surgery centers, home health services, long-term care and assisted
living communities, inpatient and outpatient behavioral health facilities, ambulance services, air
medical transportation, fitness and wellness centers, rehabilitation centers, and urgent care and
after-hours centers. HMH has approximately 28,000 team members (employees), more than
6,000 credentialed physicians, generates over $4.5 billion in revenue annually (including joint
ventures) and is a leader in health care philanthropy. HMH is also a member of AllSpire Health
Partners, an interstate consortium of leading health systems, organized to focus on sharing best
practices in clinical care and achieving operating efficiencies. HMH is the third largest employer
in the State and has the leading market share in its two core markets for inpatient admissions.
The hospitals of HMH include: (i) academic medical centers – Hackensack University
Medical Center (“HUMC”) in Hackensack and Jersey Shore University Medical Center
(“JSUMC”) in Neptune; (ii) children's hospitals – Joseph M. Sanzari Children's Hospital
(“JMSCH”) in Hackensack; K. Hovnanian Children's Hospital (“KHOV”) in Neptune; (iii)
community hospitals – Ocean Medical Center (“OMC”) in Brick, Riverview Medical Center
(“RMC”) in Red Bank, HackensackUMC Palisades (“HUMC Palisades”) in North Bergen,
Raritan Bay Medical Center in Perth Amboy (“RBMC Perth Amboy”), Southern Ocean Medical
Center (“SOMC”) in Manahawkin, Bayshore Community Hospital (“BCH”) in Holmdel, and
Raritan Bay Medical Center in Old Bridge (“RBMC Old Bridge”); and (iv) joint-ventured
hospitals – HackensackUMC Mountainside (“HUMC Mountainside”) in Montclair and
HackensackUMC at Pascack Valley (“HUMC Pascack Valley”) in Westwood. Meridian
Hospitals Corporation (“MHC”) owns, controls and operates JSUMC, KHOV, OMC, RMC,
SOMC, and BCH and is the sole corporate member of Raritan Bay Medical Center (“RBMC”),
which owns, controls and operates RBMC Perth Amboy and RBMC Old Bridge.
HMH, through its various affiliated corporations, is licensed to operate 3,627 inpatient
acute care beds (including joint ventures), which includes 38 transitional/in-hospital long-term
care unit beds and 30 rehabilitation beds, and 1,453 other beds, including 195 normal newborn
bassinets, 65 intermediate neonatal bassinets, 40 intensive care neonatal bassinets, 1,008 skilled
nursing beds, 24 ventilator beds, and 121 assisted living beds.
A-1
MISSION AND VISION
The stated mission of HMH is “to provide the full spectrum of life-enhancing care and
services to create and sustain healthy, vibrant communities.”
The stated vision of HMH is “to set the standard for providing quality care, for
humanizing the health experience and for defining the future of medicine.”
HMH “CREATES” this vision through:
•
•
•
•
•
•
Coordination: care that is seamless and connected
Research: innovation and contribution to scientific discovery for the greater good
Education: leaders in transforming the academic journey of future clinicians and
professionals while generously contributing knowledge with communities
Access: service to communities with a when-and-where-you-need-it philosophy
Transparency: sharing and simplifying information
Engagement: shared sense of purpose
NETWORK LOCATIONS
As set forth in the preceding map, HMH facilities and locations are concentrated in an
eight county region (the “8-County Region”) along New Jersey’s seaboard. These eight counties
from north to south are Bergen, Passaic, Hudson, Essex, Union, Middlesex, Monmouth and
A-2
Ocean. The 8-County Region comprises approximately two-thirds of the State’s population. See
“SERVICE AREA AND COMPETITION” herein.
MERGER SYNERGIES, COMMONALITIES AND RATIONALE
HUHN and Meridian shared similar visions for the future, strategic plans and culture, a
pluralistic approach to physician alignment and a commitment to clinical excellence, academics,
medical education and research. These commonalities between the two systems provide a
unique opportunity for the new HMH to:
1.
Expand the continuum of care and provide access to health care services in
contiguous geographies;
2.
Accelerate the development and integration of clinical care;
3.
Accelerate the migration to population health management;
4.
Provide scale that allows for innovative product offerings that could not be
achieved as separate entities;
5.
Develop the School of Medicine with Seton
“EDUCATIONAL AFFILIATIONS” herein); and
6.
Improve the credit profile and financial strength of the two systems through
economies of scale, realized synergies, organic growth and accretive expansion.
Hall
University
(see
INTEGRATION MANAGEMENT OFFICE
In planning for a coordinated and successful integration into HMH, HUHN and Meridian
dedicated resources and engaged experts with national experience in integration planning of
large health care delivery systems and then focused on strategic deliverables that would align
leadership on key decision making throughout the integration effort. An HMH Integration
Steering Committee (the “Steering Committee”) comprised of the executive leadership teams
from both organizations was established and chaired by the Co-CEOs of the Network as part of
the planning process to form HMH.
The Steering Committee set overall direction and performance expectations, made key
decisions and ensured that the work of integration met the strategic objectives of the Network.
The Steering Committee’s initial objectives were to (i) align on strategic priorities for HMH and
implications for organization, culture and integration design; (ii) determine the end-state
organization for HMH and timeline to execute; (iii) align on cultural aspirations including
desired attributes of the future organization and primary areas of emphasis; (iv) align on
integration design choices and principles for running the integration effort; (v) establish an
Integration Management Office (“IMO”) and create integration governance processes; and (vi)
charter “Integration Teams” with key objectives and performance targets.
A Chief Integration Officer was appointed and charged with managing the integration
governance process, establishing cadence for decision making, and determining deliverables for
both operational and strategic aspects of the integration process. The IMO is the support function
A-3
designed to guide the overall integration process, manage day to day activities, provide direction
for integration teams and reports directly to the Co-CEOs. The Co-CEOs have committed to
provide the IMO with the required support from all levels of executive leadership in the
Network.
With the backdrop of maintaining current quality operations, achieving the financial
synergy of the merger and executing on the strategic priorities (see “STRATEGIC PRIORITIES”
below), the Network established Integration Teams (as listed below), each with senior executive
sponsorship. Each Integration Team was chartered with defining a current state analysis,
identifying high level performance opportunities and synergies, developing the desired end-state
organization, and proposing a 12-18 month Integration and Value Capture Plan with targeted and
trackable deliverables. The Integration Teams are as follows:
•
•
•
•
•
•
•
•
Academics/Research/Technology Center
Continuum of Care
Culture
Finance/Supply Chain/Revenue Cycle
Legal
Hospital Operations
Strategy
Government Relations
•
•
•
•
•
•
•
Service Lines
Population Health
IT/EPIC
HR/Diversity
Marketing/Corporate Communications
Physician Enterprise
High Reliability/Patient Experience
The IMO has been successful in partnering with all Integration Teams and functional
leaders to identify best practices for issues and areas within each Integration Team and to
quantify measurable value capture targets achievable through scale and leveraging efficiencies
throughout the Network. Value capture targets over four years are estimated at $300 million in
improvements to baseline cash flow or earnings, and include both expense/efficiency
improvements and growth activities including the expansion of HMH’s comprehensive
continuum of care network of ambulatory and post-acute care services.
Since the formation of HMH in July 2016, the following accomplishments and
milestones have been achieved, among others:
•
•
•
•
•
•
•
•
•
•
Mission, Vision and Value Statements approved by the Network Board;
Finalized HMH post-merger strategic priorities;
Completed organization design;
Execution of a comprehensive marketing and communication plan;
Conducted an Organizational Health Index survey across all of HMH team members
and leadership to identify alignment of cultures which demonstrated a common
culture and alignment of the two organizations;
Developed Human Resources baseline analysis and strategies;
Completed a four-year capital formation plan and unified approach and consolidation
of the physician enterprise;
Implemented a centralized data warehouse;
Established a commitment to becoming a high reliability and quality organization;
and
Established and launched care transformation teams designed to produce better
patient outcomes at reduced cost.
A-4
The IMO, as part of the senior executive team, continues its work with the Integration
Teams to execute identified integration strategies and capture value.
STRATEGIC PRIORITIES
The Network, like many other health systems nationwide, continues to face pressures
affecting top line revenue growth and overall profitability. The Network is developing strategies
to be a leader in the implementation of value-based care in response to the Affordable Care Act
(and any potential repeal or refinement) and new technologies that improve patient outcomes,
while navigating increased competition from non-traditional sources, growing consumer price
sensitivity and State budgetary constraints. The Network’s strategic priorities are summarized
below.
Develop a Comprehensive Merger Integration Plan
•
•
•
•
Support the mission, vision and values of HMH and its key constituents
Align and integrate prioritized clinical, financial and operational functions and
services
Sustain and improve national recognition and accreditations including designation as
one of the “100 Best Places to Work”
Link to an Integration Planning Infrastructure that includes a Cultural Transformation
Plan, a Capital Formation Plan supported by a robust philanthropy plan, consumer
research to drive strategy for branding, marketing, patient and consumer experience,
consumer trends, and an internal and external communication plan
Strengthen and Grow the System's Physician Enterprise
•
•
Create unified and aligned strategies that embrace the voluntary faculty and employed
physicians
Develop clinical strengths and integration through physician development and
recruitment
Achieve Clinical Integration to Improve Patient Outcomes, Patient Experience and
Financial Performance
•
•
•
•
•
Become a high-reliability organization
Achieve greater efficiencies and productivity that improves patient outcomes at lower
cost and at the highest quality standards
Develop infrastructure and programs to support successful population health
initiatives and strategies
Strategically and effectively implement EPIC (the Network’s electronic health
record) throughout HMH, its affiliates and the physician enterprise and add additional
capabilities
Continuously work to enable and improve connectivity with HMH providers,
partners, and hospital affiliates to support clinical integration
A-5
Complete the Partnering Strategy with Seton Hall University
•
•
•
Execute the opening of new private medical school, a nursing school and a health
sciences and research complex
Align academic programs with clinical educational opportunities
Integrate and expand research across HMH
Grow and Strategically Advance the Continuum of Care of HMH
•
•
•
Align and advance population health strategies while growing the fee for service
business
Pursue affiliations, expand and develop new strategic partnerships across the
continuum of care in order to address geographic and strategic goals, improve patient
access and increase the scope of available services
Continue to grow through accretive partnerships, and the Network has recently
announced a letter of intent with regard to a possible affiliation with JFK Health
System, whose flagship JFK Medical Center is a 498-bed acute care hospital located
in Edison, New Jersey. See “MISCELLANEOUS - Pending Transactions” herein.
Create a Technology Innovation Center to Develop Breakthrough Technologies and
Telehealth Solutions that Respond to New Consumer Demands. The following has been
accomplished to date:
•
•
•
•
Completed creation of Hackensack Meridian Innovation Center for Cancer
Defined mission vision and goals for the technology center
Established and launched care transformation teams to build and offer 27 health care
bundles for colon, lung and breast cancer
Supported research initiative for FDA approved clinical trial of a stem-cell educator
to induce tolerance to treat Type 1 diabetes
Given the ever-changing healthcare environment, there can be no assurances that the
aforementioned strategies will not change.
[The remainder of this page is intentionally left blank.]
A-6
CONTINUUM OF CARE
The depiction below illustrates the continuum of care of services provided by the
Network and its affiliated entities. By providing a full continuum of care, HMH is able to guide
and track a patient over time through a comprehensive array of health services spanning various
levels and intensities of care. The Network has over 200 access points ranging from home care
and prevention to academic medical centers and post-acute facilities. As depicted in the graphic
below, the Network provides services from prevention and outpatient services, to hospital-based
care, rehabilitation, and post acute. Management believes that this combination of services and
care expertise positions HMH well to be a leader in population health management and valuebased care.
A-7
CORPORATE STRUCTURE
HMH is a New Jersey not-for-profit corporation and an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, formed on July 1, 2016 (the
“Merger Closing Date”) as the result of the statutory merger of Meridian and HUHN. HMH is
the sole corporate member or currently controls the organizations that comprise HMH.
Set forth below is an organizational chart for HMH and its affiliates. The Members of
the Obligated Group and the Designated Affiliates, as defined in the Master Indenture, are
shaded. HMH currently intends to merge some or all of the Designated Affiliates with one
another over the course of the next year.
Combined Group
Hackensack Meridian Health
= Obligated Group Member
Not-for-Profit
Hackensack
University
Medical
Center(1)
Not-for-Profit
20 Prospect
Avenue
Holdings,
LLC
Limited Liability
Company
Meridian
Hospitals
Corporation(2)
Palisades
Medical
Center, Inc.
Not-for-Profit
Not-for-Profit
Hackensack
Meridian
Nursing and
Rehabilitation,
Inc.(3)
Hackensack
Meridian Home
Care Services,
Inc.
Hackensack
University
Medical
Center
Casualty
Company
For-Profit
Not-for-Profit
Not-for-Profit
Bermuda Limited
Liability Company
For-Profit
Palisades
Child Care
Center, Inc.
For-Profit
Limited Liability
Company
Palisades
General
Cere, Inc.
Meridian
Practice
Institute, Inc.
Not-for-Profit
Not-for-Profit
Hackensack
Meridian Health
Realty
Corporation
Hackensack
Meridian
Ambulatory
Ventures, Inc.
Not-for-Profit
Not-for-Profit
Not-for-Profits
For-Profit
Hackensack
Meridian
Quality Care,
LLC
Raritan
Insurance,
Ltd.
8 Local
Foundations
Hackensack
Meridian
Health
Management,
Inc.
Health
Innovations
Unlimited,
Inc.
Raritan Bay
Medical
Center
Hackensack
Meridian Health
Ventures, Inc.
Not-for-Profit
Not-for-Profit
= Designated Affiliate
iMPark
Health, LLC
Limited Liability
Company
Hackensack
PhysicianHospital
Alliance
ACO, LLC
Meridian
Accountable
Care
Organization,
LLC
Hackensack
Meridian
Health
Partners,
LLC
Limited Liability
Company
Limited Liability
Company
Limited Liability
Company
Coastal Data
Solutions,
LLC
Limited Liability
Company
Coastal
Medical
Insurance
Limited
Bermuda Limited
Liability Company
Bergen
Health
Management
System, Inc.
Not-for-Profit
Raritan
Management
Corporation
For-Profit
(1) Hackensack University Medical Center has two Joint Ventures with LHP Hospital Group: HackensackUMC Pascack Valley and HackensackUMC Mountainside.
(2) Meridian Hospital Corporation Divisions: Jersey Shore University Medical Center, Bayshore Community Hospital, Ocean Medical Center, Riverview Medical Center, and Southern Ocean
Medical Center
(3) Hackensack Meridian Nursing and Rehabilitation, Inc. Divisions: Bayshore Healthcare Center, Brick, The Harborage, Ocean Grove, Shrewsbury, and Wall
A-8
GOVERNANCE
Board of Trustees
HMH is governed by a Board of Trustees (the “Network Board” or “HMH Board”) of not
less than eleven (11) nor more than twenty-five (25) members. The initial Network Board has 24
Trustees which were designated as of the Merger Closing Date as follows: 11 Trustees
designated by the Board of Trustees of HUHN, the President and CEO of HUHN (ex-officio
with a vote), 11 independent Trustees designated by the Board of Trustees of Meridian, and the
President and CEO of Meridian (ex-officio with a vote). By virtue of merger agreement between
Meridian and HUHN, the HMH Board will be self-perpetuating in seventy-eight months from
the Merger Closing Date and shall consist of an odd-number of trustees whose election will not
be based on a nomination by legacy HUHN or Meridian Trustees.
The Network Board’s bylaws provide that, except for ex-officio Trustees and officers, a
member of the Network Board may not serve more than three consecutive terms and may only
become qualified for re-election after a one-year absence from serving on the Network Board.
HMH’s principal purpose is to operate for the benefit of, perform the functions of, and promote,
support and coordinate the activities of HMH and its affiliates. To effectuate the coordination of
the activities of its affiliates, HMH has various reserved powers over certain actions of its
affiliates.
Effective as of November 9, 2016, and during the term of the School of Medicine
Agreement by and between Seton Hall University and HUHN for the Establishment and
Administration of the Seton Hall-Hackensack School of Medicine, dated June 5, 2015, the
President of Seton Hall University, or a senior executive designated by the President of Seton
Hall University, will have a Trustee position on the Network Board, serving ex-officio without
vote (the “SHU Trustee”).
[The remainder of this page is intentionally left blank.]
A-9
The current members of the Network Board, the year their respective terms expire and their
respective occupations are as follows:
Name
Richard A. Amdur, Esq.
Term (July 1, )
Occupation
Partner, Amdur Maggs & Shor
Gregg Azcuy
2017
2018
Keith Banks
2019
President, US Trust, Bank of America Private
Wealth Management
J. Fletcher Creamer, Jr.
2018
Owner, Fletcher Creamer & Son
Theresa de Leon, J.D.
2019
SVP and Managing Director, PNC Wealth
Management
Frank DeCongelio
2017
Retired, Former Managing Director, Credit
Suisse Investment Bank
Thomas J. Dolan
2017
Management Consultant
Kathleen T. Ellis
2017
SVP, New Jersey Resources
Frank L. Fekete, CPA, Treasurer
2019
Managing Partner, Mandel, Fekete & Bloom,
CPAs
Robert C. Garrett, Co-CEO
Peter C. Gerhard
Ex-Officio
2018
Owner, CEO, Storage Engine, Inc.
Co-CEO, Hackensack Meridian Health
CEO and CIO, G Capital Management
Marvin M. Goldstein, Esq.
2017
Retired, Former Partner, Proskauer Rose LLP
Peter O. Hanson
2017
Retired, Former Chairman, NAI James E.
Hanson
Thomas J. Kononowitz
2019
Retired, Former SVP, New Jersey Natural
Gas Company
Gordon N. Litwin, Esq., Co-Chairperson
2019
Partner, Litwin & Provence, LLC
John K. Lloyd, Co-CEO
William A. Kozy
Ex-Officio
2017
Co-CEO, Hackensack Meridian Health
Retired, Former EVP and COO, Becton
Dickinson and Company
Michael Lospinuso, MD, FACS
2018
Principal Owner and Orthopedic Surgeon,
Orthopedic Institute of New Jersey
Peter S. Reinhart, Esq., Vice Chairperson
2019
Director, Kislak Real Estate Institute at
Monmouth University
Kenneth W. Hitchner, III
2019
President, Asia Pacific ex-Japan,
Goldman Sachs
Joseph M. Sanzari
2018
President, Joseph M. Sanzari, Inc.
Alfred Schiavetti, Jr.
2018
Managing Member, Rumson Capital Partners,
LLC
Joseph Simunovich, Co-Chairperson
2019
Member, Board of Directors, Suez North
America
Peter H. Wegener, Esq., Secretary
2018
Senior Partner, Bathgate Wegener & Wolf,
PC
A. Gabriel Esteban, Ph.D.
Ex-officio
A-10
President of Seton Hall University
Committees
Standing committees of the Network Board include:



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Academics Committee
Audit and Compliance Committee
Governance and Board Development
Committee
Data Governance and Technology Committee
Executive Committee
Executive and Physician Compensation
Committee
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Finance Committee
Human Resources Committee
Investment Committee
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Medical Council
Quality Committee
Strategic Planning Committee
Conflicts of Interest
The Trustees that serve on the Network and affiliate boards are subject to the HMH
System Wide Policy on Conflicts, Dualities of Interest and Independence (the “Conflict of
Interest Policy”), the purpose of which is to assure that the Network and its affiliate boards’
decisions are made solely with the intent to promote the best interests of HMH without regard to
favor, preference or benefit that such decision might confer (directly or indirectly) upon any
individual involved in the decision-making progress. The policy requires annual disclosure by
trustees, officers, committee members and senior management of any transaction or relationship
with HMH or an affiliate of HMH that may give rise to a conflict of interest. In addition, each
such person is required to affirm on an annual basis that he or she has received the Conflict of
Interest Policy. Further, such persons are advised how to bring a transaction or relationship to
the attention of the applicable board for its review.
Potential conflicts of interest are considered by the applicable board or committee outside
the presence of the affected person. Failure to disclose a potential conflict of interest can result
in disciplinary or corrective action.
Corporate Compliance
Both HUHN and Meridian implemented Corporate Compliance Programs beginning in
1997. This commitment to good corporate citizenship has been continued by the Network Board
through its endorsement of an enterprise-wide compliance program to support, monitor and
enhance HMH's commitment to business ethics, legal and regulatory compliance. The
Compliance Program applies to all medical, business, and legal activities performed by trustees,
officers, team members, medical staff members, residents, volunteers, and contractors.
The Compliance Program is monitored by the Audit and Compliance Committee of the
Network Board. Day-to-day coordination of the Compliance Program is carried out by the Vice
President, Chief Compliance Officer. The Audit and Compliance Committee’s charter states, in
part, that its purpose is to assist the Network Board in fulfilling its oversight responsibilities for
financial reporting, adequacy of internal control systems, and monitoring compliance with
applicable laws and regulations and the HMH Code of Conduct.
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MANAGEMENT
Brief biographical information for members of HMH’s senior management team is set
forth below:
ROBERT C. GARRETT, FACHE
Co-Chief Executive Officer
Robert C. Garrett, 59, began his time with Hackensack University Medical Center in
1981 as an administrative resident, and served as president and chief executive officer of the
HUHN from 2009 through 2016, at which time he assumed his current position as co-CEO of
HMH.
Mr. Garrett was ranked #1 on the NJBIZ 2017 “Power 50 Health Care” list. He has also
ranked on the NJBIZ “Power 100: The most powerful people in New Jersey business” list for six
consecutive years. He was selected as a member of The Wall Street Journal CEO Council, an
invite-only council representing some of the most well-respected business leaders in America.
He was also listed as one of the 2016 “130 Nonprofit Hospital and Health System CEOs to
Know.”
Mr. Garrett received his Master of Health Administration from Washington University in
Saint Louis, and his bachelor’s degree from Binghamton University in New York.
JOHN K. LLOYD, FACHE
Co-Chief Executive Officer
John K. Lloyd, 70, began his time at Meridian Health in 1982 and previously served as
president and chief executive officer before becoming co-CEO of HMH.
Mr. Lloyd has served as chairman of New Jersey Hospital Association (“NJHA”) and has
held local, state and national board positions at organizations such as the New Jersey Council of
Teaching Hospitals, American Hospital Association and American College of Healthcare
Executives. In 2009, he was recognized by the NJHA as its Healthcare Professional of the Year.
He is currently ranked among the most powerful health care leaders by NJBIZ. He was also
listed as one of the 2016 “130 Nonprofit Hospital and Health System CEOs to Know”.
Mr. Lloyd received his undergraduate degree from Princeton University, and proudly
served his country in the United States Marine Corps, before earning a Master of Business
Administration in Health Administration at Temple University.
ROBERT L. GLENNING, MBA
President of the Financial Services Division and Chief Financial Officer
Robert L. Glenning, 56, serves as president of the Financial Services Division and chief
financial officer for HMH. He previously served as executive vice president and chief financial
officer of HUHN having joined HUMC in 2007. In this role, Mr. Glenning led strategic
financial planning and management for all aspects of the network as well as information
technology planning and management for HUMC.
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Under his tenure, HUMC and its parent company, HUHN, had some of their most
successful financial years, including HUHN’s most successful fiscal year to date. During 2015,
HUHN achieved an operating margin of $88.5 million, and total operating revenue of $1.64
billion.
Mr. Glenning previously served as executive vice president and chief financial officer,
and, prior to that role, as vice president of Finance, for Kaleida Health in Buffalo, New York.
Mr. Glenning earned his Master of Business Administration from Clarkson University and his
bachelor’s degree in Accounting from Siena College. He has been recognized by NJBIZ with
the 2011 Healthcare CFO of the Year Award.
STEVEN G. LITTLESON, FACHE
President of the Hospital Services Division and Chief Operating Officer
Steven G. Littleson, 56, is president of the Hospital Services Division and chief operating
officer at HMH. Prior to this appointment, he served as executive vice president at Meridian,
responsible for all acute care operations as well as several corporate functions for the
organization. Mr. Littleson, who joined Meridian in 1997, previously served as president of
JSUMC in Neptune, New Jersey.
Prior to joining Meridian, Mr. Littleson was president and chief executive officer of
SOMC in Manahawkin, New Jersey. During his tenure, the SOMC campus more than doubled in
size, adding new programs and services for the community while the hospital maintained its
position as one of the lowest cost hospitals in New Jersey. Mr. Littleson previously served as
vice president at Sentara Hampton General Hospital in Hampton, Virginia, and as an
administrative resident at York Hospital in York, Pennsylvania.
A fellow of the American College of Healthcare Executives, he is the newly appointed
Chairman of the board of directors for NJHA and also serves as an officer of the board of
directors of the New Jersey Council of Teaching Hospitals. Mr. Littleson has a Master of Health
Services Administration degree from The George Washington University, a Bachelor of Arts
degree in Business Administration from Gettysburg College, and is a candidate for a Doctorate
in Business Administration from Walden University.
JOSEPH M. LEMAIRE
President of Health Ventures
Joseph Lemaire, 62, is president of the Health Ventures Division for HMH. In this role,
he has oversight of HMH’s non-acute services, including its sub-acute facilities, home care and
outpatient ambulatory facilities. In support of HMH’s population health strategy, Mr. Lemaire
and his team are focused on providing additional access points of care for more people through
more convenient options and locations.
Mr. Lemaire joined Meridian in 2014 and served as executive vice president and chief
financial officer for Meridian, which involved oversight of Meridian’s financial planning and
reporting, as well as its partner companies. Prior to joining Meridian, he served as executive
vice president and chief financial officer for Holy Name Medical Center. He was a partner with
Big 4 accounting firm Ernst & Young, auditing a diverse range of health care providers. In
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addition, he spent eight years as a consultant to global life sciences companies while he was a
partner at Accenture.
Mr. Lemaire holds a Bachelor of Science degree in Accounting from Farleigh Dickenson
University. He is a certified public accountant in New York and New Jersey. His additional
board service includes: chairman of the Finance Committee of QualCare, chairman of the
Finance Committee at St. Anne’s Nursing Home, and chairman of the Management Committee
of Catholic Charities of the Archdiocese of Newark. He has been recognized by NJBIZ with the
2015 Healthcare CFO of the Year Award.
PATRICK R. YOUNG
President of Population Health
Patrick Young, 51, is president of the Population Health Division for HMH. In this role,
he is responsible for accelerating the development of strategic priorities related to health care
reform, population health management, Meridian’s Accountable Care Organization, Hackensack
Meridian Health Partners, Meridian’s clinically integrated network, and health insurance
partnerships, as well as overseeing managed care contracting.
Prior to joining HMH, Mr. Young served as chairman and chief executive officer for
Noble Health Alliance. While at Noble, he led the Alliance’s physician network, created clinical
and claims data analysis capabilities, and developed innovative relationships with regional health
care providers, insurers, and employers to help improve the quality and efficiency of health care.
Mr. Young began his career in health care in the 1980s with US Healthcare, which was
later acquired by Aetna. He served in a series of increasingly responsible positions within Aetna,
including president of business segments in the mid-Atlantic and Northeastern regions of the
United States. In 2006, Mr. Young was named president of Aetna’s Pennsylvania, Delaware,
and West Virginia markets. In this role, he had overall responsibility for sales, network
contracting, product development, and relationships with business leaders and elected officials.
Mr. Young holds a Bachelor of Arts in Public Management from the University of
Maine, and is a member of the Pennsylvania Association of Health Underwriters. He serves on
an advisory board for PatientPing, a health care technology company.
ANDREW PECORA, M.D., FACP, CPE
Chief Innovation Officer and President of the Physician Services Division
Dr. Pecora, 59, serves as chief innovation officer and president of the Physician Services
Division. He previously served as vice president of Cancer Services and chief innovations
officer at HUMC. In this role, he was responsible for the research, treatment and innovation of
cancer services being provided to patients at the network. In 2004, Dr. Pecora was promoted to
Professor of Medicine, UMDNJ-New Jersey Medical School and in 2013 to Professor of
Oncology and Medicine at Georgetown University.
A Diplomate of the American Board of Internal Medicine, subspecialty of Hematology
and subspecialty of Oncology, Dr. Pecora has received numerous awards and honors. He has
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been involved in numerous research projects in an effort to improve the outcomes of patients
with cancer.
Dr. Pecora holds 50 national and international patents covering the composition and use
of bone marrow derived cells for treating cardiovascular disease and relating to informatics
technology. He has led several national trials in the field of transplantation and has published
numerous peer-reviewed articles and abstracts and has presented the results of his research at
many national and international scientific meetings. Dr. Pecora has created numerous successful
companies and serves as chairman of private and public companies.
Dr. Pecora graduated with honors from Seton Hall University, earning a Bachelor of
Science degree in Biology. He earned his M.D. from the University of Medicine and Dentistry
of New Jersey and completed his training at NewYork-Presbyterian Hospital and Memorial
Sloan Kettering Cancer Center.
ANN B. GAVZY, ESQ.
Executive Vice President, General Counsel, Health System
Ann B. Gavzy, Esq., 58, serves HMH as executive vice president and general counsel of
the Network. She was most recently senior vice president of Legal Affairs and general counsel
at Meridian, where she was responsible for initiating, overseeing and coordinating all legal
services for the health system since joining the organization in 1997, and guided the health
system through the evolving health care landscape.
Prior to Meridian, Ms. Gavzy was a partner at Kalison & McBride, P.A. in Liberty
Corner, New Jersey, and a partner at Norris, McLaughlin and Marcus in Somerville, New Jersey.
Ms. Gavzy is the recipient of both the 2015 NJBIZ “50 Best Women in Business” award
and the 2015 NJBIZ “General Counsel of the Year” award. She was recently named a 2016 First
Chair Award Recipient. This annual award recognizes America’s most innovative and
accomplished in-house counsel for their achievements and significant contributions to the legal
community.
Ms. Gavzy earned her J.D. degree from American University’s Washington College of
Law (Washington, DC) and her bachelor’s degree from Clark University (Worcester,
Massachusetts). She is a member of the American Bar Association, the New Jersey State Bar
Association (Health and Hospital Law Section), the American Health Lawyers Association, and
the Health Care Roundtable, a limited membership group of chief legal officers from around the
country.
AUDREY C. MURPHY, ESQ.
Executive Vice President, General Counsel, Hospital Enterprise
Audrey Murphy, Esq., RN, 56, serves HMH as executive vice president, general counsel,
Hospital Enterprise. She previously served as the executive vice president/chief legal officer at
HUMC and HUHN having joined the organization in 1992. As chief legal officer, Ms. Murphy
was responsible for the overall functioning of the Legal/Regulatory Department. In this role, she
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oversaw the daily in-house corporate advising as well as the medical/legal advising, the medical
center’s various insurance programs and for managing and directing all litigation.
Ms. Murphy is a member of numerous professional societies including: Sigma Theta Tau,
American Corporate Counsel Association, American Health Lawyers Association, American
College of Healthcare Executives and the Bergen County Bar Association as well as the New
York and New Jersey State Bar Associations. She sits on the boards of the Bergen County Bar
Foundation, Commerce & Industry of New Jersey and the Pace President’s Committee.
Ms. Murphy was the recipient of the Innovator Award from Pace University, which pays
tribute to individuals or groups whose work exemplifies positive change and self-empowerment.
She was also the recipient of the Best 50 Women in Business Award presented by NJBIZ in
March of 2015, the Early Career Healthcare Executive Regent’s Award presented by the
American College of Healthcare Executives, and was honored with a TWIN Award - Tribute to
Women and Industry, which is given to professional women who have excelled in their field and
made contributions to industry in executive, managerial and/or professional roles.
Ms. Murphy earned her J.D. degree from Pace University School of Law and BSN and
MSN degrees from Pace University.
CATHERINE A. AINORA
Executive Vice President, Chief Integration Officer, Health System
Catherine A. Ainora, 63, serves as Executive Vice President and Chief Integration
Officer for the Network and is responsible for managing the integration process. As lead of the
Integration Management Office, Ms. Ainora manages the process described herein under the
caption “INTEGRATION MANAGEMENT OFFICE”.
Ms. Ainora previously served as acting chief strategy officer at HUHN having joined the
organization in 2015. In this role she was responsible for regional strategic network growth
through mergers, acquisitions and creative partnerships with health care providers. Prior to this
role she was a retired executive from Barnabas Health, where she served for seventeen years as
the Senior Vice President for System Development / Planning, part of the executive team
building one of the largest health care systems in New Jersey.
Ms. Ainora received an MBA in Health Care Administration from Bernard Baruch
College-Mt. Sinai School of Medicine and a bachelor's degree in business from Fairleigh
Dickinson University.
OPERATING DIVISIONS OF HMH
The Network is operated pursuant to five major operating divisions, the Hospital Services
Division, the Diversified Health Ventures Division, the Physician Services Division, the
Population Health Division and the Academic Enterprise and School of Medicine Division.
The Hospital Services Division is described in more detail under the caption
“FACILITIES OVERVIEW” and consists primarily of two academic medical centers, two
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children’s hospitals and nine community hospitals, including the Network’s hospital joint
ventures.
The Diversified Health Ventures Division manages the Network’s non-acute health care
delivery facilities and services including more than 120 ambulatory care centers, surgery centers,
home health services, long-term care and assisted living communities, inpatient and outpatient
behavioral health facilities, ambulance services, air medical transportation, fitness and wellness
centers, rehabilitation centers, and urgent care and after-hours centers.
The Physician Services Division manages all physician related activities of the Network
including independent physicians, employed physicians, the Clinically Integrated Network
(“CIN”) physicians and the Network’s medical services organization (“MSO”).
See
“PHYSICIAN ALIGNMENT AND STRATEGY” herein.
The Population Health Division is designed to position the Network for success in the
changing healthcare environment and expand the Network’s footprint and coordination of care.
See “POPULATION HEALTH INITIATIVES” herein.
A component of the strategic mission of HMH is to enhance its academic vision by its
recent affiliation with Seton Hall University, with a focus on educational excellence; cuttingedge research; highest-quality clinical care; meaningful integration; and the advancement of New
Jersey medical and health sciences educational imperatives. HMH has further demonstrated its
educational commitment through HUMC’s affiliations with Georgetown University School of
Medicine, Stevens Institute of Technology, St. George’s University School of Medicine and
Rutgers New Jersey Medical School. See “EDUCATIONAL AFFILIATIONS” herein.
FACILITIES OVERVIEW
Below is an overview of the hospital facilities of HMH and a more detailed discussion of
each.
Hospital
Hackensack University Medical Center
Joseph M. Sanzari Children's Hospital**
Jersey Shore University Medical Center
K. Hovnanian Children's Hospital**
Riverview Medical Center
Raritan Bay Medical Center – Perth Amboy
HUMC Mountainside*
Ocean Medical Center
Bayshore Community Hospital
HUMC Palisades
Southern Ocean Medical Center
HUMC Pascack Valley*
Raritan Bay Medical Center – Old Bridge
County
Bergen
Bergen
Monmouth
Monmouth
Monmouth
Middlesex
Essex
Ocean
Monmouth
Hudson
Ocean
Bergen
Middlesex
Beds(1)
735
580
463
388
361
275
211
202
176
123
113
* Joint venture with LHP Hospital Group
**Included in HUMC and JSUMC bed count
(1) represents licensed acute care beds; does not include licensed/regulated bassinets and does not include licensed beds for long
term care & assisted living facilities
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Hackensack University Medical Center
Founded in 1888 with 12 beds, HUMC was Bergen County’s first hospital. As the
largest provider of inpatient and outpatient services in New Jersey, this facility has created a
campus of specialized care centers, including: the Heart & Vascular Hospital, the John Theurer
Cancer Center (“JTCC”), the Joseph M. Sanzari Children’s Hospital, and the Donna A. Sanzari
Women’s Hospital. HUMC ranks among the best hospitals in the nation according to several
national organizations. See “AWARDS AND RECOGNITIONS” herein. It enjoys numerous
clinical, research and academic affiliations with world-renowned partners. HUMC is one of
Bergen County’s largest employers with a work force of more than 8,600 employees. Nearly
1,600 physicians and dentists on the medical and dental staff represent a comprehensive listing
of specialties and subspecialties. HUMC remains committed to the community through
fundraising and community events, such as its annual Celebrating Life & Liberty event, health
fairs and Healthy Heart events.
Jersey Shore University Medical Center
JSUMC is a teaching hospital and home to K. Hovnanian Children’s Hospital, the first
children’s hospital in Monmouth and Ocean counties. With over 1,000 physicians and dental
staff in 60 specialty areas, JSUMC physicians provide care in a patient-focused, environmentally
friendly setting that has earned JSUMC Leadership in Energy & Environmental Design Gold
(LEED) certification. JSUMC is the regional provider of cardiac surgery, whose program has
been ranked among the best in the Northeast, and is home to the only trauma center and stroke
rescue center in Monmouth and Ocean Counties. Through the hospital’s clinical research
program, and its affiliation with Rutgers Robert Wood Johnson Medical School, JSUMC serves
as an academic center dedicated to advancing medical knowledge, training future physicians, and
providing the community with access to promising medical breakthroughs. JSUMC sponsors
Accreditation Council for Graduate Medical Education (ACGME)-accredited residency training
in Pediatrics, Obstetrics & Gynecology, General Surgery and Internal Medicine. In addition,
JSUMC offers a Pediatric Hospital Medicine Fellowship through the Department of Pediatrics,
and sponsors graduate training programs in General Dentistry, Clinical Pharmacy and Podiatry.
Riverview Medical Center
RMC provides health care programs and services in all major medical disciplines
including: maternity, diabetes management, and emergency and critical cancer services. RMC’s
Jane H. and John Marshall Booker Cancer Center offers comprehensive cancer services close to
home, while RMC’s Jane H. Booker Women and Children’s Center combines expertise and
convenience to address preventive health, diagnosis, treatment, and support for women of all
ages. Riverview Rehabilitation Center is Monmouth County’s only fully accredited inpatient
rehabilitation facility, and RMC is a designated Primary Stroke Center. RMC is the only hospital
in Monmouth and Ocean Counties with the CyberKnife® system.
Raritan Bay Medical Center – Perth Amboy
On January 1, 2016, prior to the formation of HMH, Meridian acquired RBMC, adding
its two campuses in Middlesex County, a hospital in Perth Amboy and a hospital in Old Bridge.
RBMC Perth Amboy has been providing care to residents of Northern Middlesex County for
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more than a century. This Joint Commission-accredited hospital provides a full range of acute
medical, surgical and outpatient care. RBMC Perth Amboy was one of the original 12
community hospitals participating in a national Johns Hopkins study to determine the benefits of
patients receiving angioplasty in hospitals without cardiac surgery programs. Since 1980,
RBMC Perth Amboy has trained more than 300 residents in its Internal Medicine Residency
Program affiliated with the Rutgers Robert Wood Jonson Medical School. Through a partnership
with Middlesex County College – Nursing Education Program, nurses receive their training at
RBMC Perth Amboy. Specialty services and programs include maternity, a cardiac
catheterization laboratory, Center for Wound Healing, the Human Motion Institute, Center for
Women, and the Center for Balance.
Raritan Bay Medical Center – Old Bridge
RBMC Old Bridge is a community hospital that has served the greater Old Bridge
community for more than 35 years providing outpatient, inpatient, and emergency services. The
new state-of-the-art Medical and Surgical Pavilion opened on the campus in 2015, providing an
array of outpatient services, diagnostic testing, physician offices, surgery, comprehensive
diabetes care in a more modern and convenient setting. Specialty services and programs include
the Institute for Weight Loss, Center for Sleep Medicine, Joslin Diabetes Center, The Surgery
Center at Old Bridge, the Human Motion Institute, a Pulmonary Rehabilitation Program, the
Center for Women and the Center for Continence and Pelvic Rehabilitation.
Ocean Medical Center
OMC is a community hospital located in Brick, New Jersey, which provides health care
programs and services in all major medical disciplines. Some key services include designation
as a Primary Stroke Center; brain lab and neurological surgery; DaT Scan and advanced imaging
technology; da Vinci Robotic Surgery System; general, thoracic, and vascular surgery;
comprehensive cancer care and radiation therapy technologies; a Joint Commission accredited
orthopedic program; one of the nation’s most advanced cardiac catheterization laboratories and
cardiac services; maternity, Acute Care of the Elderly, and critical care services. OMC recently
completed a four-level expansion that has transformed the campus through an $82 million
project that is intended to set a foundation for future decades of growth. The main component of
the project is a new 44,300-square-foot Emergency Department. OMC also operates the state’s
first Satellite Emergency Department in Point Pleasant, called the Ocean Care Center.
Bayshore Community Hospital
BCH, an acute care hospital located in Holmdel, New Jersey, offers services on an
inpatient, emergency, and outpatient basis. BCH provides health care programs and services in
all major medical disciplines, including: emergency medicine, cardiac catheterization, surgical
services, wound care, sleep services, diagnostic imaging, women’s services with digital
mammography, as well as a designated primary stroke center. BCH’s Center for Bariatrics is one
of the most comprehensive in the region offering free informational sessions, pre-surgical
education and evaluation, personal guidance through the surgical process, nutritional support,
exercise components and support groups. Since joining Meridian in 2010, more than 335
physicians have chosen to join the medical staff of BCH.
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HackensackUMC Palisades
On March 1, 2016, prior to the formation of HMH, HUHN acquired HUMC Palisades,
formerly Palisades Medical Center. HUMC Palisades, located in North Bergen, New Jersey,
brings specialized diagnostic and medical treatments to the resident and business communities of
northern Hudson County. In March 2015, HUMC Palisades opened its new Ambulatory Care
Center, a 57,000-square-foot facility that provides state-of-the-art ambulatory and specialty care
services. Featured in the new building is a dialysis center, an extension of the John Theurer
Cancer Center, Ambulatory Center for Endoscopy, Cardiology, Gastroenterology, Orthopedics,
and multispecialty physician practices from HUMC.
Southern Ocean Medical Center
SOMC, an acute care hospital located in Manahawkin, New Jersey, provides
comprehensive inpatient, outpatient, and emergency services. With more than 340 physicians
and 950 health care professionals, SOMC has been caring for the Southern Ocean County
community for over 40 years. SOMC provides advanced comprehensive diagnostic and
innovative treatment, including minimally invasive options that offer faster healing for many
medical and surgical treatments. Health education and support programs extend the continuum of
care to provide more efficacious health and healing programs. The medical staff represents over
40 specialties and sub-specialties.
Diversified Health Ventures
The Network’s non-acute health care delivery facilities and services include more than
120 ambulatory care centers, surgery centers, home health services, long-term care and assisted
living communities, inpatient and outpatient behavioral health facilities, ambulance services, air
medical transportation, fitness and wellness centers, rehabilitation centers, and urgent care and
after-hours centers. The Network’s Meridian Health Village boasts a comprehensive collection
of health care and wellness services, including medical services, diagnostic services and other
medical and wellness needs, all in one location. The Network is also partnered with the largest
regional ambulance company in New Jersey, Alert Ambulance Service, to facilitate transports.
These non-acute facilities serve as an ancillary source of revenue to support the Network’s
strategic initiative to provide a fully integrated continuum of care.
SPECIALTY CLINICAL SERVICES
HMH has developed destination centers of excellence in all major service lines.
Specialists provide the full range of services for all ages and levels of care, including: medical,
surgical, OB/GYN, pediatric, psychiatric, rehabilitation and emergency care. The Network
provides emergency services on a 24-hour basis at each hospital site.
Cardiovascular
The HMH Cardiovascular Network provides comprehensive cardiovascular care across
the 8-County Region, which represents 62 percent of the total New Jersey population. The HMH
Cardiovascular Network accounted for 84,000 cardiovascular discharges in 2015, reflecting a 25
percent inpatient market share in the 8-County Region.
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HMH offers a continuum of coordinated cardiovascular care across its 13 hospitals,
including preventive cardiology, non-invasive cardiology laboratories, cardiac catheterization
laboratories, nuclear cardiology, and cardiac rehabilitation programs. Seven HMH hospitals
provide primary angioplasty as well as full-service cardiac catheterization laboratories, and eight
offer endovascular surgery. Collectively, HUMC and JSUMC performed nearly 1,300 cardiac
surgeries and 4,000 electrophysiology procedures in 2015.
Ranked among the top 50 hospitals in the country for cardiology and heart surgery
services by U.S. News & World Report, the Heart & Vascular Hospital (“HVH”) at HUMC
operates nine cardiac catheterization laboratories, which includes three electrophysiology labs
and one neuro bi-plane room, which utilizes the latest technology to treat the most complex
cardiovascular problems. Leading-edge technology and specialized treatment teams allow HVH
to perform procedures on the highest risk patients.
The Structural and Congenital Heart Program at HVH offers comprehensive care to
patients with complex congenital and valvular heart disease with state-of-the-art fusion
technology, which combines CT and echo images for planning percutaneous strategies including
trans-catheter aortic valve replacements (TAVR), Mitral Clip, Watchman and closure of
paravalvular leaks. HVH Heart Failure and Pulmonary Hypertension Program is certified as a
destination Left Ventricular Assist Device (LVAD) program, which offers treatments options for
patients who would not be candidates for heart transplant.
JSUMC has been providing cardiac surgical services since 1990 and is the only facility in
both Monmouth and Ocean counties designated by the New Jersey Department of Health
(“NJDH”) to operate a comprehensive cardiothoracic surgery program, which includes
minimally invasive and complex aorta and valve techniques, including structural heart
procedures such as TAVR and the Watchman device. JSUMC was also the first hospital in New
Jersey to implant the Micra® Transcatheter Pacing System (TPS), the world’s smallest
pacemaker and the only leadless one – after gaining FDA approval. Within its cardiac surgical
suite, JSUMC features a next-generation operating room, allowing for minimally invasive
cardiac surgery procedures with catheter-based intervention, and provides specialized care postsurgery in its state-of-the-art Cardiac ICU. In 2013, Meridian was the first and only New Jersey
health care system recognized as a center of excellence in treating patients with chest pain,
earning the highest designated Chest Pain Center Accreditation by the Society of Cardiovascular
Patient Care, a global not-for-profit organization committed to leading the fight to eliminate
heart disease as the number one cause of death worldwide.
Neuroscience
The Network offers a comprehensive range of neuroscience services at seven of the
Network hospitals, including HUMC’s and JSUMC’s Neuroscience Institutes. Together, this
broad network of services brings together clinical experts, advanced technology, innovative
treatments, and patient-centered care to manage and treat conditions of the brain, spine, and
nervous system. Staffed by neurologists, neurosurgeons (pediatric and adult), researchers, and
specialists in neuro-immunology, neuro-oncology, neuropsychology, movement disorders and
neuropathy this team takes an interdisciplinary approach to care.
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As of 2015, the Neurosciences service line at HMH has captured over 45 percent of the
market share for services in Monmouth and Ocean counties, with continued growth expected as
specialty programs mature and expand. From a program perspective, the Network is home to five
state-certified primary stroke centers and two state-certified comprehensive stroke centers
offering the latest in stroke-rescue technology. In 2016, The Neuroscience Institute at JSUMC
became accredited as a Comprehensive Stroke Center by The Joint Commission, making it only
the fifth in New Jersey, and 101st in the United States to receive this accreditation. This Center is
supported by the region’s only Neurosurgical Intensive Care Unit, which opened in January 2016
with five beds and was expanded to 12 beds in November 2016. In 2015, JSUMC also received
certification as a Level IV Comprehensive Epilepsy Center; the highest level of certification
attainable. In October 2011, RMC Neurosurgeons performed the first-ever Deep Brain
Stimulation procedure for the treatment of essential tremor/Parkinson’s disease at Meridian, and
has continued to build off the strengths of this program. HMH also offers a fully integrated
Transfer Center that allows the transfer of acutely ill patients from across the system, as well as
from other non-Meridian hospitals, to its Neuroscience specialty programs. With the assistance
of telemedicine, legacy Meridian started a Telestroke program in 2016 across five hospitals,
which translates into better patient care and outcomes.
HUMC’s Neuroscience Institute is comprised of specialists in neurology, neurosurgery,
neuro-immunology, neuro-oncology, neuropsychology, movement disorders and neuropathy.
Services and conditions treated at the Neuroscience Institute include chronic pain, headache,
movement disorders, multiple sclerosis, neuropathy, neurosurgery, sleep medicine, and stroke
care. The Comprehensive Stroke Center at HackensackUMC is the largest of its kind in Bergen
County and among the busiest in the nation, based on patient volume. It is certified by The Joint
Commission as a Primary Stroke Center and licensed as a Comprehensive Stroke Center by the
New Jersey Department of Health and Senior Services.
The Comprehensive Stroke Center offers a 20-bed acute stroke care unit with a dedicated
Magnet nursing staff. The unit features 24-hour testing and monitoring to detect and minimize
conditions as soon as they develop, in order to minimize complications whenever possible. The
acute stroke team provides comprehensive stroke care beginning in HMH’s Emergency Trauma
Department.
Orthopedics
HMH hospitals offer a comprehensive range of orthopedic services across its service area
utilizing a multidisciplinary team of medical professionals who perform total and partial knee
and hip replacements, shoulder replacement, and surgery of the hand, wrist, foot, ankle, elbow,
shoulder, and spine. HMH surgeons use the latest technology, including the anterior approach to
hip replacement, working together to provide complete assessment, consultation, diagnosis,
education, surgery, pain management, physical therapy and discharge planning for patients
undergoing total joint surgery.
The Network’s Rehabilitation Services deliver a continuum of comprehensive
rehabilitative health care and wellness including Acute (Hospital-Based) Rehabilitation, Acute
Rehabilitation Hospitals, Subacute Rehabilitation, Home Care Rehabilitation, Outpatient
Rehabilitation, and Fitness & Wellness Centers.
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HUMC, HUMC Pascack Valley, JSUMC, OMC, and RMC are each certified by The
Joint Commission for Hip and Knee Joint Replacement. HUMC is the first hospital in New
Jersey to receive the gold seal of approval in Hip Fracture from The Joint Commission. In
addition, HUMC has been named among the top 50 hospitals in the nation for orthopedics by
U.S. News and World Report.
Oncology
The Network offers a comprehensive range of oncology services across seven of its
hospitals, including The John Theurer Cancer Center at HUMC. Together, this broad network of
services brings together clinical experts, Phase I research, advanced technology, and outcomes
focused on the cure in cancers of: breast, gastrointestinal, genitourinary, gynecological, head and
neck, leukemia, lymph proliferative, multiple myeloma, neuro-oncology, skin and sarcoma,
hepatobiliary, endocrine and thoracic.
The cancer centers across the HMH network have over 200 outpatient chemotherapy
chairs and treat approximately 250 patients per day. Its comprehensive programs offer patients
with onsite support groups, access to integrative medicine including yoga classes, cooking
classes, nutritional support, nurse navigation and more. Both cancer programs are accredited by
the American College of Surgeons (ACoS), and the breast programs at JTCC, JSUMC and RMC
are accredited by the National Accreditation Program for Breast Centers (NAPBC). The BMT
program is accredited by The Foundation for the Accreditation of Cellular Therapy (FACT) and
holds The Joint Commission Disease Specific Certification in BMT, Breast, Colorectal, and
Ovarian/Uterine and Prostate cancers.
JTCC has more than 300 ongoing clinical trials conducted independently and in
partnership with government and private research centers and pharmaceutical companies,
research consortiums, patient advocacy groups and the National Institutes of Health (NIH).
Participating in a clinical trial can enable patients to be among the first in the world to access
potentially lifesaving therapies. The Network is also home to five DaVinci Robotics and nine
TrueBeam linear accelerators. The Network’s physicians have been published frequently in
leading journals such as New England Journal of Medicine, Nature, Lancet, Blood and Journal of
Clinical Oncology.
Bone Marrow Transplantation Program
The Adult Blood and Marrow Stem Cell Transplantation Program (the “BMT Program”)
provides autologous and allogeneic hematopoietic stem cell transplantation in the treatment of
malignant and non-malignant diseases including use of bone marrow, peripheral blood stem
cells, and umbilical cord blood stem cells. This program also serves as a collection facility for
National Marrow Donor Program donor centers. The BMT Program was the first center in the
country to receive a Bone Marrow Transplant disease-specific recognition by The Joint
Commission, a not-for-profit organization that accredits and certifies over 15,000 health care
organizations and programs in the United States. An affiliation has been formed with the
transplant program at the National Cancer Institute of the National Institutes of Health, which
enables sharing of protocols. This program has 17 open-transplant treatment research protocols
in use at this time. The BMT program has performed, on average, approximately 360 transplants
per year and has performed over 5,000 since the start of the program. The BMT Program is also
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one of the largest photopheresis centers in the country. Photopheresis is a specialized treatment
for post-transplant patients with Graft vs. Host Disease. The BMT Program has also built and
now runs the transplant program at MedStar Georgetown University Hospital in Virginia.
Women’s Services
Through facilities and programs within the Network, such as the Donna A. Sanzari
Women’s Hospital at HackensackUMC, HMH’s Women’s Centers at Riverview Medical Center
and Bayshore Community Hospital, the Pelvic Reconstructive Surgery and Urogynecology
Program at Jersey Shore University Medical Center, the Continence Center at HackensackUMC
Palisades, and the Women’s Cardiac Institute at HackensackUMC, HMH provides an array of
comprehensive primary and specialty health care, while incorporating the most recent advances
in research and medicine. Some of the Network’s services include: OB/GYN; preventive wellwoman exams; prenatal care and childbirth services; breast care; gynecologic surgery and cancer
care; reconstructive surgery and urogynecology; perinatology; pelvic reconstructive surgery;
reproductive endocrinology and infertility; maternal-fetal medicine; and women’s heart health.
Behavioral Health
The vision for the Behavioral Health service line is to be a nationally recognized network
of comprehensive programming and a recognized leader for Behavioral Health clinical
excellence, research and education. The strategic focus of the behavioral health services intends
to align the broad range of specialty behavioral health services across the network and create
centers of excellence in areas such as mood disorders, child and adolescent behavioral health
disorders, integrated medical and behavioral health care, geriatric psychiatry and substance use
disorders. HMH’s long history of community outreach and prevention services combined with
recent population health advances and initiatives is anticipated to position Behavioral Health
well for future growth and efficiency. A significant aspect of the population health/community
care strategy is expected to include integration of behavioral health services into primary care
settings for both adult and pediatric populations. In 2016, legacy Meridian Behavioral Health
received state designation as a “Behavioral Health Home” to provide much-needed care
management services to the chronically mentally ill population.
Pediatric Services and Children’s Hospitals
HMH provides enhanced pediatric services within an environment dedicated to emergent
and specialized medical care for children. Staffed by specialized teams dedicated to caring for
the unique needs of children, HMH hospitals provide families with access to pediatric emergency
rooms and services, plus the breadth of specialty pediatric services within the Network’s
Children’s Hospitals.
Specialties include adolescent medicine, asthma & pulmonology,
diabetes & endocrinology, epilepsy & neurology, nutrition & gastroenterology, surgical services,
pediatric nephrology, autism & child evaluation, concussion treatment, hematology & oncology,
pediatric rehabilitation, pediatric cardiology, and pediatric dentistry. The Neonatal Intensive
Care Unit at K. Hovnanian Children's Hospital strives to provide unparalleled care for newborns
and high-risk pregnancies. The 8,168 square foot facility includes private rooms with individual
monitors. K. Hovnanian Children’s Hospital is among a select group of hospitals in the country
that are part of the Children’s Hospital Association (“CHA”), which champions policies that
support the highest quality pediatric care. K. Hovnanian Children’s Hospital at JSUMC is the
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first and most comprehensive provider of pediatric care in Monmouth and Ocean counties. The
hospital includes a Pediatric Emergency Department and acute care units supported by over 100
pediatric sub-specialists.
HUMC is home to the Joseph M. Sanzari Children’s Hospital, a state-designated
children’s hospital that offers a comprehensive range of pediatric specialty and subspecialty
services all in one location. As a result of its extensive range of services, the hospital has been
designated as an institutional member of the CHA as a Children's Hospital by the NJDH, as a
Regional Perinatal Center by NJDH, and as a Regional Diagnostic and Treatment Center for
Abused Children by the Legislature of New Jersey. Services and programs of Joseph M. Sanzari
Children’s Hospital span to include more than 30 specialties, such as neonatology, pediatric
pulmonology, neurosciences, rheumatology, hematology/oncology, infectious diseases, renal
transplantation, nephrology, gastroenterology, cardiology, immunology, dermatology,
endocrinology, adolescent medicine, and child development, including a medical home for
children with autism, and the only pediatric bone marrow transplant and pediatric photophoresis
programs in New Jersey.
Rehabilitation
HMH provides rehabilitation services across all levels within the continuum of care,
including: inpatient hospital, acute rehabilitation, sub-acute, home care, and outpatient. Acute
rehabilitation facilities are provided at two sites: one located in Monmouth County at RMC and
its sister facility at Shore Rehabilitation Institute, located in Ocean County, which is a joint
venture with JFK Johnson Rehabilitation Institute of JFK Health System located in Edison, New
Jersey. Within Monmouth and Ocean counties, there are outpatient rehabilitation facilities
providing a full complement of care for the adult and pediatric populations; fitness centers; subacute facilities, one assisted living, home care and occupational health centers. As health care
continues to focus on population health with emphasis on quality, satisfaction and cost,
Management believes the rehabilitation continuum at HMH will be an integral component in
efficient and effective care of the patient.
Trauma
The Jeffrey M. Creamer Emergency & Trauma Center (“ETC”) at HUMC is designated
by the State and the U.S. Department of Health and Human Services as a Level II Trauma
Center, is certified by the American College of Surgeons and is an accredited Chest Pain Center,
by the Society of Chest Pain Centers. Since 2006, the ETC has received approximately $6
million from the Department of Defense and additional funds from the Urban Areas Security
Initiative to develop a disaster response program that intends to enhance the level of emergency
preparedness in Northern New Jersey. The mobile emergency response prototype produced
encompasses two seven-bed mobile emergency trauma units, a mobile OR, a mobile
communications vehicle and a biological incident response vehicle. In 2015, the Mobile Satellite
Emergency Departments (MSED) were placed under the direction of Advanced Medical
Resources Consortium (AMERCO), which is a consortium of 20 hospitals in concert with the
NJHA to provide statewide disaster response capabilities. HUMC is a member of AMERCO, and
is the designated Host Hospital, responsible for all operational oversight of the MSED AMERCO
program.
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JSUMC is the only state-designated trauma center for adults in Monmouth/Ocean
counties. JSUMC treats more than 1,600 trauma patients per year and was designated by the
State as a Level II Trauma Center in 1990. The emergency services department at all eleven
hospitals are staffed 24 hours per day and provide access to all of the Network’s specialty
services.
EDUCATIONAL AFFILIATIONS
A component of the strategic mission of HMH is to enhance its academic vision by its
recent affiliation with Seton Hall University. On January 15, 2015, HUHN signed a
Memorandum of Understanding with Seton Hall University to establish a new, four-year School
of Medicine, which submitted an application for accreditation from The Liaison Committee on
Medical Education (“LCME”) in March 2017. Both organizations believe that their academic
reputations, combined with clinical expertise, will create an opportunity to form New Jersey’s
only private school of medicine. This new school will be located on the campus of the former
Hoffmann-La Roche Inc. in Nutley and Clifton, New Jersey. A 25-year lease on the campus
commenced in October 2016. Construction and the accreditation process are on track for the
first class of students to enter in July 2018.
The school of medicine is dedicated to achieving the following goals: educational
excellence; cutting-edge research; highest-quality clinical care; meaningful integration; and the
advancement of New Jersey medical and health sciences educational imperatives. Seton Hall
University plans on moving its College of Nursing and School of Health and Medical Sciences to
the campus. This includes its programs or degrees in Physician Assistant, Athletic Training,
Occupational Therapy, Physical Therapy, Speech and Language Pathology, Masters in Health
Administration and a Ph.D. in Health Sciences (Research). This effort is intended to integrate the
education and training of these multiple disciplines into a single classroom setting, an innovative
approach that is designed to mirror how health care is increasingly delivered. Students will be
trained within New Jersey on HMH campuses, and retention programs are to be developed to
embed the physicians within the Network.
HMH has further demonstrated its educational commitment through HUMC’s affiliations
with Georgetown University School of Medicine, Stevens Institute of Technology (“Stevens”),
St. George’s University School of Medicine and Rutgers New Jersey Medical School. The
academic students participate in the following specialties: OB/GYN, psychiatry, pediatrics,
internal medicine, surgery and emergency medicine. The Network’s medical residents participate
in specialties such as: OB/GYN, psychiatry, pediatrics, internal medicine, surgery, emergency
medicine, neurosurgery, ENT, orthopedics, podiatry, urology and pathology. The Network
educates medical, nursing, and pharmacology students, residents (including emergency
medicine, dental, and podiatry), and fellows. These students rotate monthly from Georgetown
University School of Medicine, HUMC Palisades, Rutgers New Jersey Medical School, St.
Barnabas Medical Center, St. George’s University School of Medicine, St. Michael’s Medical
Center, St. Joseph’s Regional Medical Center, and Stevens.
In 2013, HUMC formed an academic affiliation with the Georgetown University School
of Medicine to establish the HUMC Emergency Medicine Residency Program in Hackensack,
New Jersey. The Program was approved for 36 total residents in 2013, and graduated its first
class in 2016. HUMC and Georgetown University formed a clinical nursing agreement that
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includes the following online graduate nursing programs: Family Nurse Practitioner Program,
Nurse Education Program, and Adult Gerontology Acute Care Nurse Practitioner/Clinical Nurse
Specialist. Full- and part-time HUMC staff members, as well as non-employees residing in the
tri-state area, who are enrolled in the program, will be targeted for clinical placements at HUMC.
In 2012, Stevens in Hoboken, New Jersey, and HUMC partnered to introduce joint
biomedical educational programs that provide undergraduate and graduate students with
advanced clinical education experience. This partnership is a continuation of a Research
Collaboration Agreement with Stevens, which has formed various research initiatives since
2009.
In August 2010, HUMC formed an academic partnership with St. George’s University
School of Medicine in Grenada. Annually, 48 third-year students from St. George’s University
School of Medicine serve their five core rotations from September through mid-August; and 20
to 25 fourth-year medical students complete electives on a monthly basis.
HUMC has been affiliated with Rutgers New Jersey Medical School (formerly UMDNJ)
for more than 40 years. There are 40 medical students monthly from Rutgers New Jersey
Medical School completing their third-year core rotations, and 10 to 15 fourth-year medical
students completing electives on a monthly basis.
In early 2016, HUMC became the only health care Charter Member of the New Jersey
Innovation Institute (NJII), and a partner in its Healthcare Delivery Systems Innovation Lab
(iLab). NJII is a New Jersey Institute of Technology (NJIT) corporation that applies intellectual
and technological resources to challenges identified by industry partners. Through its iLabs, NJII
brings NJIT expertise to key economic sectors, including health care delivery systems, biopharmaceutical production, civil infrastructure, defense and homeland security, and financial
services (recently, the Network Board approved a $25 million capital fund to be applied toward
innovation). NJII aims to become an ideation center to help streamline funding for ideas and an
innovation center to help kick-start companies. Incubator space will be available at the Seton
Hall-Hackensack Meridian medical school campus.
JSUMC also serves as a key academic affiliate for HMH dedicated to advancing medical
knowledge, training future physicians, and providing the community with access to the benefits
of medical innovations, especially through the hospital’s clinical research program, and its
affiliation with Rutgers Robert Wood Johnson Medical School. JSUMC sponsors ACGMEaccredited residency training in Pediatrics, Obstetrics & Gynecology, General Surgery and
Internal Medicine. In addition, JSUMC offers a Pediatric Hospital Medicine Fellowship through
the Department of Pediatrics, and sponsors graduate training programs in General Dentistry,
Clinical Pharmacy and Podiatry.
JSUMC hosts a summer program for medical, nursing and allied health students to teach
interdisciplinary care in geriatrics. This program, Geriatric Interdisciplinary Fellowship Training
or “GIFT”, provides students the opportunity to practice selected professional skills and
procedures and participate in evidenced based initiatives and quality improvement activities
under the guidance of board certified geriatricians, geriatric pharmacists and geriatric advance
practice and clinical scholar nurses.
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Since the mid-2000s, JSUMC has served as a rotation site for several residency and
fellowship program from Rutgers Robert Wood Johnson Medical School. Beginning in 2016,
JSUMC started an initiative to bring these programs “in house” with approval of its own General
Surgery Residency Program and Cardiology Fellowship. Only six other hospitals in New Jersey
are approved to provide advanced training in cardiovascular disease.
In 2015, JSUMC established an academic partnership in the Department of Medicine
with the NYU School of Medicine Center for Healthful Behavioral Change for residents to
participate in an intensive research elective experience. Several peer-reviewed papers have
already resulted from the partnership. Pediatrics residents participate in specialty rotations at
Robert Wood Johnson University Hospital in New Brunswick, and residents in Obstetrics and
Gynecology routinely partner with leading hospitals and medical centers to provide state-of-theart training to HMH’s residents. In the past year, residents participated in electives at Baylor
College of Medicine, Loyola and Boston Medical Center.
JSUMC is a member of the Alliance for Independent Academic Medical Centers. For the
last four years, JSUMC has participated in initiatives focused on performance improvement and
cultural diversity. Residents participate as team members with hospital leadership on these
initiatives.
The Florence M. Cook School of Medical Laboratory Science was founded in 1947 at
JSUMC. The curriculum consists of an 11-month training program with didactic sessions as well
as clinical rotations throughout JSUMC's laboratory departments.
OMC is affiliated with the Rowan University School of Osteopathic Medicine (“RowanSOM”). Rowan-SOM students spend time at OMC on clinical rotations and for elective
experiences.
Launched in Fall 2008, the Georgian Court-Meridian Health School of Nursing BSN
program strives to address the escalating nursing shortage in New Jersey and nationally, and
build upon the Network’s mission to improve the health of the communities it serves through
excellence in nursing education.
The Field Placements at Behavioral Health Services at Meridian Health provides
experiential training to students pursuing a career in the mental health field, offering unpaid field
placements to students enrolled in affiliated colleges and universities who are pursuing their
undergraduate and graduate degrees in social work, psychology or counseling. Field Placements
are offered through both JSUMC and RMC. RMC offers two sites: one in Red Bank and the
other at the Booker Behavioral Health Center in Shrewsbury.
STRATEGIC JOINT VENTURES, PARTNERSHIPS AND OTHER AFFILIATIONS
Memorial Sloan Kettering Cancer Center. In December 2016, HMH announced an
historic, 10-year, first of its kind strategic partnership with Memorial Sloan Kettering Cancer
Center (“MSKCC”). The objective of the partnership is to deliver and improve comprehensive
cancer care through the development and/or sharing of care standards, protocols, tumor boards
and other care delivery tools, the provision of advice on the deployment of teaching and training
resources and the creation of sharing of knowledge and experience about how to treat and
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prevent cancer. The partnership intends to establish seamless clinical interfaces and service
arrangements to facilitate non-oncologic care of MSKCC cancer patients and inpatient
hospitalization closer to their New Jersey homes through use of the HMH Network providers and
expand services to cancer patients through a new entity which will design, build, jointly own and
operate new cancer facilities and programs in New Jersey. Through the partnership, HMH and
MSKCC expect to treat an estimated one in five New Jersey residents who are diagnosed with
cancer.
Ardent/LHP Hospital Group. The Network has two separate joint ventures with LHP
Hospital Group, which were entered into by HUMC during 2012. Under the first joint venture
arrangement, entered into on March 23, 2012, the Network contributed the existing property and
equipment of the former Pascack Valley Hospital campus for a 35% interest in the joint venture,
now known as HUMC Pascack Valley. Under the second joint venture, entered into on July 1,
2012, the Network purchased a 20% ownership interest in Mountainside Hospital, now HUMC
Mountainside. On October 5, 2016, it was announced that Ardent Health Services, a privately
owned, for-profit hospital system, would acquire LHP Hospital Group. Ardent Health Services
completed its acquisition of LHP Hospital Group on March 13, 2017.
Opened in June 2013, HUMC Pascack Valley is a full-service, acute-care community
hospital. The hospital features all-private patient rooms, a state-of-the-art obstetrical unit, an
intensive/critical care unit, five operating rooms, one special procedure room, and a cardiac
catheterization laboratory. In September 2015, HUMC Pascack Valley broke ground on a new,
state-of-the-art Emergency Department. Completed in 2016, the $14 million expansion doubled
the current space and provides 26 all-private exam rooms.
HUMC Mountainside is a community hospital that delivers care while also serving as a
learning center via its nursing school and residency programs in family medicine, internal
medicine and dentistry. The hospital has served Montclair, Glen Ridge and surrounding
communities for more than 120 years.
Under both LHP joint ventures, LHP is the managing agent for the respective operations
and HUMC has equal Board or voting rights as well as other privileges or powers.
The Network has the ability to purchase additional equity interests in both joint ventures
with LHP Hospital Group, which it may periodically consider.
United Surgical Partners International. In September of 2012, HUMC formed a joint
venture partnership with community physicians and United Surgical Partners International
(“USPI”) in the acquisition and operation of two ambulatory surgery centers in Bergen County,
Hackensack Endoscopy Center and Endoscopy Center of Bergen County. Under the partnership,
HUMC and USPI own a joint venture company that partners with physicians to own and operate
a network of outpatient ASCs in the region. Legacy Meridian currently has seven partnerships
for surgery centers in Eatontown, Jackson, Lakewood, Manalapan, Old Bridge, Shrewsbury and
Toms River providing over 38,000 outpatient surgical cases annually.
Englewood Hospital and Medical Center. In April 2015, HUHN and Englewood
Hospital and Medical Center (“EHMC”) received board approval to enter into a new clinical and
academic affiliation, announcing five major initiatives to benefit New Jersey communities in
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Bergen, Essex, Hudson and Passaic counties, as well as Rockland County, New York. Under the
agreement, HUHN and EHMC intend to remain independent health care providers and will
continue to be responsible for individual finances and operations, including boards,
administration, physicians and employees. The new collaboration is designed to enable both
HUHN and EHMC to enhance access to a variety of patient care services and to develop
population health management programs for the benefit of the communities they serve. The
partnership is expected to create regional models of care with an emphasis on difficult-to-access
services targeting multicultural communities, preventive medicine and early intervention. This
clinical affiliation is also targeted to enable EHMC to cost effectively implement an upgrade of
information technology systems, including its electronic medical record, thereby supporting
HMH’s and EHMC’s population health initiative. EHMC plans to also serve as a major teaching
site for the upcoming medical school with Seton Hall University and its graduate medical
education programs.
MedStar Georgetown University Hospital. In early 2013, HUHN announced a new
innovative partnership with MedStar Georgetown University Hospital, Georgetown University
School of Medicine and Georgetown Lombardi Comprehensive Cancer Center. This partnership
includes an oncology affiliation agreement between the Georgetown Lombardi Comprehensive
Cancer Center and JTCC to foster collaboration among clinicians and researchers from both
institutions. As part of the oncology affiliation, the Georgetown Lombardi Cancer Center and
JTCC formed the Regional Immunotherapy Discovery Program to accelerate discovery and
implementation of a new immunotherapy approach. The partnership has also announced a joint
cancer research agenda designed to significantly expand the ability of both institutions to
conduct research intended to lead to innovative clinical trials and improvements in cancer care.
This partnership anticipates applying for National Cancer Institute (“NCI”) designation for JTCC
in 2018 with expected approval of designation for early 2019.
This partnership has resulted in several other initiatives, including a clinical collaboration
to establish a Blood and Marrow Stem Cell Transplantation Program at MedStar Georgetown
University Hospital and a clinical nursing agreement with Georgetown University.
Other Notable Partnerships. Meridian entered into a joint venture partnership with
Fresenius Medical Care (now Fresenius Kidney Care) in April 2016. The partnership includes
nine kidney care/dialysis locations throughout Monmouth and Ocean counties in Brick,
Lakewood, Manahawkin, Matawan, Neptune, Red Bank, Toms River (2), and Whiting. Fresenius
is a global leader in kidney care with locations in over 45 countries, and is a large provider of
kidney care services in the North America with over 178,000 patients and 26 million
hemodialysis treatments provided annually.
A joint partnership between Meridian and JFK Johnson Rehabilitation Institute, Shore
Rehabilitation Institute is located at OMC and provides acute, comprehensive inpatient
rehabilitation and a day-hospital program to help adults who are disabled by disease or injury,
including: physical therapy, occupational therapy, speech therapy, and pulmonary rehabilitation.
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The Network has numerous other partnerships with organizations such as those listed
below. The Network intends to continue to grow through value-added, accretive partnerships and
affiliations.
CityMD
ConvenientCare Now
New York Giants
CVS Caremark’s Minute Clinic
RediClinic
American Well
Alert Ambulance
Panasonic
Uber
NYU Langone Medical Center
Minute Care
St. Joseph’s HealthCare
Teladoc
AWARDS AND RECOGNITION
The Network’s hospitals have been recognized for their clinical excellence. According to
U.S. News & World Report: Best Hospitals Rankings, HUMC is ranked as the number one
hospital in New Jersey, maintaining its place atop the rankings since the rating system was
introduced, and is listed as one of the top four New York Metro Area hospitals. HUMC received
four national rankings in Cardiology & Heart Surgery, Ear, Nose & Throat, Orthopedics, and
Urology and was listed as one of the Most Connected Hospitals 2015-16. JSUMC is ranked
fourth in New Jersey and is listed as one of the top 13 New York Metro Area hospitals. OMC is
ranked eighth in New Jersey and is listed as one of the top 18 New York Metro Area hospitals.
The Network has also been recognized by The Joint Commission with its hospitals
receiving numerous Gold Seals of Approval, including BCH (1), HUMC (24 - the most in the
country), HUMC Pascack Valley (3), HUMC Mountainside (6), JSUMC (5), OMC (4), and
RMC (5).
Both legacy organizations have been recognized by the American Nurses Credentialing
Center and received the Magnet Nursing Recognition. Meridian was the first health system in the
nation to receive Magnet designation. HUMC was the first hospital in New Jersey and the second
in the country to receive this designation. In 2014, HUMC received its fifth consecutive Magnet
designation, making it just one of two hospitals in the entire nation to achieve this feat.
The Network is a leader in the implementation of technology. HUMC and Meridian have
both been named as Top 100 Most Wired and Top 25 Most Wireless Health Systems in New
Jersey, with Meridian receiving this distinction for 16 consecutive years.
HUMC was one of only five major academic medical centers in the nation to receive
Healthgrades America’s 50 Best Hospitals Award for five or more years in a row.
Four HMH leaders made the NJBIZ “The Power 100” list in 2017:

Co-CEO, Robert Garrett (#13, marking his sixth consecutive year on the list).

Two members of the Board of Governors for the Seton Hall - Hackensack
Meridian School of Medicine, John Degnan (#8) and Linda Bowden (#70);
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
HackensackUMC Foundation chairman, Larry Inserra (#87).
The following HMH leaders made the 2017 NJBIZ Health Care Power 50 list:

Robert C. Garrett, FACHE, co-CEO of HMH (#1 for the second time in three
years).

John K. Lloyd, FACHE, co-CEO of HMH (#40 for the second time in three
years).

Andrew Pecora, M.D., president of the Physician Services Division and Chief
Innovation Officer (#33).

Bonita Stanton, M.D., president of the Academic Enterprise and founding dean of
the Seton Hall - Hackensack Meridian School of Medicine (#21).

Robert Glenning, president of the Financial Services Division and Chief Financial
Officer (#29).

Steven Littleson, FACHE, president of the Hospital Services Division and Chief
Operating Officer (#36).

Jose Lozano, vice president for Corporate Services and Governance and Chief of
Staff (#49).

Ken Sable, M.D., president of Jersey Shore University Medical Center and K.
Hovnanian Children's Hospital, was named as a future contender for the list.
Chief Human Resources Officer and Executive Vice President Sherrie String was named
to NJBIZ’s “Best 50 Women in Business.”
Robert C. Garrett, co-CEO of HMH, was honored with a 2016 NJBIZ Healthcare Heroes
Award as the Health Care Professional of the Year recognizing his leadership, particularly
involving recent partnerships and affiliations. The 10th annual NJBIZ Healthcare Heroes awards
program was created to honor the efforts of individuals and organizations making a significant
impact on the quality of health care in New Jersey.
Joseph Simunovich, co-chairman of HMH’s Board of Trustees, was awarded New Jersey
Hospital Association’s Healthcare System Trustee of the Year Award for his highly valued and
deeply respected tenure as trustee leader of HackensackUMC. His time serving on the board for
HackensackUMC has spanned for more than 25 years.
HMH was named to Becker’s Hospital Review’s 150 Greatest Places to Work in
Healthcare list. The list features U.S. health care provider organizations, such as hospitals, health
systems, ambulatory surgical centers and home health agencies, as well as other types of health
care-specific companies such as consulting firms, health IT vendors and medical societies.
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Great Place to Work® and Fortune recognized Meridian as one of the Best Workplaces
for Women in the nation. In 2016, Meridian climbed to 47th on the list, up 38 spots from 85th in
2015.
HMH’s Palliative Care Services at Meridian’s legacy hospitals were recognized with a
2016 Circle of Life AwardTM from the American Hospital Association. HMH received a
Citation of Honor for its innovations in new delivery structures and payment models, with a
focus on community-based and long-term care and advance care planning education for its
community. The Circle of Life Award celebrates programs across the nation that have made
great strides in palliative and end-of-life care.
Meridian Health Affiliated Foundations was honored by the Association for Healthcare
Philanthropy (AHP) for its exemplary performance in fundraising to enhance health care in the
local community. Meridian Health Affiliated Foundations is one of only 51 organizations in the
U.S. and Canada to be named a “High Performer,” based on the AHP’s annual benchmarking
analysis. High performers are recognized only when they operate in the top 25 percent of all
reporting organizations.
PHYSICIAN ALIGNMENT AND STRATEGY
Strengthening and growing the physician enterprise is a strategic priority for the
Network. The Network is creating unified and aligned strategies that both embrace voluntary
faculty and employed physicians as well as develop clinical strengths and integration through
physician networking and recruitment. The Network has initiated a recruitment plan for the CIN,
a medical staff development plan for the Network, and conducted a physician gap analysis across
Middlesex, Bergen and Hudson Counties.
Using a pluralistic model, the Network aligns physicians through its Physician Services
Division, the CIN, and numerous partnerships and affiliations and provides practice management
through its MSO.
The Physician Services Division, which includes the Network’s employed physicians, has
seen significant year-over-year growth as physician employment models have been key to the
Network-wide integration efforts. In total, the Physician Services Division consists of over 875
employed physicians and physician extenders (i.e. mid-levels).
Hackensack Meridian Health Partners is the Network’s CIN that includes over 1,600
physicians. See “POPULATION HEALTH INITIATIVES” herein.
The Network’s MSO provides comprehensive practice management services and
contracted consulting services for some affiliated physicians, including the Meridian Practice
Institute, which combined provide approximately a half-million annual office visits.
As of February 28, 2017, the Network has a total active medical staff of over 6,000
credentialed physicians, of which 83.9% are board certified. The average age of the medical
staff is 51.5.
A-33
TEAM MEMBERS / EMPLOYEES
As of December 31, 2016, the Network employed approximately 28,000 team members.
At present, the Network has ten collective bargaining agreements that represent approximately
2,884 team members.
HMH aspires to create a “culture of excellence” that:

Aligns to the mission, vision and values of the organization and instills a sense of
purpose to all team members.

Inspires trust and well-being so that team members, leaders and physicians can
enhance the human experience and deliver on the brand promise to provide
patients with the best health care experience.

Acknowledges and honors the fundamental value and dignity of all individuals by
creating and maintaining an environment that respects diverse traditions, heritages
and experiences.

Supports an innovative culture of learning and continuous improvement resulting
in national recognition as an employer of choice.

Provides a total rewards philosophy, inclusive of compensation, productivity,
work-life balance, health and wellness benefits, reward and recognition,
performance and talent development.
HMH provides team members with competitive benefits programs, retirement programs,
wellness solutions, work-life balance solutions, competitive base and variable pay programs,
personal and leadership development programs, and reward and recognition programs.
Communication is critical to fostering a culture of excellence. As a result, HMH incorporates
electronic newsletters, team huddles, social media, team member forums and plasma television
units for consistent messaging.
Management credits the “total rewards” approach with creating a relatively low turnover
and high team member engagement as reported by Great Place to Work®. HMH was recently
certified as a Great Place to Work based on its strong culture and nurturing work environment.
A-34
SERVICE AREA AND COMPETITION
Service Area
HMH defines its Network-wide service area as an 8-County Region including Bergen,
Passaic, Essex, Hudson, Union, Middlesex, Monmouth, and Ocean Counties creating a
contiguous Network service area. HMH’s 150+ locations serve approximately 5,597,209 people
or 62% of New Jersey’s total population of 8,985,155. The map below provides an overview of
the 8-County Region highlighting the Network’s Primary Service Area (“PSA”) in green and its
Secondary Service Area (“SSA”) in blue.
8-COUNTY REGION
A-35
In 2015, approximately 95.7% of HMH’s 151,197 inpatient discharges came from the 8County Region. The table below shows the Network’s patient origin for inpatients in 2015. The
Network’s PSA (Monmouth, Ocean and Bergen Counties) and include 63.3% of the Network’s
total 2015 inpatient discharges.
Patient Origin – Inpatient (2015)
Patient Origin County/State
HMH 8-COUNTY
REGION
% of Patient Origin
Monmouth
36,991
24.5%
Ocean
29,648
19.6%
Bergen
29,045
19.2%
Hudson
15,254
10.1%
Middlesex
13,848
9.2%
Essex
10,847
7.2%
Passaic
8,045
5.3%
Union
1,072
0.7%
144,750
95.7%
Other NJ Counties
2,533
1.7%
New York (5 Boroughs)
1,035
0.7%
Other NY Counties
1,540
1.0%
Pennsylvania
394
0.3%
Other States
945
0.6%
6,447
4.3%
151,197
100.0%
Subtotal: HMH 8-County Region
OTHER AREAS
2015
Subtotal: Other Areas
Grand Total
Source: NJ, NY and PA UB-04 Data / New Solutions, Inc., Data includes Normal Newborn and DOH Patient Type Code 0 (Inpatient), excludes
Riverview Rehabilitation
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A-36
Competitive Overview / Market Share
Management considers HMH’s principal competitors for routine services to be other
large healthcare systems operating in the 8-County Region. Additionally, HMH’s competitors
for highly specialized care include major medical centers in New York City. The table below
includes a listing of the Network’s primary competitors.
New Jersey Health System
# of
Acute Care Hospitals
Licensed
Hospital Beds(1)
Hackensack Meridian Health
RWJBarnabas Health
Atlantic Health System
Other System or Hospital
Total New Jersey
11
11
5
43
70
3,627
4,844
1,669
13,454
23,661
Sources: NJDH Healthcare Facilities and Services http://www.nj.gov/health/webdata/healthfacilities/documents/ac/All_Acute.xls; HMH records
for HMH licensed bed count
(1)
Excludes Normal Newborn Bassinets
In 2015, HMH’s 144,750 discharges represented 23.5% of total discharges in the 8County Region. HMH measures its market share based on total inpatient discharges of all New
Jersey residents hospitalized in any hospital in New Jersey, New York or Pennsylvania. The
following table sets forth HMH’s market share from 2013 to 2015 (the most recent years of data
available) and the market share change between these years for residents of the 8-County Region
who were discharged from New Jersey, New York or Pennsylvania hospitals. From 2013 to
2015, HMH inpatient discharges increased 1.3% and market share increased 0.9% as the 8County Region experienced a -2.6% decrease in inpatient discharges.
INPATIENT DISCHARGE AND MARKET SHARE SUMMARY FOR 8-COUNTY SERVICE AREA*
Health System
2013
2014
2015
Discharges Discharges Discharges
%
Change
(1)
%
Market
Share
Change
(1)
Hackensack Meridian Health
142,862
142,751
144,750
1.3%
23.5%
0.9%
RWJBarnabas Health
177,776
174,090
169,243
-4.8%
27.5%
-0.6%
Atlantic Health
34,934
35,269
35,531
1.7%
5.8%
0.2%
All Other NJ Hospitals
277,331
270,430
266,936
-3.7%
43.3%
-0.5%
632,903
622,540
616,460
-2.6%
100.0%
GRAND TOTAL
* Excludes
(1)
Acute Rehabilitation
2013-2015
Source: NJ, NY and PA UB-04 Data
A-37
The table below show HMH’s market share for 2013-2015 for key service lines as well as
the 2013-2015 change in HMH’s market share.
MARKET SHARE BY SERVICE LINE FOR 8-COUNTY REGION
Service Line
2013
2014
2015
Inpatient Discharges
Cardiovascular
Neuroscience
Orthopedics
Oncology
Women's Services
Behavioral Health
22.6%
23.5%
21.3%
25.7%
24.1%
20.8%
15.4%
22.9%
24.1%
22.1%
26.1%
25.0%
20.8%
16.0%
23.5%
25.0%
22.0%
26.5%
26.0%
21.6%
16.0%
% Change
2013-2015
0.9%
1.6%
0.7%
0.8%
1.9%
0.8%
0.6%
Source: NJ, NY and PA UB-04 Data / New Solutions, Inc., Data Include Normal Newborn and DOH Patient Type Code 0 (Inpatient), excludes
Riverview Rehabilitation; Children’s Services includes age 0-21, Women’s Services includes all ages, All other service lines are Age 22+.
In HMH’s core markets of Bergen County and the Monmouth-Ocean Counties, the
Network is the dominant provider. In Bergen County, the Network's market share was 32.5% for
2015, the most recent year of available data. The closest competitor, Valley Hospital, had a
market share of 18.3%. In Monmouth-Ocean Counties, the Network's market share was 41.9%
for 2015. The closest competitor, RWJBarnabas, was 31.7%.
POPULATION HEALTH INITIATIVES
From new Medicare initiatives to growing its clinically integrated network, the
Network’s population health’s strategy is directed at positioning HMH for success in this
evolving health care marketplace while increasing its footprint and expanding coordination of
care across the network.
Hackensack Meridian Health Partners
Hackensack Meridian Health Partners is HMH’s clinically integrated network of health
care providers who share the common goals of improving health outcomes, reducing health care
costs, and enhancing the patient experience. This physician-led network is mainly comprised of
independent physicians and enables physicians to coordinate care, shape and influence clinical
practice, and prepare for new, incentive-based compensation programs. HMH established
Hackensack Meridian Health Partners as a way to partner with its affiliated physicians in order to
improve hospital quality and ultimately generate better quality at lower cost for patients, their
families and employers. Hackensack Meridian Health Partners is the primary vehicle utilized for
value-based and other strategic contracting initiatives with managed care payors.
In 2016, Hackensack Meridian Health Partners underwent significant growth, increasing
membership by 45 percent. As of January 1, 2017, the clinically integrated network is comprised
of the 13 hospitals and more than 1,600 physicians including employed, faculty, and independent
health providers. As of December 2016, Hackensack Meridian Health Partners expanded its
footprint to include recruiting physicians from Bergen, Essex, Hudson, and Passaic Counties in
addition to Middlesex, Monmouth, and Ocean Counties.
A-38
Accountable Care Organizations
The Network has two accountable care organizations. Meridian Accountable Care
Organization, LLC (“Meridian ACO”) launched on January 1, 2013 and is the second largest
accountable care organization in New Jersey by assigned beneficiaries with over 41,000 as of
December 31, 2015. In 2015, Meridian ACO’s Quality Score, as computed based on 33 metrics
including patient satisfaction and readmission rate, was 91.32%. Hackensack Physician –
Hospital Alliance Accountable Care Organization (“Hackensack ACO”) launched on April 1,
2012, and, as of December 31, 2015, had over 23,000 assigned beneficiaries. It is one of only 27
accountable care organizations nationwide to have positive revenue producing results and placed
seventh in the nation for total savings in 2015 with over $33 million.
Population Health Strategies and Priorities
To properly address changes in the health care marketplace, HMH is dedicating resources
to several strategic priorities including:
•
Care Management Redesign: In order to coordinate care across the continuum,
HMH seeks to ensure that patients are properly managed across all care settings,
helping increase patient satisfaction and lower overall cost of care.
•
Bundled Payment Models: Care Management Redesign intends to also assist
clinical teams in addressing new bundled payment initiatives like the new
Comprehensive Care for Joint Replacement (CJR) model instituted by the Center
for Medicare & Medicaid Services. This model bundles payment and quality
measurement for an episode of care associated with Medicare beneficiaries
undergoing hip and knee replacements.
•
Information Technology: After operationalizing its enterprise data warehouse in
2016, HMH continues to invest in information technology and data analytics.
Resources will be added in order to significantly grow the Network’s population
health data information and analytics capabilities, including the addition of team
members who will perform data segmentation and data analysis. These new
resources intend to increase the Network population health’s insight while helping
manage and grow.
•
Value-Based Contracts: These additional resources intend to help fulfill existing
value-based contracts including Horizon OMNIA, Aetna Whole Health, United
and AmeriHealth.
•
HealtheRegistries: In 2017, this enterprise data warehouse solution plans to begin
receiving legacy HUHN data, further coordinating population health efforts.
•
Medical Record Management: HMH has adopted EPIC, an industry leading
electronic medical record system, intended to streamline and standardize care across
the Network.
A-39
MANAGED CARE
Hackensack Meridian Health has maintained long-standing business relationships with
the managed care payers listed below. HMH has successfully renegotiated its top managed care
contracts for 2017 including Horizon Blue Cross Blue Shield of New Jersey (“Horizon”) which
is the largest commercial managed care contract for the Network. In the Horizon renewal, HMH
successfully achieved its strategic objectives for improved reimbursement and contract terms,
including ensuring that all of the Network’s hospitals, including HUMC Palisades (which joined
the Horizon network on January 1, 2017) and RBMC are classified as Tier 1 providers in the
Horizon OMNIA product. A member incurs the lowest out-of-pocket expenses when they seek
services from a Tier 1 provider. HMH also represents and coordinates all of the Network’s
entities (hospitals, employed physicians and partner companies) in negotiations with payers and
ensures appropriate reimbursement and participation in all various insurance products. This
strategy of contracting for the entire Network is key especially for HMH’s value based
agreements with payers (Horizon, Aetna, AmeriHealth) which promotes coordinated care and
efficiency.
The following managed care organizations have contracts for a variety of products with
the Network: Aetna; AmeriChoice of New Jersey; AmeriGroup New Jersey (RBMC);
AmeriHealth HMO; Cigna HealthCare of New Jersey; Empire BCBS of New York; Horizon;
QualCare; and United HealthCare of New Jersey (including Oxford Health Plan of New Jersey).
In 2016, legacy Meridian announced a co-branded, commercial, product-based
accountable care organization agreement, through Hackensack Meridian Health Partners, the
Network’s clinically integrated network. It offers employers in Monmouth and Ocean counties a
health care model designed to improve quality, efficiency and the patient experience. The new
commercial health care plan, known as Aetna Whole HealthSM – Meridian Health, gives Aetna
members access to highly coordinated care through the physicians of Hackensack Meridian
Health Partners in Monmouth and Ocean Counties. Health care savings varies by employer
group.
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A-40
UTILIZATION
The statistical information provided below was prepared by the records maintained by the
Network. The following table sets forth selected inpatient and outpatient utilization data for the
three years ended December 31, 2016 (see note regarding entities included in each year).
Licensed Beds
Maintained Beds
Adult and Pediatric
Inpatient Admissions(1)
Inpatient Days(1)
Occupancy (%)(2)
Newborn and Neonatal ICU Admissions(3)
Outpatient Visits (4)
Adult Emergency Room Visits (5)
Radiation Oncology Registrations
Same-Day Surgery Cases
Observation Cases
Full Time Equivalent (FTEs)
(1)
(2)
(3)
(4)
(5)
2014
2015
2016
2,427
2,043
2,404
2,022
3,143
2,550
102,241
536,209
72%
12,857
1,073,418
214,833
31,466
34,768
25,778
19,531
102,642
538,756
73%
12,758
1,161,051
217,727
30,220
35,391
29,422
20,480
122,634
628,427
67%
15,691
1,459,495
300,902
43,613
45,526
38,494
24,824
Source: Network records
Note: Does not include HUMC Palisades or RBMC for 2014 and 2015
Excludes Newborn, Neonatal ICU, Same Day Surgery, and Same Day Medical.
Based on maintained beds excluding Newborn and Neonatal ICU.
Includes routine births and births admitted to Neonatal ICU.
Ambulatory Care Visits is inclusive of the balances listed in the table for Adult
Emergency Room, Radiation Oncology, in addition to all other outpatient areas not
listed in the table. It is exclusive of the balances listed in the table for Same
Day Surgery, and Observation Cases.
Excludes admissions deriving from the Emergency Room.
FINANCIAL PERFORMANCE
The following tables set forth the statement of operations for the Network for the fiscal
years ended December 31, 2014, December 31, 2015, and December 31, 2016 and the balance
sheets as of December 31, 2015 and December 31, 2016.
This summary should be read in conjunction with the audited financial statements for
Hackensack Meridian Health, Inc., Hackensack University Medical Center and Subsidiaries,
Meridian Hospitals Corporation and Subsidiary and Meridian Nursing and Rehabilitation, Inc.,
and HackensackUMC Palisades and Affiliates and related notes to the financial statements
included in Appendix B to this Offering Document. The audited financial statements are being
provided as additional information, and the sum of the individual audits is not intended to equal
the financial performance presented in Appendix A.
As of December 31, 2016, Management calculates that members of the Combined Group
accounted for approximately 87% of total operating revenue and 84% of unrestricted net assets
of the Network, based on the Network’s six-month audited results from July 1 to December 31,
2016.
A-41
SUMMARY BALANCE SHEET INFORMATION
(In 000’s)
December 31,
Unaudited
Pro-Forma
2016(2)
Combined 2015(1)
Assets
Current Assets
Cash and cash equivalents
Patient accounts receivable, less allowance for uncollectible accounts
Pledges receivable, net of allowance
Other current assets
Assets limited as to use and investments, current portion
Total current assets
Investment in joint ventures
Assets limited as to use and investments, noncurrent portion
Property and equipment, net
Other assets
Total assets
Liabilities and Net Assets
Current liabilities
Current maturities of long-term debt and capital lease obligations
Accounts payable and accrued expenses
Other current liabilities
Total current liabilities
Long-term debt and capital lease obligations, less current maturities
Accrued pension benefits
Other liabilities
Total liabilities
Net Assets
Unrestricted
Non-controlling interests in subsidiaries
Total unrestricted net assets
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
$
$
$
$
616,513
323,419
8,817
163,163
935,998
2,047,910
$
634,207
386,588
33,851
171,765
1,005,403
2,231,814
89,033
763,401
1,586,547
72,909
4,559,800
120,135
951,700
1,873,060
129,966
$ 5,306,675
71,721
377,482
175,630
624,833
1,352,371
255,533
303,086
2,535,823
$
1,888,663
25,862
1,914,525
76,768
32,684
2,023,977
4,559,800
2,263,515
29,115
2,292,630
94,391
42,027
2,429,048
$ 5,306,675
147,624
503,308
196,494
847,426
1,267,392
390,282
372,527
2,877,627
Source: The Network's records.
(1) Derived from the aggregation of audited financial statements of HUHN and MHS. Does not include HUMC Palisades or RBMC.
Together, HUMC Palisades and RBMC make up less than 11% of the Network's total revenues and total net assets.
(2) Derived from the audited financial statements of HMH set forth in Appendix B hereto.
A-42
UNAUDITED PRO-FORMA STATEMENTS OF OPERATIONS(1)
(In 000’s)
Fiscal Year Ended December 31,
2015(1)
2016(2)
2014(1)
Revenue
Net patient service revenue, less provision for bad debts
Other revenue
Total revenues
Expenses
Salaries and benefits
Supplies and other expenses
Depreciation and amortization
Interest
Total expenses
Excess of revenues over expenses before adjustments
Other operating adjustments
Investment income
Contribution income - acquisitions
Unrealized (loss) gain on derivative investments
Loss on extinguishment of debt
Other gains (losses)
Excess of revenues over expenses
Other adjustments in unrestricted net assets:
Distributions to noncontrolling interests
Pension-related adjustments
Change in net unrealized gains (losses) on investments
Net assets released from restrictions - capital acquisitions
Other changes in net assets
(Decrease) increase in unrestricted net assets
$
$
2,801,788
446,051
3,247,839
$
3,050,664
447,281
3,497,945
$ 3,661,884
506,160
4,168,044
1,632,941
1,229,516
129,255
62,682
3,054,394
193,445
1,725,812
1,330,466
132,684
58,298
3,247,260
250,685
2,125,397
1,556,211
156,058
63,447
3,901,113
266,931
38,436
(27,675)
398
204,604
4,612
3,523
5,733
264,553
63,721
57,599
8,150
(7,050)
(1,792)
387,559
(5,512)
(218,722)
2,445
11,732
4,203
(1,250)
(6,725)
(27,984)
(5,584)
16,112
32
240,404
(7,786)
(25,802)
15,675
6,746
1,713
378,105
$
$
Source: The Network's records.
(1) Derived from the aggregation of audited financial statements of HUHN and MHS. Does not include HUMC Palisades or
RBMC. Together, HUMC Palisades and RBMC make up less than 11% of the Network's total revenues and total net assets.
(2) Derived from the internal records of HMH, which only includes 10 months of HUMC Palisades.
A-43
MANAGEMENT’S DISCUSSION OF FINANCIAL PERFORMANCE
Results of Operations - Fiscal Year 2014 to Fiscal Year 2016
The pro-forma statement of operations above include RBMC’s two sites for the full year
of 2016 and HUMC Palisades from March 1, 2016 (date of acquisition) to December 31, 2016.
At $419.0 million of combined total revenue and $410.0 million of combined expenses these two
divisions represent less than 11% of the Network’s revenue and expenses, while having minimal
impact on the year-over-year operating margin from 2015 to 2016 for the Network as a whole.
The Network segments its financial operations into three categories: the Hospital Division,
which represents all of the Network’s acute care hospitals; the Physician Services Division,
which represents the Network’s employed physician and faculty practices; and the Health
Ventures Division, which represents all non-acute care entities including the foundations,
homecare, skilled nursing facilities, realty, and its non-acute care joint ventures.
In total, the Network has seen year-over-year continuous growth in income from
operations from 2014 through 2016. In 2016, the Network had a 6.4% operating margin.
The 2016 total revenue for the Network was $4.17 billion, an increase of $920.0 million
or 28% growth from 2014. As noted above, RBMC and HUMC Palisades accounted for $419.0
million or 13% of the increase. The Hospital Division accounts for 86% of the remaining $501.0
million. The primary drivers of the Hospital Division growth include volume increases of $156.0
million primarily in adult oncology, observation cases and emergency room visits and
governmental and managed care rate increases totaling $273.0 million. The rate increases are
driven from (1) the inclusion of Monmouth and Ocean Counties into the New York Wage Index
which began October 1, 2014; (2) increases in the acuity of the patients the hospitals have cared
for over the two-year period, coupled with reduced length of stay as Network Management has
developed improved patient clinical pathways through its extensive continuum of care; and (3)
routine annual rate increases. In addition, the Hospital Division has also experienced a favorable
payer mix shift due to the Affordable Care Act, which expanded Medicaid coverage resulting in
a significant number of uninsured/charity patients qualifying for Traditional Medicaid and or
Managed Care Medicaid. The remaining $72.0 million increase is attributed to the Physician
Services and the Health Ventures Divisions. Specific areas of growth within the Health Ventures
Division included expansion of services at Homecare, significant positive results from the
Network’s two ACO’s from their participation in the Medicare shared savings programs, and the
Physician Services Division has seen year-over-year growth in revenue through its physician
practice acquisition and development of its CIN initiatives.
The total 2016 expenses for the Network was $3.9 billion, an increase of $846.7 million
or 28% growth from 2014. As noted above, RBMC and HUMC Palisades accounted for $410.5
million or 13% of the increase. The remaining increase in expenses were primarily attributable
to Salaries and Benefits increasing $240.6 million and Supplies and Other Expenses increasing
$187.5 million. Salaries and Benefits increases were attributable to: (1) annual merit increases
for Team Members; (2) investment in new clinical and administrative positions which can be
associated with both volume growth noted above and initiatives such as population health; (3)
and the continued investment in nursing to improve patient experience and outcomes across the
Network. Supplies and Other Expenses increased due to: (1) the rising cost and increased
A-44
utilization of pharmaceuticals, specifically in oncology where volume has grown year-over-year;
(2) increased surgical volume resulting in increased use of high-cost implantables; (3) one-time
costs associated with merger/acquisition activity; and (4) increased volume as noted above.
During the two-year period management completed various refinancing’s which has
reduced the cost of capital through the reduction of interest expense for the Network.
Balance Sheet
The Network’s revenue growth and cost containment strategies have resulted in a strong
balance sheet position as of December 31, 2016. The balance sheet above includes RBMC and
HUMC Palisades as of December 31, 2016, however they are not included as of December 31,
2015 since the acquisitions occurred on January 1, 2016 and March 1, 2016, respectively.
RBMC and HUMC Palisades represent approximately 7% of total Network assets and 3.3% of
total Network unrestricted net assets. The Network had another strong year in 2016 increasing
its Cash and Investments balance by $275.4 million. Of this increase, $114.0 million was a
result of absorbing the Cash and Investments balances through the addition of RBMC and
HUMC Palisades during 2016. The remaining $161.4 million came as a result of strong
operations and investment performance. Property and Equipment increased by over $250.0
million as the Network continues to invest in the development of its infrastructure including
several new projects such as the Hope Tower at JSUMC, as well as continued investment in
information technology (e.g. Epic) to advance the Network’s strategic priorities and position the
Network for the health care environment of the future. Additionally, Unrestricted Net Assets
increased by $378.1 million, of which $75.5 million came from the addition of RBMC and
HUMC Palisades to the Network.
Steady and improving margin performance is attributable to a disciplined management
team focused on bottom line results.
PRO-FORMA FINANCIAL RATIOS
For the years ended December 31, 2015 and 2016, the following table sets forth the
Network’s (i) unrestricted cash and investments, (ii) average daily operating expenses, (iii) Days
Cash on Hand, (iv) Income Available for Debt Service, (v) its Annual Debt Service Coverage,
and (vi) Debt-to-Capitalization Ratio. Capitalized terms not otherwise defined in this section
have the meanings ascribed to such terms in the Master Indenture.
A-45
PRO-FORMA FINANCIAL RATIOS (000s)
December 31,
2015
2016(2)
(1)
Days Cash on Hand
Unrestricted cash and investments
Total operating expenses
Depreciation and amortization
Provision for bad debt
Cash operating expenses
Average daily operating expenses
Days Cash on Hand
Historic Annual Debt Service Coverage Ratio
Excess of revenues over expenses
Depreciation and amortization
Interest
Contribution income
Unrealized (gain)/loss on investments
Loss on extinguishment of debt
Unrealized (gain)/loss on derivatives
Income Available for Debt Service
Historic Debt Service Requirements
Historic Annual Debt Service Coverage Ratio
Debt-to-Capitalization Ratio
Total Long-Term Indebtedness
Accumulated changes in other comprehensive income
resulting from minimum pension liabilities
Unrestricted Net Assets
Debt-to-Capitalization Ratio
$
$
$
$
$
$
2,162,741
3,247,260
132,684
12,347
3,392,291
9,294
233 days
$
$
264,553
132,684
58,298
38,614
(3,523)
490,626
121,796
4.03x
$
1,352,371
$
428,286
1,914,525
0.37x
$
$
2,444,276
3,901,113
156,058
13,775
4,070,946
11,123
220 days
387,559
156,058
63,447
(57,599)
(27,893)
7,050
(8,150)
520,472
138,100
3.77x
1,267,392
459,063
2,292,630
0.32x
Source: Network records.
(1) Derived from the aggregation of audited financial statements and internal financial records of HUHN and
MHS. Does not include HUMC Palisades or RBMC. Together, HUMC Palisades and RBMC make up less
than 11% of the Network's total revenues and total net assets. Does not reflect the issuance of the Series 2017A
Bonds or the 2017 Taxable Bonds.
(2) Derived from the internal financial records of HMH, which include 10 months of HUMC Palisades. Does not
reflect the issuance of the Series 2017A Bonds or the 2017 Taxable Bonds.
A-46
SOURCES OF PATIENT REVENUE
The following table displays the distribution of net patient service revenue of the
Network by payer source for the six month period ended December 31, 2016.
NET PATIENT SERVICE REVENUE (%)
Medicare, incl. Managed Medicare
36%
Medicaid, incl. Managed Medicaid
12%
New Jersey Blue Cross
19%
Other Commercial & Managed Care
32%
Self Pay
1%
100%
Source: HMH audited financial statements as of December 31, 2016.
PENSION BENEFITS
The Network has multiple noncontributory defined benefit retirement plans covering
most employees. The Network’s funding policy is to contribute annually an amount no less than
the minimum amount required by the Employee Retirement Income Security Act of 1974, plus
additional amounts, which may be approved by the Network from time to time. The following
describes the various noncontributory defined benefit retirement plans:
HUMC Defined Benefit Pension Plan
HUMC has a noncontributory defined benefit retirement plan (the “HUMC Plan”)
covering most employees. In 2010, HUMC announced to all employees a change in its qualified
defined benefit pension plan. Beginning January 1, 2011, most of its employees automatically
earned retirement benefits under two new retirement plans, a defined contribution plan and a
retirement savings plan. Any employee whose age and years of vesting service total at least 65
remains in the defined benefit plan and earns benefits under a new pension formula. The new
pension formula continues to use an employee’s compensation and years of service, but benefits
grow more evenly and slower over the remaining course of an employee’s career.
MHC Defined Benefit Cash Balance Pension Plan
The defined benefit cash balance plan (the “MHC Plan”) was created on January 1, 1998
through the conversion and merger of predecessor defined benefit plans. Benefits calculated
based upon the predecessor plans were frozen as of December 31, 1997. Beginning January 1,
1998 benefits are based upon contributions to participants’ accounts at a percentage of the
employee’s salary. On December 31, 2009, the MHC Plan was effectively frozen. Any
employee eligible to participate in MHC Plan on December 31, 2009 will continue to accrue
benefits under this plan until retirement. All new employees joining MHC after this date will be
eligible to participate in a new 403(b) savings plan.
A-47
BCH Defined Benefit Pension Plan
BCH was the sponsor of a noncontributory defined benefit pension plan (the “BCH
Plan”) covering substantially all of BCH’s employees. Benefits are based on salary and years of
service. In 1999, BCH froze the BCH Plan to new participants and no benefits will accrue for
future services.
RBMC Pension Plan
The Employees’ Retirement Plan of Raritan Bay Health Services Corporation (the “RB
Plan”) is a noncontributory defined benefit retirement plan. The RB Plan was frozen on
December 31, 2004. Prior to December 31, 2004, the RB Plan covered all employees who had
completed one year of service.
PMC Pension Plan
PMC is the sponsor of a noncontributory defined benefit pension plan covering certain of
its employees. The benefits are based on years of service and the employees’ last ten years of
average earnings. During 2006, Palisades amended the pension plan such that employees hired
after June 1, 2006, do not participate in the plan. A defined contribution plan was established for
such employees as described herein. Certain other changes were made which became effective
January 1, 2007, and relate to employees subject to a collective bargaining agreement and the
manner that future benefits will accrue for such employees. Certain amendments to the
retirement benefits formula were adopted in 2009, effective January 1, 2010. The amendments
include revisions to the percentage of compensation used for the determination of certain
benefits and to the definition of compensation used in the computation.
The table below displays a summary of the financial position of the Network’s defined
benefit pension plans for December 31, 2015 and 2016, respectively:
[The remainder of this page is intentionally left blank.]
A-48
SUMMARY OF PENSION BENEFITS ($ 000's)
December 31,
Pro-Forma
2015(1)
2016
Total annual expense(2)
$18,786
$29,216
Fair Value of Plan assets
976,284
1,241,239
Benefit Obligation
1,236,203
1,637,278
Funded Status
(259,919)
(396,039)
Accumulated Benefit Obligation
1,192,507
1,588,224
Discount rate
Expected long term rate of return
4.34 - 4.77%
7.00 - 7.52%
3.67 - 4.54%
7.00 - 7.63%
(1)
(2)
Source: Network records.
Does not include HUMC Palisades or RBMC.
Only includes 10 months of HUMC Palisades for 2016.
The Network also provides benefits through various defined contribution plans and postretirement/post-employment benefits plans. The Network’s total expense related to the defined
contribution plans was $38.1 million for the fiscal year ended December 31, 2016.
Additional information related to these plans and the assumptions for calculating benefit
obligations and determining net periodic pension costs are set forth in the Consolidated Financial
Statements included in Appendix B.
A-49
INVESTMENTS
The Network’s cash and investments are managed pursuant to policies established by the
Investment Committee of the Network Board of Trustees. The Investment Committee meets
quarterly, determines the allocation of investments according to asset class, selects managers for
each asset class, and reviews manager performance based on a benchmark rate of return
established for that manager. Currently the Network utilizes various investment advisors to
manage its investments. The Network invests in certain alternative investments with varying
restrictions on liquidity. The following table sets forth the cash and investments for the
Network, the defined benefit plans, and defined contribution plans at market value by asset class
and the percentage which each asset class represents of the total as of December 31, 2015 and
2016, respectively:
SUMMARY OF INVESTMENTS ($ 000's)
Asset Class
Cash and Cash Equivalents
Marketable Equity Securities
Mutual Funds
Corporate Bonds
Government Securities
Alternative and Other Investments
Total
(1)
2016
Pro-Forma 2015(1)
% of
% of
Investment
Investment
total
total
$879,274
21%
$911,566
18%
819,208
19
657,859
13
1,428,275
34
2,134,032
43
284,495
7
327,466
7
486,547
11
605,522
12
330,166
8
341,660
7
$4,227,965
100%
$4,978,105
100%
Does not include HUMC Palisades or RBMC.
[The remainder of this page is intentionally left blank.]
A-50
LONG TERM INDEBTEDNESS AND INTEREST RATE SWAP AGREEMENTS
The table below represents the Network’s total outstanding debt on December 31, 2016.
The pro-forma principal outstanding is the expected total outstanding debt balance after the
transaction.
Bond Issue
Series 2017A
Series 2017 Taxable
2016 Line of Credit
Series 2016A
2016 Taxable Bank Loan
Series 2015A
Series 2015A
2015 Taxable Bank Loan
2013A Taxable Bank Loan
2013B Taxable Bank Loan
Series 2013
Series 2013A
Series 2011
Series 2010
Series 2010B
Series 2008
Series 2007
Series 2006
Series 2006-A3
Series 2006-A4
Series 2006-A5
Series 2004-A3
Series 2003A
Series 1998A
Series 1997 CABS(2)
Accreted Interest
Capital Asset Loan
Commercial Mortgages
Capital Leases
Legacy
Org.
HMH
HMH
HUMC
MHS
HUMC
MHS
HUMC
HUMC
HUMC
HUMC
Palisades
MHS
MHS
HUMC
HUMC
HUMC
MHS
MHS
MHS
MHAC
MHAC
MHS
MHS
MHS
HUMC
MHS
MHS
All
Principal
(000s)
$73,763
128,965
20,114
125,306
80,615
34,736
37,019
49,241
35,935
24,260
140,735
64,365
36,000
215,735
136,200
15,385
3,500
14,630
10,915
10,735
60,000
9,270
16,101
32,085
3,173
32,882
8,249
Pro-Forma
Principal
(000s)(1)
$620,000
300,000
128,965
20,114
125,306
80,615
34,736
37,019
49,241
24,260
140,735
15,385
3,500
14,630
10,915
10,735
60,000
9,270
16,101
32,085
3,173
32,882
8,249
Interest
Mode
Fixed
Fixed
Variable
Synthetic
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Synthetic
Variable
Variable
Variable
Variable
Synthetic
Variable
CABS
Variable
Fixed & Var.
Fixed
Type
Public Bond
Public Bond
Direct Placement
Direct Placement
Direct Placement
Direct Placement
Direct Placement
Direct Placement
Direct Placement
Direct Placement
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Public Bond
Loan
Mortgage
Lease
Total
$1,419,914
$1,777,916
(1) Estimated, subject to change.
(2) Series 1997 CABS are expected to remain outstanding and not be secured by the Master Indenture.
The balance sheet includes the current portion of accreted interest included in accrued
interest payable of $6.1 million, an original issue unamortized bond premium of $10.9 million,
and deferred financing costs of $9.7 million resulting in total long-term debt of $1.4 billion,
inclusive of short-term debt.
A-51
The Network has utilized interest rate swap agreements to secure low-cost debt financing
and lock in interest costs on certain variable rate debt instruments. The Network has established
a formal debt and interest rate hedging policy that provides guidelines for the issuance of debt
and the use of derivative instruments. This policy requires a financial feasibility analysis for all
new debt issuances and establishes targets for the relationship of fixed to variable debt. In
addition, the policy requires an independent analysis of all derivative contracts, ongoing analyses
of counterparties in swap agreements and other measures designed to mitigate the risks
associated with interest rate derivative agreements. The Network’s policies prohibit speculative
swap arrangements. As of December 31, 2016, the fair value of swaps was in a liability position
of $62.0 million. The Network is not obligated to post collateral at any time under any of its
outstanding swap agreements. The following table summarizes the interest rate swap agreements
as of December 31, 2016.
Swap Series
Effective Date
Current Notional Amount
Pay
Receive
1994
1999
2003
2006
2007
10/1/2006
7/1/2009
11/1/2007
6/1/2006
1/2/2008
$ 15,735,000
145,745,000
100,000,000
6,154,000
91,200,000
3.88%
3.56%
3.65%
3.81%
3.33%
67% of LIBOR
67% of LIBOR
67% of LIBOR
68% of LIBOR
68% of LIBOR
MISCELLANEOUS
Pending Transactions
In November 2016, HMH and JFK Health System (“JFK”), the parent company of JFK
Medical Center, a 498-bed medical center located in Edison, New Jersey, signed a Letter of
Intent to explore an affiliation. This announcement came after an extensive process that
considered multiple factors that would strengthen JFK and further its mission to keep the
community healthy. Both parties have entered into a due diligence period, wherein each party
will evaluate the structure, operations and finances of one another. HMH and JFK anticipate that
a definitive agreement for the proposed transaction will be signed sometime in 2017. As of
December 31, 2015, JFK reported $394.3 million of assets and $577.8 million of revenues.
Future Capital Plan
Over the next four years, HMH is planning to make $1.9 billion in capital investments,
including routine capital needs at existing facilities. Of the $1.9 billion, approximately $900
million is earmarked for strategic capital investments, including expanding EPIC Financials and
Clinicals components of the Network’s information system to all hospitals and physician
practices within the Network, investment in the partnership with Memorial Sloan Kettering,
development of the new School of Medicine with Seton Hall University, development of the
Second Street Tower for HUMC, and expansion of other various facilities among other projects.
A-52
Accreditation
The Network’s hospitals are fully accredited by The Joint Commission as follows:
Hospital
Hackensack University Medical Center
Jersey Shore University Medical Center
Riverview Medical Center
Raritan Bay Medical Center – Perth Amboy
HUMC Mountainside
Ocean Medical Center
Bayshore Community Hospital
HUMC Palisades
Southern Ocean Medical Center
HUMC Pascack Valley
Raritan Bay Medical Center – Old Bridge
Accredited Through
12/17
1/19
1/19
3/18
11/19
1/19
5/18
12/17
7/19
5/19
3/18
The Network’s hospitals are also licensed by the NJDH as General Acute Care Hospitals.
Fundraising
Since the merger of HMH, the organization has maintained the three legacy foundations –
Meridian Health Foundation, Hackensack University Medical Center Foundation, and Palisades
Medical Center Foundation (collectively, the “Foundations”). In order to maintain a local
fundraising presence and continued community support, Meridian Health Foundation continues
to operate six separate foundations for each of its divisions. The Meridian Health Foundation
includes Jersey Shore University Medical Center Foundation, Ocean Medical Center Foundation,
Riverview Medical Center Foundation, Southern Ocean Medical Center Foundation, Bayshore
Community Hospital Foundation and Raritan Bay Medical Center Foundation. During 2016, the
Foundations contributed $14.0 million for routine capital expenditures and program support.
During 2016, the Foundations raised $43.4 million for future needs. As of December 31, 2016,
the Foundations had an aggregate total net asset balance of approximately $174.3 million. While
the Network will likely maintain local foundations geared to local communities, the Network
intends to continually coordinate all fundraising activities to maximize funds raised and to ensure
coordination, with no overlapping efforts.
Insurance
HMH maintains alternative risk finance programs for its facilities via wholly-owned
Bermuda domiciled captive insurance companies. Coastal Medical Insurance Limited
(“Coastal”) established in 1998 and Hackensack University Medical Center Casualty Company
(“HUMCCO”) established in 2003 provide various coverages to legacy MHS facilities and
legacy HUHN facilities respectively. Both captives provide funding for indemnification for
respective Hospital Professional Liability and General Liability exposures. Additionally, Coastal
also provides funding for indemnification for exposures related to Employed Physician
Professional Liability; Excess Hospital Professional Liability; and Workers’ Compensation.
Funding for each of these programs is determined on an annual basis by consulting actuarial
firms.
A-53
As of December 31, 2016, Coastal provides funding for Hospital Professional Liability
exposures of $1.0 million per medical incident subject to an annual aggregate of $3.0 million and
funding for General Liability exposures of $1.0 million per occurrence subject to an annual
aggregate of $1.0 million. Coastal provides funding for Employed Physician Professional
Liability exposures of $1.0 million per medical incident subject to an annual aggregate of $3.0
million per physician. Coastal also provides funding of $3.0 million per medical incident excess
of funding for Primary Hospital Professional Liability exposures. As of December 31, 2016,
HUMCCO provides funding for Hospital Professional Liability and General Liability exposures
of $1.0 million per medical incident subject to an annual aggregate of $13.0 million. Coastal’s
Hospital Professional and Employed Physicians Professional Liability components respond to
claims and suits on a claims-made basis.
Coastal’s General Liability component responds to claims and suits on an occurrence
basis. The Hospital Professional Liability and General Liability components of the HUMCCO
program respond to claims and suits on a claims-made basis.
As of December 31, 2016, Coastal provides funding for the deductible portion of legacy
Meridian Workers’ Compensation per occurrence exposures of $750,000 on an occurrence basis.
HUMC had an occurrence based policy for workers compensation claims with a third party
insurance company through June 30, 2016, for which it recorded an estimated liability and
corresponding insurance recoveries of $19.8 million at December 31, 2016. Effective July 1,
2016, HUMC created its own self-insured workers compensation plan. For the period July 1,
2016 to December 31, 2016 HUMC incurred $109,000 in claims paid and has recorded $1.8
million for claims incurred, but not yet reported on the consolidated balance sheet as of
December 31, 2016.
For the year ending December 31, 2016, Coastal purchased annual reinsurance policies in
the amount of $45.0 million per claim subject to an annual aggregate of $45.0 million in excess
of Coastal’s primary and first excess layer. For the year ending December 31, 2016, HUMCCO
purchased reinsurance policies in the amount of $5.0 million with a $500,000 corridor deductible
in excess of the HUMCCO primary retained layer of $1.0 million. In addition, HUMC purchased
additional layers of insurance of $75.0 million.
Litigation
Various suits and claims arising in the normal course of operations are pending or are in
progress against the Network and its affiliates. Such suits and claims are either specifically
covered by insurance, provided for through estimated self-insurance liabilities, or are not
material. While the outcome of these other suits cannot be determined at this time, management,
based on advice from legal counsel, believes that any loss which may arise from these actions
will not have a material adverse effect on the consolidated financial position or results of
operations of the Network.
Several municipalities in New Jersey have challenged the tax-exempt status with respect
to real estate taxes on properties owned by the Network and its affiliates. The applicable
Network affiliates continue to take steps to defend their tax-exempt status against such
challenges.
A-54
APPENDIX B-1
Hackensack Meridian Health, Inc. Consolidated Financial Statements and Consolidating Supplemental
Schedules, Six Month Period Ending December 31, 2016
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
Hackensack Meridian Health, Inc.
Consolidated Financial Statements and
Consolidating Supplemental Schedules
Six Month Period Ending December 31, 2016
Hackensack Meridian Health, Inc.
Index
December 31, 2016
Page(s)
Report of Independent Auditors ........................................................................................................... 1–2
Consolidated Financial Statements
Balance Sheet .............................................................................................................................................. 3
Statement of Operations .............................................................................................................................. 4
Statement of Changes in Net Assets ........................................................................................................... 5
Statement of Cash Flows ............................................................................................................................. 6
Notes to Financial Statements ............................................................................................................... 7–36
Consolidating Supplemental Schedules
Balance Sheet ............................................................................................................................................ 37
Statement of Operations ............................................................................................................................ 38
Note to Consolidating Supplemental Schedules ........................................................................................ 39
Report of Independent Auditors
To the Board of Trustees
Hackensack Meridian Health, Inc.
We have audited the accompanying consolidated financial statements of Hackensack Meridian Health,
Inc. and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 2016, and
the related consolidated statements of operations, of changes in net assets and of cash flows for the six
month period then ended.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Hackensack Meridian Health, Inc. and its subsidiaries as of
December 31, 2016, and the results of their operations, changes in their net assets, and their cash flows
for the six month period then ended in accordance with accounting principles generally accepted in the
United States of America.
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, New York 10017
T: (973) 236 4000, F: (973) 236 5000, www.pwc.com/us
Other Matter
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements
taken as a whole. The consolidating balance sheet as of December 31, 2016 and the consolidating
statement of operations for the period July 1, 2016 to December 31, 2016 (the “consolidating information”)
is the responsibility of management and was derived from and relates directly to the underlying accounting
and other records used to prepare the consolidated financial statements. The consolidating information
has been subjected to the auditing procedures applied in the audit of the consolidated financial statements
and certain additional procedures, including comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the consolidated financial statements or to the
consolidated financial statements themselves and other additional procedures, in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the consolidating
information is fairly stated, in all material respects, in relation to the consolidated financial statements
taken as a whole. The consolidating information is presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position, results of operations,
changes in net assets and cash flows of the individual companies and is not a required part of the
consolidated financial statements. Accordingly, we do not express an opinion on the financial position,
results of operations, changes in net assets and cash flows of the individual companies.
March 28, 2017
New York, New York
2
Hackensack Meridian Health, Inc.
Consolidated Balance Sheet
December 31, 2016
(in thousands)
Assets
Current assets
Cash and cash equivalents
Patient accounts receivable, less allowance for uncollectible
accounts of $142,462
Pledges receivable, less allowance for uncollectible pledges
of $2,060
Inventories
Other current assets
Assets whose use is limited and investments, current portion
$
386,588
33,851
79,993
91,772
1,005,403
Total current assets
Investment in joint ventures
Assets whose use is limited and investments, noncurrent portion
Property and equipment, net
Other assets
Total assets
Liabilities and Net Assets
Current liabilities
Current maturities of long-term debt and capital lease obligations
Accounts payable and accrued expenses
Other current liabilities
634,207
2,231,814
120,135
951,700
1,873,060
129,966
$
5,306,675
$
147,624
503,308
196,494
Total current liabilities
847,426
Long-term debt and capital lease obligations, less current maturities
Accrued pension benefits
Other liabilities
1,267,392
390,282
372,527
Total liabilities
2,877,627
Net assets
Unrestricted
Noncontrolling interest in subsidiaries
2,263,515
29,115
Total unrestricted net assets
2,292,630
Temporarily restricted
Permanently restricted
94,391
42,027
Total net assets
2,429,048
Total liabilities and net assets
$
5,306,675
The accompanying notes are an integral part of these consolidated financial statements.
3
Hackensack Meridian Health, Inc.
Consolidated Statement of Operations
Six Month Period Ending December 31, 2016
(in thousands)
Revenues
Patient service revenue, net of contractual allowances and discounts
Provision for bad debts
$
Net patient service revenue, less provision for bad debts
1,957,093
69,323
1,887,770
Other revenue
Net assets released from restrictions - operating activities
246,006
2,293
Total revenues
2,136,069
Expenses
Salaries and contracted labor
Physician salaries and fees
Employee benefits
Supplies and other expenses
Depreciation and amortization
Interest
Provision for bad debts
760,020
144,238
166,486
780,890
80,519
31,102
7,068
Total expenses
1,970,323
Excess of revenues over expenses before other adjustments
165,746
Other operating adjustments
Investment income
Unrealized gain on derivative investments
Loss on extinguishment of debt
Other losses, net
Provision for income taxes
35,418
26,987
(5,289)
(3,616)
(313)
Excess of revenues over expenses
218,933
Other adjustments in unrestricted net assets
Distributions to noncontrolling interests
Pension-related adjustments
Change in net unrealized gains (losses) on investments
Net assets released from restrictions - capital acquisitions
Other changes in net assets
(4,059)
(24,431)
6,172
3,669
(1,215)
Increase in unrestricted net assets
$$
199,069-
The accompanying notes are an integral part of these consolidated financial statements.
4
Hackensack Meridian Health, Inc.
Consolidated Statement of Changes in Net Assets
Six Month Period Ending December 31, 2016
(in thousands)
Net assets at July 1, 2016
Unrestricted
Temporarily
Restricted
Permanently
Restricted
$ 2,093,561
$
$
Excess of revenues over expenses
Investment income
Contributions
Distributions to noncontrolling interests
Pension-related adjustments
Change in net unrealized gains (losses) on investments
Net assets released from restrictions capital acquisitions
Net assets released from restrictions operating activities
Other changes in net assets
218,933
(4,059)
(24,431)
6,172
Increase in net assets
Net assets at December 31, 2016
84,170
36,714
Total
Net Assets
$ 2,214,445
155
15,984
353
5,313
-
3,669
(3,669)
-
(1,215)
(2,293)
(309)
-
(2,293)
(1,524)
5,313
214,603
42,027
$ 2,429,048
199,069
$ 2,292,630
10,221
$
94,391
$
218,933
155
21,297
(4,059)
(24,431)
6,525
-
The accompanying notes are an integral part of these consolidated financial statements.
5
Hackensack Meridian Health, Inc.
Consolidated Statement of Cash Flows
Six Month Period Ending December 31, 2016
(in thousands)
Cash flows from operating activities
Change in net assets
Adjustments to reconcile change in net assets to net cash
provided by operating activities
Loss on disposal of assets
Provision for bad debts
Depreciation and amortization
Amortization of bond discount, net
Unrealized gain on derivative investments
Realized and unrealized gains on investments
Restricted contributions for capital acquisitions
Pension-related adjustments
Changes in assets and liabilities:
Increase in patient accounts receivable and pledges receivable
Decrease in other assets
Increase in accounts payable and accrued expenses
Increase in other liabilities
$
214,603
3,990
76,599
80,519
924
(26,987)
(23,851)
(4,601)
24,431
(94,008)
199
21,083
33,200
Net cash provided by operating activities
306,101
Cash flows from investing activities
Purchases of property and equipment
Investments in joint ventures
Proceeds from joint ventures
Change in trading securities, net
Purchases of other than trading securities
Proceeds from sales of other than trading securities
(146,699)
(15,000)
2,213
16,701
(112,492)
70,981
Net cash used in investing activities
(184,296)
Cash flows from financing activities
Repayments of long-term debt and capital lease obligations
Proceeds from borrowings
Distributions to noncontrolling interests
Restricted contributions for capital acquisitions
(118,283)
94,063
(2,838)
4,601
Net cash used in financing activities
(22,457)
Change in cash and cash equivalents
99,348
Cash and cash equivalents
Beginning of period
534,859
End of period
$
634,207
Supplemental information
Cash paid for interest expense
Change in non-cash acquisitions of property and equipment
$
31,637
13,770
The accompanying notes are an integral part of these consolidated financial statements.
6
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
1.
Organization and Summary of Significant Accounting Policies
Organization
Hackensack Meridian Health, Inc. and its subsidiaries and controlled entities (the “Network”)
comprise an integrated health care delivery system. The Network is incorporated as a New Jersey
non-profit, non-stock corporation established to promote and carry out charitable, scientific,
academic and research activities and was created as a result of the merger of Hackensack
University Health Network, Inc. (“HUHN”) and Meridian Health System, Inc., the surviving parent
entity, which was renamed Hackensack Meridian Health, on July 1, 2016. The Network is the sole
corporate member of the following entities: Meridian Hospitals Corporation (“MHC”) and its whollyowned subsidiary, Raritan Bay Medical Center (“RBMC”); Hackensack University Medical Center
(“HUMC”) and its wholly-owned subsidiaries, Hackensack University Medical Center Casualty
Company (“HUMCCO”) and 20 Prospect Holdings, LLC; HackensackUMC Palisades (“PMC”);
Hackensack University Medical Center Foundation (“HUMCF”); Meridian Health Foundation, Inc.
and its six foundation subsidiaries (“MHF”); Palisades Medical Center Foundation (“PMCF”);
Hackensack Meridian Nursing and Rehabilitation, Inc. (“HMNR”); Palisades General Care Inc.
(“PGC”); Hackensack Meridian Health Realty Corporation and five subsidiaries (“Realty”); Meridian
Practice Institute, Inc. (“MPI”); Hackensack Meridian Ambulatory Ventures, Inc. (“HMAV”);
Hackensack Meridian Home Care Services, Inc. and its subsidiary (“HMHCS”); and Bergen Health
Management System, Inc. (“BHMS”).
The Network is also the sole shareholder of Coastal Medical Insurance Limited (“Coastal”),
Meridian Health Ventures, Inc. and its subsidiary (“HMHV”), Palisades Management Enterprises,
Inc. (“PME”), Raritan Management Corporation (“RMC”) and is the sole member of Meridian
Accountable Care Organization, LLC (“MACO”), Coastal Data Solutions, LLC (“CDS”) and
Hackensack Physician-Hospital Alliance ACO, LLC (“ACO”).
The accompanying consolidated financial statements also include the accounting of the following
Network-controlled tax-exempt and taxable professional corporations: Hackensack University
Medical Group, P.C. (“HUMG”), HUMC Cardiology Partners, P.C. (“HUMCCP”), HUMC Primary
Care Associates, P.C. (“HUMCPCA”), New Amsterdam Medical Associates, P.C. (“NAMA”),
Hackensack Specialty Care Associates, P.C. (“HCSA”), Hackensack Medical Observation, P.A.
(“HMO”), Hackensack Occupational Medicine Associates, P.C. (“HOM”), Palisades Medical
Associates, P.C. (“PMA”) and The Auxiliary of Hackensack University Medical Center. MPI serves
as the management organization for the JSUMC faculty practice and other physician practice
development strategies. Consolidated with MPI are nine not-for-profit professional corporations
that encapsulate Meridian Medical Group (“MMG”). MMG includes the faculty practice as well as
the specialty and primary care group practices operating in Monmouth and Ocean Counties.
The Network operates an extensive acute care hospital system which consists of two academic
medical centers (which include two children’s hospitals and a cancer center), and seven community
hospitals as follows:

HUMC, located in Hackensack, New Jersey, is an academic medical center and the largest
stand-alone medical center in the state with 775 beds. HUMC includes the Joseph M. Sanzari
Children’s Hospital, the Donna A. Sanzari Women’s Hospital, the John Theurer Cancer
Center, and the Heart and Vascular Hospital;
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Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)

Jersey Shore University Medical Center (“JSUMC”), located in Neptune, New Jersey, is a
major academic medical center and regional trauma center with 614 beds that includes the K.
Hovnanian Children’s Hospital(1);

Riverview Medical Center (“RMC”), is a 468-bed community hospital located in Red Bank,
New Jersey(1);

RBMC at Perth Amboy, is a 395-bed community hospital located in Perth Amboy, New Jersey;

Ocean Medical Center (“OMC”), is a 281-bed community hospital located in Brick, New
Jersey(1);

Bayshore Community Hospital (“BCH”), is a 211-bed community hospital located in Holmdel,
New Jersey(1);

PMC, located in North Bergen, New Jersey, is a 206-bed community hospital, that includes a
247-bed nursing home known as the Harborage;

Southern Ocean Medical Center (“SOMC”), New Jersey, is a 176-bed community hospital
located in Manahawkin(1); and

RBMC-Old Bridge, located in Old Bridge, New Jersey, is a 113-bed community hospital.
(1) These hospitals are divisions of MHC.
During 2012, HUMC entered into two separate joint ventures with an unrelated entity. Under the
first joint venture arrangement, entered into on March 23, 2012, HUMC contributed the existing
property and equipment of the former Pascack Valley Hospital campus for a 35% interest in the
joint venture which was valued at $51,100. The investment in the Pascack Valley joint venture
recorded on the consolidated balance sheet was $35,228 as of December 31, 2016.
Under the second joint venture, entered into on July 1, 2012, HUMC purchased a 20% ownership
interest in Mountainside Hospital. For its ownership interest, HUMC contributed $10,644 in cash
and entered into a nonrecourse loan agreement with its joint venture partner. The interest rate on
the loan is 8.875% per annum, with principal and interest payments to be made on a non-recourse
basis from the distribution of profits of HUMC’s share in the joint venture. In July 2016, HUMC
entered into a bank loan and used the proceeds to payoff the remaining outstanding balance on
the nonrecourse loan and its accrued interest (See Note 5). The investment in the Mountainside
joint venture recorded on the consolidated balance sheet was $27,521 as of December 31, 2016.
Joint ventures in which HUMC exerts significant influence in the operations of the unconsolidated
entities, primarily through shared representation on the governing bodies of the investee and equal
voting rights, and has an equity interest of more than 20% but less than 50%, are accounted for
under the equity method of accounting.
During 2012, HUMC and a separate unrelated entity formed a joint venture limited liability company
which purchased a 51% interest in two ambulatory surgical centers (the “Centers”) located in
Bergen County, New Jersey, with HUMC receiving 50.1% voting rights in the joint venture
entity. As a result, HUMC consolidated the Centers in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 958-810, Not-for-Profit
Entities – Consolidation, and reflected a non-controlling interest for the equity related to the
previous owners and the unrelated party in accordance with ASC 810. The net assets acquired of
the Centers were $34,950 (including goodwill of $34,250). Effective December 31, 2016, HUMC
has transferred its interest in the Centers to HMAV.
8
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
The following schedule of changes in consolidated net assets attributable to the parent and the
non-controlling interest reconciles beginning and ending balances of the parent’s controlling
interest and non-controlling interest for the six month period ending December 31, 2016:
Balances at June 30, 2016
$
Excess revenues over expenses
Distributions to non-controlling interests
Other changes
Change in unrestricted net assets
Balances at December 31, 2016
$
Total
The Network
(Controlling
Interest)
Noncontrolling
Interests
2,093,561
$
$
1,913,988
218,933
(4,059)
(15,805)
214,432
135,095
199,069
349,527
2,292,630
$
2,263,515
28,673
4,501
(4,059)
442
$
29,115
In June 2015, the former HUHN, now replaced by the Network, and Seton Hall University (“SHU”)
signed a definitive agreement to form a new four-year school of medicine. The partnership will
establish the only private school of medicine in the State of New Jersey. In conjunction with the
formation of the new school of medicine, the Network and SHU entered into a long-term lease for
two buildings in the town of Nutley and city of Clifton, New Jersey. During 2016, the Network made
an initial contribution of $15,000 to the school of medicine which has been included as an
investment in joint ventures on the consolidated balance sheet as of December 31, 2016.
In November 2016, the Network signed a letter of intent to explore the acquisition of JFK Health
System, which includes JFK Medical Center, a 498-bed medical center located in Edison, New
Jersey.
Summary of Significant Accounting Policies
The following is a summary of the Network’s significant accounting policies:
Basis of Presentation
The Network has accounted for the combination as a merger of not-for-profit entities under ASC
958-805, Not-for-Profit Entities: Business Combinations resulting in a new reporting entity effective
July 1, 2016, the merger date, with no activities before the merger. Therefore, the combined
assets, liabilities and net assets of the Network are included in the accompanying consolidated
financial statements as of the merger date at their historical basis under the carryover method with
adjustments to conform the individual accounting policies of the Network and to eliminate intraentity balances. The accompanying financial statements include activity of the newly created HMH
organization after July 1, 2016.
9
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
The major classes of assets, liabilities and net assets that were combined at July 1, 2016 are as
follows:
HUHN
Assets
Cash and investments
Property and equipment, net
Other assets
Total assets
Liabilities
Long-term and capital lease obligations
Other liabilities
Total
$
896,748
730,062
453,919
$
1,546,553
1,067,038
355,551
$
2,443,301
1,797,100
809,470
$
2,080,729
$
2,969,142
$
5,049,871
$
691,159
615,727
$
747,159
781,381
$
1,438,318
1,397,108
Total liabilities
Net assets
Unrestricted (including noncontrolling interests)
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
MHS
$
1,306,886
1,528,540
2,835,426
731,073
29,792
12,978
1,362,488
54,378
23,736
2,093,561
84,170
36,714
773,843
1,440,602
2,214,445
2,080,729
$
2,969,142
$
5,049,871
Transition and integration are on-going with Network related entities (HUHN and MHS) incurring
approximately $10,786 in costs during the six month period ended December 31, 2016, as a result
of the transaction, which are included in supplies and other expenses in the consolidated statement
of operations.
As required by ASC 958-805-50-3, the following table presents supplemental pro forma information
for HMH for the year ended December 31, 2016, as if the merger had occurred on January 1, 2016.
The following supplemental pro forma information is not audited, and is as follows:
Total
Operating
Revenue
Legacy Hackensack University Health Network
$
Legacy Meridian Health System
Total
1,899,253
Excess of
Revenues over
Expenses
$
2,268,791
$
4,168,044
150,819
$
236,740
$
387,559
Change in
Temporarily
Restricted
Net Assets
Change in
Unrestricted
Net Assets
101,555
$
276,550
$
378,105
11,940
Change in
Permanently
Restricted
Net Assets
$
5,683
$
17,623
7,332
2,011
$
9,343
The supplementary information above is presented only for purposes of additional analysis and not
as a presentation of financial position, results of operations and changes in net assets. This
information does not reflect all eliminations and reclassifications that are required by generally
accepted accounting principles. Management does not believe this information would be reflective
of a twelve month fiscal year post-merger and is not indicative of what the financial position, results
of operations and changes in net assets would have been for HUHN and MHS had the merger
occurred on January 1, 2016.
10
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include the reserves on accounts receivable such as
allowance for doubtful accounts and contractual allowances, valuation of alternative investments,
estimated amounts due to and from third-party payors, professional liability costs and accrued
pension benefit liabilities. Actual results could differ from those estimates.
Income Taxes
All of the not-for-profit entities included in the consolidated financial statements are corporations as
described in Section 501(c)(3) of the Internal Revenue Code (“Code”) and are exempt from federal
income taxes on related income pursuant to Section 501(a) of the Code. These entities are also
exempt from state income taxes. Per the requirement to assess for tax uncertainty, management
has determined that it does not have any significant uncertain tax positions required to be accrued
or reported.
The for-profit corporations are subject to federal and state income taxes.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly-liquid instruments with original maturity of
three months or less. Cash and cash equivalents are also held in its investments and assets
whose use is limited portfolio.
Assets whose use is limited and Investments
Investments and assets whose use is limited are recorded at fair values, which are based on the
assumptions and methods described in the “Fair Value Measurements” section of this note.
Assets whose use is limited include cash and investments set aside by the Network Board of
Trustees (the “Board”) for future capital improvements over which the Board retains control and
may, at its discretion, subsequently use for other purposes, assets held by trustees under indenture
agreements, assets held in connection with the captive insurance program, assets held for deferred
employee benefit plans, and donor-restricted assets. Amounts required to meet current liabilities of
the Network are classified as current assets.
A majority of the Network’s investments in equity securities with readily determinable fair values
and investments in debt securities are reported as trading securities based on the Network’s
investment strategy and investment philosophies. Trustee-held assets under bond indenture,
which are primarily comprised of cash and short-term investments, as well as alternative
investments, are classified as other than trading.
Investment income or losses (including realized gains and losses on investments, interest,
dividends, holding gains and losses on trading securities, declines in fair value that are determined
by management to be other-than-temporary, and changes in the value of investments accounted
for on the equity basis of accounting) are included in the accompanying consolidated statement of
operations as other operating adjustments, unless the income or loss is restricted by donor or law.
Changes in net unrealized gains (losses) on investments on other than trading securities are
included in the consolidated statement of operations as other adjustments in unrestricted net
11
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
assets. Gains and losses on sales of investment assets are determined using the first-in, first-out
method. Investments classified as current assets are available to support current operations.
Investments, in general, are exposed to various risks, such as interest rate, credit, and overall
market volatility. As such, it is reasonably possible that changes in the values of investments will
occur in the near term and that such changes could materially affect the amounts reported in the
consolidated financial statements.
Financial Instruments
The Network has entered into interest rate swap agreements to manage its exposure to
fluctuations in interest rates (interest rate risk) and lower cost of capital. These swap agreements
involve the exchange of fixed and variable rate interest payments between the Network and
counterparties based on common notional principal amounts and maturity dates that correspond to
the Network’s outstanding long-term debt.
The Network recognizes all derivatives (interest rate swap agreements) at fair value within other
liabilities on the consolidated balance sheet. Changes in fair value of these instruments are
reported in the consolidated statement of operations as discussed in Note 6.
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy of
valuation inputs based on the extent to which the inputs are observable in the marketplace.
Observable inputs reflect market data obtained from sources independent of the reporting entity
and unobservable inputs reflect the entities own assumptions about how market participants would
value an asset or liability based on the best information available. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. The guidance describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value.
The following describes the hierarchy of inputs used to measure fair value and the primary
valuation methodologies used by the Network for financial instruments measured at fair value on a
recurring basis. The three levels of inputs are as follows:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities, or quoted prices in markets that are not
active.
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are based on one or more of three valuation
techniques. The three valuation techniques are as follows:

Market Approach (M) – Prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities;
12
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)

Cost Approach (C) – Amount that would be required to replace the service capacity of an
asset (i.e. replacement cost); and

Income Approach (I) – Techniques to convert future amounts to a single present amount
based on market expectations (including present value techniques, option-pricing models, and
lattice models).
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Inputs are used in applying the various
valuation techniques and broadly refer to the assumptions the market participants use to make
valuation decisions. Inputs may include price information, credit data, liquidity statistics and other
factors.
The Network utilized the best available information in measuring fair value.
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments held by the Network:

Cash and Cash Equivalents – Estimated fair values of cash equivalents are based on daily
values (closing price on primary market) that are validated with a sufficient level of observable
activity (i.e., purchases and sales).

Corporate Equity Securities – Securities listed on national stock exchanges are valued at the
last published sales price on the last business day of the year; over–the-counter securities for
which no sale was reported on the last business day of the year are valued at the latest
reported bid price from a published source.

Mutual and Money Market Funds and Common/Collective Trusts – Fair value estimates for
mutual funds are based on net asset values (NAV) calculated by the funds’ independent
administrators which are calculated daily. Redemptions from each of the funds can be made
daily on the latest reported NAV. Common/collective trusts are valued on a net unit value,
derived from the value of the underlying securities as determined by the trust at year-end.
The investments of the common/collective trust consist primarily of securities with quoted
market prices.

U.S. Government, Municipal, and Corporate Debt Securities – Valued on the basis of the
quoted market prices at year-end. If quoted market prices are not available for the
investments, these investments are valued based on yields currently available on comparable
securities or issuers with similar credit ratings.

Derivative Instruments – Consist of interest rate swap agreements. Value is determined using
a market-based interest rate yield curve adjusted specifically to take into account the
Network’s risk of nonperformance.

Annuity Contracts - Fair value of annuity contracts are measured based on unobservable
inputs that cannot be corroborated by observable market data and are therefore classified as
Level 3.
13
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)

Alternative Investments - Fair value of alternative investments are measured based on
unobservable inputs that cannot be corroborated by observable market data and are therefore
classified as Level 3 for the Network’s pension plan assets (See Note 7). The Network's
alternative investments included in assets whose use is limited and investments are accounted
for under the equity method of accounting, and as such, are excluded from the fair value
hierarchy tables (See Note 3).
The Network’s alternative investments include holdings in limited partnerships or hedge funds
which engage in a variety of investment strategies and are managed by money managers.
Certain investments in alternative investments are valued by management at fair value utilizing
the NAV provided by the respective fund manager of the underlying investment companies
unless management determines some other valuation is more appropriate. Such fair value
estimates do not reflect early redemption penalties as the Network does not intend to sell such
investments before the expiration of the early redemption periods. The fair values of the
securities held by limited partnerships that do not have readily determinable fair values are
determined by the general partner and are based on historical cost, appraisals, or other
estimates that require varying degrees of judgment. If no public market exists for the
investment securities, the fair value is determined by the general partner taking into
consideration, among other things, the cost of securities, prices of recent significant
placements of securities of the same issuer, and subsequent developments concerning the
companies to which the securities relate. Changes in the value of these alternative
investments are included in investment income - net, in the consolidated statement of
operations. Generally, alternative investments upon which redemptions may be made annually
with written notice of 100 days are recorded as current assets. Limited partnerships which do
not provide for voluntary withdrawal and are long term in nature are classified as noncurrent
assets.
Inventories
Inventories are stated at lower of cost (determined on an average cost basis) or market.
Property and Equipment
Property and equipment are recorded at cost. The Network determines depreciation using the
straight-line method, over the estimated useful life of each class of depreciable asset. Estimated
lives range from 3 to 20 years for equipment and up to 40 years for buildings.
Capitalized leases are recorded at their present value at the inception of the lease. Equipment
under capital leases is amortized on the straight-line method over the shorter period of the lease
term or the estimated useful life of the equipment. Such amortization is included in depreciation
and amortization in the consolidated statement of operations. Gains and losses resulting from the
retirement of property and equipment are included in the results of current operations.
Gifts of long-lived assets such as property and equipment are determined at their fair value at the
date of the gift and reported as an increase to unrestricted net assets unless explicit donor
stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit
restrictions that specify how the assets are to be used and gifts of cash or other assets that must
be used to acquire long-lived assets are reported as restricted support. Absent explicit donor
stipulations about how long those long-lived assets must be maintained, expirations of donor
restrictions are reported when the donated or acquired long-lived assets are placed in service.
14
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever circumstances
indicate that the carrying amount of an asset may not be recoverable. If such assets are deemed
to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value, less cost to sell. There were no impairments of
long-lived assets at December 31, 2016.
Deferred Financing Costs
Deferred financing costs include legal, financing, and placement fees associated with the issuance
of long-term debt, and are presented net of the related long-term debt issuances, in accordance
with FASB Accounting Standards Update (ASU) 2015-03. These costs are amortized using the
interest method over the period the related obligations are outstanding.
Professional, General and Workers Compensation Liabilities
The Network’s policy is to accrue an estimate of the ultimate cost of malpractice and workers
compensation claims covered through either its wholly owned captive insurance companies or
insurance policies with third party insurers. These accrued liabilities are included in other liabilities
in the accompanying consolidated balance sheet. The Network also records an estimate for
insurance recoveries associated with these claims, which is recorded in other assets in the
consolidated balance sheet.
Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets are those funds whose use has been limited by donors to a
specified time period and/or purpose. Temporarily restricted net assets are available for the
funding of healthcare services and capital acquisitions. Permanently restricted net assets have
been restricted by donors to be held in perpetuity and the income from permanently restricted net
assets is expendable to support various health care services. Resources arising from the results of
operations or assets set aside by the Board of Trustees are not considered to be donor restricted.
Included in unrestricted net assets are board designated endowment funds of $109,182 at
December 31, 2016.
Unconditional promises to give cash and other assets are reported at fair value at the date the
promise is received, which is then treated as the cost basis. The gifts are reported as either
temporarily or permanently restricted support if they are received with donor stipulations that limit
the use of the donated assets. When a donor restriction expires, that is, when a stipulated time
restriction ends or purpose restriction is accomplished, temporarily restricted net assets are
reclassified as unrestricted net assets and reported in the consolidated statement of operations as
net assets released from restrictions. Net assets released from restrictions for capital acquisitions
are excluded from excess of revenues over expenses within the consolidated statement of
operations. Net assets released from restrictions for noncapital purposes are included within
operating income. Donor-restricted contributions whose restrictions are met within the same year
as received are reflected as unrestricted net assets.
The Boards of HUMCF, PMCF, and MHF, collectively (the “Foundations”), consistent with
regulatory requirements, require the preservation of the fair value of the donor-restricted
endowment funds, absent explicit donor stipulations to the contrary. As a result, the Foundations
classify permanently restricted net assets as (a) the original value of gifts donated to the permanent
endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c)
15
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
accumulations to the permanent endowment made in accordance with the direction of the
applicable donor gift instrument at the time the accumulation is added to the fund. The remaining
portion of the donor-restricted endowment fund that is not classified in permanently restricted net
assets is classified as temporarily restricted net assets until those amounts are appropriated for
expenditure in accordance with donor intent and in a manner consistent with the standard of
prudence prescribed by state laws.
Net Patient Service Revenue and Patient Accounts Receivable
Net patient service revenue is accounted for on the accrual basis in the period in which the service
is provided. These amounts are net of appropriate allowances to give recognition to differences
between the Network’s charges and reimbursement rates from third party payors. The Network is
reimbursed from third party payors under various methodologies based on the level of care
provided. Certain net revenues received are subject to audit and retroactive adjustment for which
amounts are accrued on an estimated basis in the period the related services are rendered and
adjusted in future periods as final settlements are determined.
The process for estimating the ultimate collection of receivables involves significant assumptions
and judgments. Account balances are written off against the allowance when management feels it
is probable the receivable will not be recovered. The use of historical collection and payor
reimbursement experience is an integral part of the estimation process related to reserves for
doubtful accounts. Revisions in reserve for doubtful accounts estimates are recorded as an
adjustment to bad debt expense.
A summary of the payment arrangements with major third party payers is as follows:
 Medicare - inpatient acute care services and most outpatient services rendered to Medicare
program beneficiaries are paid at prospectively determined rates per discharge. These
rates vary according to a patient classification system that is based on clinical, diagnostic
and other factors. Certain outpatient services and medical education costs related to
Medicare beneficiaries are paid based on a cost reimbursement methodology, the Network
are reimbursed for cost reimbursable items at a tentative rate with final settlement
determined after submission of annual cost reports and audits thereof by the Medicare fiscal
intermediary.
The classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by a peer review
organization under contract with the Network. The Network’s Medicare cost report audit
status is as follows: PMC has been audited and finalized by the Medicare fiscal intermediary
through December 31, 2014. All other entities have been audited and finalized through
December 31, 2013, except for 2010 for HUMC and RBMC, 2011 for OMC, and 2010 and
2011 for RMC, which have been audited, but not yet finalized by the fiscal intermediary.
 Medicaid - inpatient acute care services rendered to Medicaid program beneficiaries are
reimbursed under a prospective methodology which is based on the former Chapter 83
reimbursement system. Outpatient services are paid based upon a cost reimbursement
methodology and certain services are paid based on a Medicaid fee schedule. The
Network’s Medicaid cost reports have been audited and finalized by the Medicaid fiscal
intermediary for RMC and SOMC through December 31, 2014; for JSUMC, OMC, BCH,
PMC and RBMC through December 31, 2013. HUMC’s Medicaid cost reports have been
audited through December 31, 2013, and have been finalized by the Medicaid fiscal
intermediary through December 31, 2006.
16
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
 The Network has also entered into payment agreements with certain commercial insurance
carriers, health maintenance organizations and preferred provider organizations. The basis
for payment under these agreements includes prospectively determined rates per patient
day or procedure and discounts from established charges.
The Network record gross patient service revenue on an accrual basis at established rates, with
contractual and other allowances added to or deducted from such amounts to determine net patient
service revenue. The Network maintains policies and records to identify and monitor these
contractual allowances and the level of charity care. These records include the amount of
deductions from gross revenue due to qualified services provided under the State’s charity care
guidelines. The components of net patient service revenue are as follows:
Gross charges
Contractual and other allowances
Provision for bad debt
Change in estimate of prior year's net patient service revenue
Charity care subsidy
Medicaid Delivery System Reform Incentive Program (DSRIP) revenues
$
7,921,803
(6,007,892)
(69,323)
26,626
8,350
8,206
$
1,887,770
The mix of patient service revenue, net of contractual allowances from patients and third party
payors for the six months ended December 31, 2016 is as follows:
Medicare (including managed care)
Medicaid (including managed care)
New Jersey Blue Cross
Other managed care and commercial
Self-pay
36 %
12
19
32
1
100 %
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to
interpretation for which action for noncompliance includes fines, penalties and exclusion from the
Medicare and Medicaid programs. The Network believes that they are currently in compliance with
all applicable laws and regulations. The Network has established a Corporate Compliance
Program to monitor compliance with various regulations.
Performance Indicator
The consolidated statement of operations includes excess of revenues over expenses as the
performance indicator. Changes in unrestricted net assets which are excluded from excess of
revenues over expenses, consistent with industry practice, include distributions to noncontrolling
interests, pension-related adjustments, changes in net unrealized gains (losses) on investments,
net assets released from restriction - capital acquisitions and other changes in unrestricted net
assets.
The Network differentiates its core operating activities through the use of excess of revenues over
expenses before other operating adjustments as an intermediate measure of operations. For the
purposes of display, investment income and certain other transactions, which management does
17
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
not consider being components of the Network’s core operating activities, are reported as other
operating adjustments in the consolidated statement of operations.
New Authoritative Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This
standard implements a single framework for recognition of all revenue earned from customers.
This framework ensures that entities appropriately reflect the consideration to which they expect to
be entitled in exchange for goods and services by allocating transaction price to identified
performance obligations and recognizing revenue as performance obligations are satisfied.
Qualitative and quantitative disclosures are required to enable users of financial statements to
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The standard is effective for fiscal years beginning after December 15,
2017. The Network is currently assessing the impact the adoption of this standard will have on
their consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest, aims to simplify the
presentation of debt issuance costs. This standard requires all costs incurred to issue debt to be
presented in the balance sheet as a direct deduction from the carrying value of the associated debt
liability. The standard is effective for fiscal years beginning after December 15, 2015. The Network
adopted this standard, and the updated presentation is reflected in the consolidated balance sheet
as of December 31, 2016.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement and Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This
guidance requires entities to present investments that use NAV as a practical expedient for
valuation purposes separately from other investments categorized in the fair value hierarchy
described in Note 1. The standard is effective for fiscal years beginning after December 15, 2016.
The Network is currently assessing the impact the adoption of this standard will have on their
consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
This guidance primarily affects the accounting for equity investments, financial liabilities under the
fair value option, and the presentation and disclosure requirements for financial instruments.
Certain financial institutions and companies with large equity investment portfolios that are not
currently being measured at fair value through the income statement are most affected by the new
standard. The new standard also allows entities that are not public business entities and do not
carry financial instruments at fair value in the statement of financial position to no longer be
required to disclose the fair value and significant assumptions used to estimate the fair value of
such financial instruments. The standard is effective for fiscal years beginning after December 15,
2018 for nonpublic business entities. The Network early adopted the portion of the standard that
eliminates the disclosure requirement for financial instruments that are not recorded at fair value.
As such, the Network has removed the disclosures of fair value of debt as of December 31, 2016.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance,
lessees will be required to recognize the following for all leases (with the exception of leases with a
term of twelve months or less) at the commencement date: (a) a lease liability, which is a lessee‘s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
18
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
a specified asset for the lease term. Under the new guidance, lessor accounting is largely
unchanged. The guidance requires a modified retrospective transition approach for leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for
leases that expire before the earliest comparative period presented. A full retrospective transition
approach is not permitted. This guidance will be effective for the Network beginning in fiscal year
2019. Early application is permitted. The Network is currently assessing the impact the adoption
of this standard will have on their consolidated financial statements.
In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements for Not-forProfit Entities. This standard marks the completion of the first phase of a larger project aimed at
improving not-for-profit financial reporting. Under the new guidance, the existing three categories
of net assets will be replaced with a simplified model that combines temporarily restricted and
permanently restricted net assets into a single category called “net assets with donor restrictions”
and renames unrestricted net assets as “net assets without donor restrictions.” There will be new
reporting requirements for expenses and additional disclosures to describe an organization’s
liquidity. The standard is effective for fiscal years beginning after December 15, 2017. The
Network is currently assessing the impact this standard will have on their 2018 consolidated
financial statements.
2.
Charity and Uncompensated Care
The Network provides care to patients who meet certain criteria defined by the New Jersey
Department of Health and Senior Services without charge or at amounts less than its established
rates. The Network maintains records to identify and monitor the level of charity care it provides.
These records include the amount of charges foregone for services and supplies furnished. The
Network receives partial reimbursement for the uncompensated care provided. Of the Network’s
total consolidated operating expenses reported, estimated costs of $49,554 for the six month
period ended December 31, 2016 are attributable to providing services to charity patients. The
estimated costs of providing charity services are based on a calculation which applies a ratio of
cost to charges to the gross uncompensated charges associated with providing care to charity
patients. The ratio of cost to charges is calculated based on the Network’s total operating
expenses, excluding bad debt expense, divided by gross patient service revenue.
19
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
3.
Assets Limited as to Use and Investments
The following tables provide a summary of the Network’s assets limited as to use and investments
that are measured at fair value on a recurring basis at December 31, 2016:
Quoted Prices
In Active
Markets
for Identical
Assets
(Level 1)
Other than trading securities
Under bond indenture agreements
held by Trustee
Cash and cash equivalents
U.S. government obligations
$
Total under bond indenture
agreements held by trustee
Under Board of Trustee designation
Cash and cash equivalents
Mutual funds and common/collective trusts
U.S. government obligations
Municipal debt securities
Corporate debt securities
48,407
-
Significant
Other
Observable
Inputs
(Level 2)
$
26,404
Significant
Unobservable
Inputs
(Level 3)
December 31,
2016
$
$
-
48,407
26,404
48,407
26,404
-
74,811
18,069
69,307
350,418
-
2,161
414,742
55,331
7,165
67,115
-
20,230
484,049
405,749
7,165
67,115
437,794
546,514
-
984,308
Certificate of deposits
Money market fund
Accrued interest
Alternative investments
21,800
1,540
1,317
90,438
Total under Board of Trustee designation
1,099,403
Under donor designation
Mutual funds and common/collective trusts
257
13,582
-
13,839
257
13,582
-
13,839
Money market account
Alternative investments
184
276
Total under donor designation
14,299
Total assets whose use is limited and investments - other than trading securities
20
$ 1,188,513
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Quoted Prices
In Active
Markets
for Identical
Assets
(Level 1)
Trading Securities
Under Board of Trustees designation
Cash and cash equivalents
Mutual funds and common/collective trusts
Corporate equity securities
Corporate debt securities
U.S. government obligations
Annuity contract
$
17,950
162,389
229,890
27,577
437,806
Significant
Other
Observable
Inputs
(Level 2)
$
3,401
3,540
31,248
163,803
64,149
266,141
Significant
Unobservable
Inputs
(Level 3)
$
5,826
December 31,
2016
$
5,826
21,351
165,929
261,138
163,803
91,726
5,826
709,773
Accrued interest
Total under Board of Trustees designation
893
710,666
Under Donor designation
Cash and cash equivalents
Mutual funds and common/collective trusts
Corporate equity securities
Corporate debt securities
U.S. government obligations
Total under donor designation
2,549
27,964
7,963
-
183
7,550
7,742
38,476
15,475
-
2,549
27,964
8,146
7,550
7,742
-
53,951
Restricted cash
3,973
Total assets whose use is limited and investments- trading securities
$
768,590
Assets whose use is limited and investments are reported on the consolidated balance sheet at
December 31, 2016 as follows:
Total assets whose use is limited and investments - other than trading securities
Total assets whose use is limited and investments- trading securities
$
$
Assets whose use is limited and investments, current portion
Assets whose use is limited and investments, noncurrent portion
1,188,513
768,590
1,957,103
$
1,005,403
951,700
$
1,957,103
There were no transfers between Levels 1, 2 or 3 during the six month period ending December 31,
2016.
At December 31, 2016, the Network’s remaining outstanding funding commitments to alternative
investments approximated $7,504.
21
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Assets under bond indenture agreements held by trustees are maintained in the following accounts
at December 31, 2016:
Debt service fund, principal
Debt service fund, interest
Debt service reserve fund
Construction fund
Other
Total assets under bond indenture agreements
$
31,228
14,704
28,685
2
192
$
74,811
Investment income consists of the following for the six month period ended December 31, 2016:
Interest and dividend income
Realized gains and losses
Net change in unrealized gains and losses
Investment management fees
Other gains and losses
4.
$
18,422
5,599
12,080
(945)
262
$
35,418
Property and Equipment
Property and equipment, including assets held under capital lease obligations, consist of the
following at December 31, 2016:
Land
Land improvements
Buildings and fixed equipment
Major movable equipment
$
103,980
21,446
2,236,566
1,133,377
3,495,369
Accumulated depreciation and amortization
Construction-in-progress
(1,818,505)
196,196
Property and equipment, net
$
22
1,873,060
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
5.
Long-Term Debt and Capital Lease Obligations
The Network has various bond issues outstanding, primarily issued through the New Jersey Health
Care Facilities Financing Authority (the “Authority”), as well as various bank loans, mortgages and
capital lease obligations. Within the Network are the following three separate legally obligated
groups for certain borrowings with the Authority and other lenders: (1) HUMC and 20 Prospect
Holdings, LLC (“HUMC Obligated Group”); (2) MHC (excluding RBMC) and HMNR (“Meridian
Obligated Group”); and (3) PMC, PGC and PMA (“Palisades Obligated Group”). Each obligated
group is subject to covenants under separate Master Trust Indentures (“MTI”) with the Authority.
Long-term debt and capital lease obligations consist of the following at December 31, 2016:
HUMC Obligated Group
Bank line of credit (entered into in December 2016) with an interest rate of 1-month LIBOR plus 0.30%,
reset on a monthly basis. Monthly payments due are of interest only; and the maturity date is June 30,
2017. (1)
$
73,763
Bank loan, Series 2016, which has an annual interest rate of 2.59%, a term of 120 months with a 25year amortization, and a fixed monthly payment of $92; commencing July 28, 2016 and ending July 28,
2041. (2)
20,114
Bank loan (tax-exempt), Series 2015A (issued through the Authority), which has an annual interest rate
of 2.38%, a term of 120 months with a 25-year amortization, and a fixed monthly payment of $372;
commencing August 12, 2015 and ending July 12, 2040.
80,615
Bank loan, Series 2015B (issued through the Authority) which has an annual interest rate of 3.31%, a
term of 120 months with a 25-year amortization, and a fixed monthly payment of $177; commencing
August 12, 2015 and ending July 12, 2040.
34,736
Bank loan, Series 2013A, which has an annual interest rate of 1.93% and a term of 84 months with a
fixed monthly payment of $957, commencing May 1, 2013 and ending April 1, 2020.
37,019
Bank loan, Series 2013B, which has an annual interest rate of 1.80% and a term of 84 months with a
fixed monthly payment of $1,270, commencing May 1, 2013 and ending April 1, 2020.
49,241
Serial bonds, Series 2010 (issued through the Authority) which mature annually from January 1, 2011
through January 1, 2025, and bear interest at rates ranging from 3.0% to 4.5%, payable semiannually.
25,885
Term bonds, Series 2010B (issued through the Authority), which mature from January 1, 2026 through
January 1, 2028 and bear interest at rates ranging from 4.25% to 5.0% payable semiannually.
10,840
Term bonds, Series 2010 (issued through the Authority), which mature from January 1, 2030 through
January 1, 2034, and bear interest at rates ranging from 4.625% to 5.0% payable semiannually.
38,480
Serial bonds, Series 2010B (issued through the Authority), which mature annually from January 1, 2012
through January 1, 2025, and bear interest at rates ranging from 4.0% to 4.25%, payable semiannually.
25,160
23
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Serial bonds, Series 2008 (issued through the Authority), which mature annually from January 1, 2009
through January 1, 2018, and bear interest at rates ranging from 3.5% to 5.0%, payable semiannually.
Term bonds, Series 2008 (issued through the Authority), which mature from January 1, 2021 through
January 1, 2041, and bear interest at rates ranging from 5.125% to 5.375% payable semiannually.
New Jersey Economic Development Authority ("NJEDA") Series 1997 Revenue Bonds which mature
annually from January 1, 1998 through January 1, 2022, and bear interest at stated rates ranging from
4.1% to 5.7%.
Accreted bond interest payable on the capital appreciation portion of the NJEDA Series 1997 bonds
due between January 1, 2012 and January 1, 2022.
Total HUMC Obligated Group
3,575
212,160
16,101
32,085
659,774
Palisades Obligated Group
Revenue and Refunding bonds, Series 2013 (issued through the Authority) which mature annually at
varying dates between 2023 and 2043, with interest rates ranging from 3.15% to 5.5%, payable
semiannually.
35,935
Total Palisades Obligated Group
35,935
Meridian Obligated Group
Revenue bonds, Series 2016A (issued through the Authority), principal and interest payments made
monthly, maturing on July 1, 2038 and has interest rate of 1.01% at December 31, 2016.
128,965
Revenue bonds, Series 2015A (issued through the Authority), principal and interest payments payable
monthly, maturing November 1, 2045 with annual rate of 2.5%.
125,306
Refunding bonds, Series 2013A (issued through the Authority) , in varying maturities through July 1,
2032 at annual interest rates varying between 2.0% and 5.0% payable semiannually.
24,260
Refunding bonds, Series 2011 (issued through the Authority), in varying maturities through July 1, 2027
at annual interest rates varying between 2.0% and 5.0% payable semiannually.
140,735
Revenue bonds, Series 2007 (issued through the Authority), maturing on July 1, 2038 at an annual
interest rate of 5.0% payable semiannually.
136,200
Revenue bonds, Series 2006 (issued through the Authority), maturing on July 1, 2036, principal paid
annually, interest is payable monthly and determined weekly based upon market rates with a 12% per
annum maximum, interest rate was 0.69% at December 31, 2016.
15,385
Variable rate composite revenue bonds (issued through the Authority), Series 2006 A-3 maturing on
July 1, 2031,interest is payable monthly and the interest rate is determined weekly based on market
rates with a 12% per annum maximum, interest rate was 0.83% at December 31, 2016.
3,500
Variable rate composite revenue bonds (issued through the Authority), Series 2004 A-3 maturing on
July 1, 2035, interest is payable monthly and the interest rate is determined weekly based on market
rates with a 12% per annum maximum, interest rate was 0.71% at December 31, 2016.
10,735
Revenue bonds, Series 2003 (issued through the Authority), maturing on July 1, 2033, interest is
payable monthly and is determined weekly based on market rates with a 12% per annum maximum,
interest rate was 0.72% December 31, 2016.
60,000
24
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Variable rate revenue bonds, Series 1998A (issued through NJEDA), varying maturities through July
2028, interest payable monthly and is determined weekly based on market rates with a 12% per annum
maximum, principal is payable semiannually, interest rate was 0.71% at December 31, 2016.
9,270
Capital asset loan totaling $7,000 (issued through the Authority on behalf of MNR), maturing in
November 2017. Principal and interest are paid monthly. The loan is collateralized by a pledge of
gross revenues. As of December 31, 2016, the interest rate on the bonds was 3.56%.
3,173
Total Meridian Obligated Group
657,529
Other Network borrowings
Revenue bonds Series 2006 A-4 (issued through the Authority by Realty) maturing on July 1, 2027,
interest is payable monthly and the interest rate is determined weekly based on market rates with a
12% per annum maximum interest rate was 0.69% at December 31, 2016.
14,630
Revenue bonds Series 2006 A-5 (issued through the Authority by Realty) maturing on July 1, 2036,
interest is payable monthly and the interest rate is determined weekly based on market rates with a
12% per annum maximum interest rate was 0.69% at December 31, 2016.
10,915
Various commercial mortgages with fixed interest rates ranging from 3.625% to 4.25% and variable
interest rates equal to the LIBOR rate for each period plus 0.85% to 1.0%. Each note is collateralized
by a mortgage. Principal and interest are paid monthly.
32,894
Total Other Network borrowings
58,439
Capital Lease Obligations (all Network entities)
Capital lease obligations and other obligations with interest rates ranging from 1.74% to 12.3%.
Obligations are collateralized by equipment financed through the leases.
8,237
Total Capital Lease Obligations (all Network entities)
8,237
Total long-term debt and capital lease obligations
Current portion of accreted interest, included in accrued interest payable
Unamortized bond premium (discount), net
Deferred financing costs, net of accumulated amortization
Less: current portion
Long-term debt and capital lease obligations, less current maturities
1,419,914
(6,102)
10,889
(9,685)
(147,624)
$
1,267,392
(1) In December 2016, the HUMC Obligated Group entered into an $80,000 line of credit, of
which $73,763 was drawn and outstanding as of December 31, 2016. The funds from this
loan were used to defease: (1) the portion of its Series 2010B bonds with a call date of
January 1, 2020 at a par amount of $58,440 plus interest escrowed to the call date of $8,289
and (2) the portion of the Palisades Obligated Group Series 2013 bonds with a call date of
July 1, 2023 at a par amount of $7,780 plus interest escrowed to the call date of $2,510.
(2) In August 2016, the HUMC Obligated Group entered into a bank loan totaling $20,300. The
net proceeds of this loan was used to re-pay its outstanding non-recourse loan with
Mountainside Hospital, including its accrued interest in its entirety (See Note 1). The loan
requires a fixed monthly payment over a 120-month period from September 2016 to August
2026, at which point a balloon payment is due for the remaining outstanding principal due on
the borrowings. The collateral is the HUMC Obligated Group’s gross receipts and a mortgage
lien on HUMC’s principal facilities.
Management is not aware of any noncompliance with any of the required covenants related to its
outstanding debt at December 31, 2016. The Obligated Groups’ most restrictive covenants are
meeting minimum requirements for debt service coverage ratio, days cash on hand and a cushion
25
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
ratio. At December 31, 2016, the Obligated Groups were in compliance with all financial ratio
covenants.
The future principal payments on long-term debt and payments on capital lease obligations are as
follows:
Capital
Lease
Obligations
Long-Term
Debt
2017
2018
2019
2020
2021
Thereafter
$
152,178
100,923
172,499
58,477
51,360
876,240
$
1,411,677
Amounts representing interest on capital
lease obligations
6.
$
1,411,677
$
9,411
-
Total debt and capital lease obligations
2,844
2,381
1,954
1,009
555
668
Total
1,421,088
(1,174)
$
8,237
155,022
103,304
174,453
59,486
51,915
876,908
(1,174)
$
1,419,914
Interest Rate Swap Agreements
The Network currently has five forward starting pay fixed interest swap agreements which were
entered into to mitigate variable rate exposure and take advantage of low interest rates. Under the
terms of these agreements, the Network is paying fixed interest rates ranging from 3.33% to 3.88%
in exchange for variable rate payments equal to either 67% or 68% of the one month LIBOR rate.
The notional amount on these swap agreements are also tied to the outstanding principal on the
underlying bond series.
At December 31, 2016, the fair value of the Network’s derivative instruments were in a liability
position of $61,982 and included in other liabilities in the consolidated balance sheet. The fair
values of the Network’s derivative instruments are classified as Level 2 financial instruments and
reflect a risk of nonperformance adjustment of approximately $5,500. The total gain recognized on
these derivatives for the six month period ended December 31, 2016 was $26,987, which was
included within other operating adjustments in the consolidated statement of operations.
7.
Pension Plans, Postretirement Health Care and Postemployment
The Network has multiple noncontributory defined benefit retirement plans covering most
employees. The Network’s fund policy is to contribute annually an amount no less than the
minimum amount required by the Employee Retirement Income Security Act of 1974, plus
additional amounts, which may be approved by the Corporation from time to time. The following
describes the various noncontributory defined benefit retirement plans:
HUMC Defined Benefit Pension Plan and Other Benefit Plan
HUMC has a noncontributory defined benefit retirement plan (the “HUMC Plan”) covering most
employees. In 2010, HUMC announced to all employees a change in its qualified defined benefit
26
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
pension plan. Beginning January 1, 2011, most of its employees automatically earned retirement
benefits under two new retirement plans, a defined contribution plan and a retirement savings plan.
Any employee whose age and years of vesting service total at least 65 remains in the defined
benefit plan and earns benefits under a new pension formula. The new pension formula continues
to use an employee’s compensation and years of service, but benefits grow more evenly and
slower over the remaining course of an employee’s career.
Additionally, HUMC had a defined benefit plan for Postretirement Life Insurance benefits for eligible
employees who retired after age 55 with at least 10 years of service. Retirees were insured for a
percentage of their final salary at retirement based on their age at retirement. These benefits were
eliminated for anyone retiring after July 1, 2009.
MHC Defined Benefit Cash Balance Pension Plan
The defined benefit cash balance plan (the “MHC Plan”) was created on January 1, 1998 through
the conversion and merger of predecessor defined benefit plans. Benefits calculated based upon
the predecessor plans were frozen as of December 31, 1997. Beginning January 1, 1998 benefits
are based upon contributions to participants’ accounts at a percentage of the employee’s salary.
On December 31, 2009, the MHC Plan was effectively frozen. Any employee eligible to participate
in MHC Plan on December 31, 2009 will continue to accrue benefits under this plan until
retirement. All new employees joining MHC after this date will be eligible to participate in a
new 403(b) savings plan.
BCH Defined Benefit Pension Plan
BCH was the sponsor of a noncontributory defined benefit pension plan (the “BCH Plan”) covering
substantially all of BCH’s employees. Benefits are based on salary and years of service. In 1999,
BCH froze the BCH Plan to new participants and no benefits will accrue for future services.
RBMC Pension Plan
The Employees’ Retirement Plan of Raritan Bay Health Services Corporation (the “RB Plan”) is a
noncontributory defined benefit retirement plan. The RB Plan was frozen on December 31, 2004.
Prior to December 31, 2004, the RB Plan covered all employees who had completed one year of
service.
PMC Pension Plan
PMC is the sponsor of a noncontributory defined benefit pension plan (the “PMC Plan”) covering
certain of its employees. The benefits are based on years of service and the employees’ last ten
years of average earnings. During 2006, Palisades amended the pension plan such that
employees hired after June 1, 2006, do not participate in the plan. A defined contribution plan was
established for such employees as described herein. Certain other changes were made which
became effective January 1, 2007, and relate to employees subject to a collective bargaining
agreement and the manner that future benefits will accrue for such employees. Certain
amendments to the retirement benefits formula were adopted in 2009, effective January 1, 2010.
The amendments include revisions to the percentage of compensation used for the determination
of certain benefits and to the definition of compensation used in the computation.
27
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
The following table sets forth the funded status of the combined defined benefit pension plans and
other benefit plans:
December 31, 2016
Pension
Other
Benefits
Benefits
Change in benefit obligation
Benefit obligation at beginning of year
$ 1,236,204
$
838
Acquisition of RB Plan
184,486
Acquisition of PMC Plan
145,756
Service cost
34,663
Interest cost
68,489
35
Actuarial loss
34,721
8
Benefits paid
(66,474)
(53)
Settlements
(566)
Net benefit obligation at end of year
1,637,279
Change in plan assets
Fair value of plan assets at beginning of year
Acquisition of RB Plan
Acquisition of PMC Plan
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
828
976,283
137,867
83,888
84,435
25,854
(66,474)
(612)
Fair value of plan assets at end of year
Funded status at end of year
Accumulated benefit obligation, end of year
Amounts recognized in the consolidating
balance sheet consist of
Current liability (included in accounts payable
and accrued expenses)
Accrued pension benefits
Other liabilities, noncurrent
Total accrued pension liability
Amounts recognized in unrestricted net assets not yet
captured within net periodic benefit costs consist of
Net loss
Prior service credit
Amounts in unrestricted net assets expected to be
recognized in 2017 net periodic benefit cost
Net loss (gain)
Prior service credit
28
53
(53)
-
1,241,241
-
$
396,038
$
828
$
1,588,224
$
828
$
5,756
390,282
-
$
85
743
$
396,038
$
85
$
(491,083)
32,020
$
(1,709)
-
$
(459,063)
$
(1,709)
$
14,826
(4,153)
$
(145)
-
$
10,673
$
(145)
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
At December 31, 2016, the respective plans utilized discount rates within the ranges as described
below for the determination of the benefit obligations at December 31, 2016 and the net periodic
pension cost for the period ended December 31, 2016:
Weighted-average assumptions used to determine
benefit obligations
Discount rate
Rate of compensation increase
3.67 - 4.54%
3.00 - 3.50%
Weighted average assumptions used to determine net
periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
3.95 - 4.77%
7.00 - 7.63%
3.00 - 4.50%
The net periodic pension cost and other changes in benefits and plan assets included the following
components:
December 31, 2016
Pension
Other
Benefits
Benefits
Service cost
Interest cost
Expected return on assets
Settlement loss
Amortization of
Prior service credit
Actuarial loss (gain)
$
34,663
68,489
(85,316)
111
$
(3,725)
15,156
Net periodic benefit cost
Other changes in benefits and plan assets
(unrestricted net assets)
Current year actuarial loss
Amortization of actuarial (loss) gain
Amortization of prior service cost
Total pension-related adjustments
Total net periodic benefit cost and
pension-related adjustments
29
35
(151)
$
29,378
$
(116)
$
$
$
35,702
(15,156)
3,725
24,271
$
9
151
160
$
47,204
$
44
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Investment Policy
Upon completion of the merger on July 1, 2016, the Board of Trustees of the Network established
an Investment Committee whose responsibilities include oversight and management of each of the
pension plan investment portfolios. As such, the investment policy and strategy with respect to all
defined benefit plan portfolios is to provide for growth of capital with a moderate level of volatility by
investing in assets based on the respective plans’ target allocations. The expected long-term rate
of return assumptions are based on forward-looking return forecasts for the modeled asset classes
provided by the Medical Center’s investment management consultants. The long-term forecasts
are based on their analysis of longcycle historical data as well as their longer-term global views.
The target allocations have been set to achieve a long-term rate of return as follows for each plan:
Plan
HUMC Plan
MHC Plan
BCH Plan
RB Plan
PMC Plan
Rate of Return
7.63%
7.00%
7.00%
7.25%
7.50%
The target asset allocations of the pension plan assets are as follows:
HUMC Plan
Investment categories
Cash equivalents
Equities (domestic and foreign)
Fixed income
Real assets
Credit/arbitrage strategies
Alternative investments and hedge funds
MHC Plan
BCH Plan
RB Plan
PMC Plan
43%
30%
7%
5%
15%
53%
40%
7%
56%
41%
3%
5%
60%
35%
-
60%
30%
10%
100%
100%
100%
100%
100%
30
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Fair Value Measurements
The following table sets forth by level, within the fair value hierarchy, the Plans’ investments at fair
value as of December 31, 2016:
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Cash and cash equivalents
Corporate equity securities
Corporate bonds
Government Securities
Asset backed securities
Mortgage backed securities
Master limited partnership
Mutual funds-equity
Mutual funds-fixed income
Common/collective trust
Hedge Fund
Alternative investments
Total assets at fair value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Inputs
Unobservable
(Level 3)
Balances at
December 31,
2016
$
11,913
229,839
21,677
87,782
106,604
-
$
2,442
90,303
57,931
20,757
3,603
11,252
145,304
101,931
175,361
16,861
-
$
157,681
$
14,355
320,142
57,931
20,757
3,603
11,252
21,677
233,086
208,535
175,361
16,861
157,681
$
457,815
$
625,745
$
157,681
$
1,241,241
There were no transfers between Level 1 and Level 2 during 2016.
At December 31, 2016, the Network’s remaining outstanding funding commitments to alternative
investments were $5,007.
The table below sets forth a summary of the changes in the fair value of the Plans’ Level 3 assets
for the year ended December 31, 2016:
Private
Equity Funds
Hedge Fund
Balances at December 31, 2015
$
Realized (losses) gains
Unrealized gains (losses) relating to
instruments still held at the reporting date
Purchases
Sales/distributions
Balances at December 31, 2016
$
138,458
$
16,052
(135)
(268)
134
(823)
(114)
30
(2,653)
137,634
$
13,047
Real Estate
Funds
$
5,127
$
437
$
3,230
3,403
Total
$
-
(978)
98
(1,454)
Contributions
The Network expects to contribute $28,145 to its pension plans in 2017.
31
Commodities
Funds
34
367
$
3,770
163,040
(591)
128
(4,930)
$
157,681
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Estimated Future Benefit Payments
The following benefit payments which reflect future service as appropriate are expected to be paid:
Pension
Benefits
2017
2018
2019
2020
2021
2022–2026
$
75,061
74,239
78,570
84,932
88,807
511,628
Other
Benefits
$
85
81
76
73
69
296
Defined Contribution Plans
HUMC’s defined contribution plan and the retirement savings plan both provide for employer
contributions. The retirement savings plan is a noncontributory plan whereby the employer
contribution is specific to employees who do not accrue benefits under the old defined benefit plan
and equals two percent of the participant’s eligible compensation. The defined contribution plan
provides for employee and employer matching contributions. The matching employer contribution
is equal to 50 percent of the employee’s elective contribution up to a maximum employer
contribution ranging from 1.5% to 3% of eligible compensation, based on years of service
beginning in 2011. For the six-month period ending December 31, 2016, the contribution expense
related to the plans was $8,408 and is included in employee benefits within the consolidated
statement of operations.
HUMC also sponsors a nonqualified, unfunded supplementary employee retirement plan for certain
other employees. Similar to the changes under the qualified pension plan, HUMC froze benefits
under the nonqualified deferred compensation plan as of December 31, 2010. Beginning
January 1, 2011, certain management employees earn benefits under a newly designed
supplemental employee retirement plan. This plan is intended to remain as an unfunded
nonqualified deferred compensation plan which provides for an annual contribution in the form of a
percentage of base payroll.
MHC sponsors two 403(b) savings plans. The Meridian 403(b) Savings Plan for Cash Balance
Participants was adopted January 1, 1998. An employee is eligible for participation in this plan if
the employee was hired prior to January 1, 2010, after attaining the age of 21 and completion of
one year of eligible service. Matching contributions are received after 15 months of eligible service.
The second 403(b) plan is the Meridian 403(b) Savings Plan. An employee is eligible to participate
in this plan if the employee was hired on or after January 1, 2010. All employees who are
scheduled to work 20 hours or more per week are eligible to make elective deferrals beginning on
the date of hire. Employer matching contributions will begin after attaining the age of 21 and
completion of one year of service. Employees are eligible to receive employer non-elective
contributions equal to 3% of compensation immediately. Total employer contributions for the sixmonth period ending December 31, 2016 for both plans was $7,668.
MNR sponsors several 401(k) plans (“401(k)”) and a money purchase plan. Once an employee
has worked 1,000 hours in a calendar year, Meridian matches 100 percent up to 3 percent and 50
percent up to 2 percent of a team member’s contribution for Brick, Shrewsbury (nonunion); and
32
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Ocean Grove; and matches 100 percent up to 6 percent of pay at Wall. The Shrewsbury Union
plan is 100 percent employee funded with no matching contribution. The Shrewsbury Union Money
Purchase Plan is an employer funded plan and the employee receives $0.48 per hour worked.
Total contributions to the plans for the six-month period ending December 31, 2016 were $688.
Effective January 1, 2005, RBMC adopted a defined contribution pension plan (the RB Retirement
Plan). The RB Retirement Plan provides for employer and employee contributions. All employees
scheduled to work at least 20 hours per week are eligible for RBMC’s 50% match on the first 4% of
the employee contribution. Under the RB Retirement Plan, a base contribution was made on
behalf of each eligible employee towards this program. The amount was based upon each
employee’s accumulated points (age and years of service). Effective May 2, 2009 the base
contribution was suspended, and effective August 22, 2010, the matching contribution was
suspended until further notice. Effective July 7, 2013, the RB Retirement Plan was amended to
provide a 50% match by RBMC on the first 2% of the employee’s contribution and employer
matching contributions were reinstated. Total contributions to the plans for the six-month period
ending December 31, 2016 were $307.
Palisades sponsors several defined contribution plans covering certain employees as described in
each respective plan document. Total contribution expense under these plans for the six-month
period ending December 31, 2016 was $650.
Other Benefit Plans
HUMC also sponsors a defined benefit postretirement health care plan that covers both salaried
and non-salaried employees, and is contributory to the level of the annual major medical
deductible.
HUMC has recognized liabilities, in connection with a self-insured medical and dental plan for its
employees of $4,563 at December 31, 2016. This liability is included in accounts payable and
accrued expenses in the consolidated balance sheet.
In addition, MHC provides certain postretirement and postemployment benefits.
The
postretirement and postemployment benefit plans provide health care benefits and life insurance
coverage to a limited group of employees. Current employees are not eligible for participation in
these plans. As of December 31, 2016, liabilities totaling $1,285 were included in other liabilities
related to estimated benefits payable under the postretirement and postemployment plans.
Benefits under the postretirement and postemployment benefit plans are paid as incurred.
Certain employees of the Network participate in various deferred compensation plans established
pursuant to Section 457 of the Code. In connection with these plans, the Network deposits
amounts with trustees on behalf of the participating employees. Under the terms of the plans, the
Network is not responsible for investment gains or losses incurred. The assets set aside under the
plans are designated for payments under the plans, but may revert to the Network under certain
specified circumstances. At December 31, 2016, amounts on deposit with the trustees (at fair
value) were equal to the liability under the plans.
33
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
8.
Operating Leases
The Network utilizes various types of equipment and space under operating leases. Rent expense
under these leases was approximately $17,095, for six-month period ended December 31, 2016.
The following is a schedule of the future minimum payments for the remaining years required under
operating leases currently in effect:
2017
2018
2019
2020
2021
Thereafter
9.
$
31,449
22,744
19,182
13,924
11,860
74,493
$
173,652
Functional Expenses
The Network provides general health care services and programs. Expenses related to providing
these services consist of the following:
Health care services
General and administrative
1,607,231
363,092
$
10.
1,970,323
Commitments and Contingencies
Lines of Credit
The Network had available lines of credit totaling $142,000 at December 31, 2016. The Network
has drawn $73,800 as of December 31, 2016 related to the acquisition financing (see Note 5). Of
the $68,200 remaining available lines, $11,950 is to be used as collateral in the form of letters of
credit for certain insurance policies at MHC, leaving $56,250 available for cash demands.
Additionally, the Network has a separate letter of credit totaling $1,450 outstanding as collateral for
certain high deductible insurance policies at BCH.
Litigation
Various suits, investigations and claims arising in the normal course of operations are pending or
are on appeal against the Network. Such suits and claims are either specifically covered by
insurance or are not material. While the outcome of these suits cannot be determined with
certainty at this time, management believes that any loss which may arise from those suits and
claims will not have a material adverse effect on the financial position or results of operations of the
Network.
11.
Professional and General Liability Insurance
The Network maintains alternative risk finance programs for its facilities via wholly-owned Bermuda
domiciled captive insurance companies. Additionally, certain risks are covered through third party
insurance policies.
34
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
The Network’s consolidated balance sheet includes the following estimated liabilities for hospital
professional liability (“HPL”), employed physician professional liability (“EPPL”) general liability
(“GL”) and workers compensation (“WC”) at December 31, 2016:
Type of coverage
HUMCCO insurance liabilities
Coastal insurance liabilities
Third party insured liabilities
Incurred but not reported
Nature of claims
HPL and GL
HPL, GL, EPPL and WC
WC
HPL, GL and WC
$
16,351
57,944
19,783
22,783
$ 116,861
Additionally, the Network has recorded estimated insurance recoveries totaling $30,420 at
December 31, 2106, which is included in other assets on the consolidated balance sheet. The total
represents estimated recoveries from both the captive companies’ reinsurance policies as well as
third party insurance policies.
Captive Insurance Companies
Coastal (established in 1998) and HUMCCO (established in 2003) provide various coverages to
legacy MHS facilities and legacy HUHN facilities, respectively. Both captives provide funding for
indemnification for respective HPL and GL exposures. Additionally, Coastal also provides funding
for indemnification for exposures related to EPPL; Excess HPL; and WC. Funding for each of
these programs is determined on an annual basis by consulting actuarial firms.
As of December 31, 2016, Coastal provides funding for HPL exposures of $1,000 per medical
incident subject to an annual aggregate of $3,000 and funding for GL exposures of $1,000 per
occurrence subject to an annual aggregate of $1,000. Coastal provides funding for EPPL
exposures of $1,000 per medical incident subject to an annual aggregate of $3,000 per physician.
Coastal also provides funding of $3,000 per medical incident excess of funding for Primary HPL
exposures. Coastal’s HPL and EPPL components respond to claims and suits on a claims-made
basis. Coastal’s GL component responds to claims and suits on an occurrence basis.
As of December 31, 2016, Coastal provides funding for the deductible portion of legacy MHS
workers compensation claims per occurrence exposures of $750 on an occurrence basis.
As of December 31, 2016, HUMCCO provides funding for HPL and GL exposures of $1,000 per
medical incident subject to an annual aggregate of $13,000. The HPL and GL components of the
HUMCCO program respond to claims and suits on a claims-made basis.
As both captives provide HPL and GL coverage on a claims-made basis, MHC and HUMC have
recorded estimated liabilities for claims incurred but not yet reported as of December 31, 2016
within other liabilities on the consolidated balance sheet.
Third Party Insurance- Workers Compensation
HUMC had an occurrence based policy for workers compensation claims with a third party
insurance company through June 30, 2016. Effective July 1, 2016, HUMC created its own selfinsured workers compensation plan, and has recorded an estimated liability for claims incurred but
not yet reported within the self-insurance period on the consolidated balance sheet as of December
31, 2016.
35
Hackensack Meridian Health, Inc.
Notes to Consolidated Financial Statements
December 31, 2016
(in thousands)
Reinsurance Coverage
For the period ending December 31, 2016, Coastal purchased annual reinsurance policies in the
amount of $45,000 per claim subject to an annual aggregate of $45,000 in excess of Coastal’s
primary and first excess layer.
For the period ending December 31, 2016, HUMCCO purchased reinsurance policies in the
amount of $5,000 with a $500 corridor deductible in excess of the HUMCCO primary retained layer
of $1,000. In addition, HUMC purchased additional layers of insurance totaling $75,000.
12.
Concentration of Credit Risk
The Network grants credit without collateral to its patients, most of whom are local residents and
are insured under third party payor agreements. Concentrations of gross accounts receivable from
patients and third party payors were as follows:
2016
26 %
42
29
3
Medicare and Medicaid
Managed Care/HMO
Other third party payors
Self-pay patients
100 %
13.
Subsequent Events
The Network performed an evaluation of subsequent events through March 28, 2017 which is the
date the consolidated financial statements were issued. The Network has determined that all
events or transactions, including estimates, required to be recognized in accordance with generally
accepted accounting principles, are included in the consolidated financial statements.
36
Consolidating Supplemental Schedules
Hackensack Meridian Health, Inc.
Consolidating Balance Sheet
December 31, 2016
(in thousands)
Hackensack
University
Medical
Center &
Subsidiaries
Assets
Current assets
Cash and cash equivalents
Patient accounts receivable, less allowance for uncollectible
accounts of $142,462
Pledges receivable, less allowance for
uncollectible pledges
Due from affiliates
Inventories
Other current assets
Assets whose use is limited and investments,
current portion
Total current assets
$
Investment in Joint Ventures
Assets whose use is limited and investments,
noncurrent portion
Property, plant and equipment, net
Other assets
Due from affiliates
Total assets
Liabilities and Net Assets
Current liabilities
Current portion of long-term debt and capital
lease obligations
Accounts payable and accrued expenses
Due to affiliates
Other current liabilities
$
18,587
$
264,305
Hackensack
Meridian
Nursing and
Rehabilitation,
Inc.
$
7,897
Hackensack
Meridian
Home Care
Services, Inc.
& Subsidiary
Meridian
Medical
Group
$
8,264
$
43,595
Hackensack
Meridian
Health Realty
Corporation &
Subsidiaries
$
5,154
Meridian
Health
Foundation Inc,
&
Subsidiaries
Coastal
Medical
Insurance
Limited
$
2,430
$
19,484
HackensackUMC
Foundation
$
347
Other
Affiliates
$
Eliminations
42,351
$
Total
-
$
634,207
162,487
23,923
175,447
9,747
7,283
5,863
-
-
-
-
1,904
(66)
386,588
33,496
37,305
53,560
126
6
2,412
4,804
8,968
39,371
22,071
24
303
306
1,628
474
173
2,339
2,822
1,053
10,957
2,613
74
22,790
22,872
1
1
673
128
7,441
(23)
(70,991)
(2,161)
33,851
79,993
91,772
488,808
997,449
2,064
51,922
412,394
922,556
375
18,652
17,175
8,196
58,301
10,315
81,486
84,969
1,970
35,098
2,834
48,844
7,276
59,774
(73,241)
1,005,403
2,231,814
77,749
110
1,867
-
-
5,702
933
-
-
-
33,774
185,581
655,300
82,817
1,524
55,819
74,577
23,941
-
597,026
974,961
63,730
89,039
16,380
55,193
7,498
-
6,774
-
25,654
962
-
76,374
4,265
-
-
69,384
976
15,249
-
7,162
-
2,001
27,943
36,669
153
-
120,135
(145)
(111,365)
(90,716)
951,700
1,873,060
129,966
-
$
2,000,420
$
206,369
$
2,649,179
$
97,723
$
23,949
$
90,619
$
91,887
$
84,969
$
120,707
$
56,006
$
160,314
$
(275,467)
$
5,306,675
$
115,966
223,628
22,853
57,949
$
1,692
25,910
14,803
8,564
$
21,001
210,099
6,320
119,121
$
4,722
11,434
8
4,203
$
18,564
2,145
-
$
4,640
87
966
$
1,954
1,564
-
$
120
-
$
1,127
1,788
14
$
202
-
$
2,916
9,198
31,200
5,677
$
(627)
(3,178)
(79,204)
-
$
147,624
503,308
196,494
Total current liabilities
Long-term debt and capital lease obligations,
less current maturities
Accrued pension benefits
Other liabilities
Total liabilities
Net assets
Unrestricted
Noncontrolling interest in subsidiaries
Total unrestricted net assets
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
221,793
Meridian
Hospitals
Corporation
&
Subsidiary
HackensackUMC
Palisades
&
Affiliates
$
420,396
50,969
356,541
20,367
20,709
5,693
3,518
120
2,929
202
48,991
(83,009)
847,426
533,039
241,179
90,498
35,290
54,659
15,004
604,222
94,444
257,524
39,530
272
-
1,358
48,702
453
57,944
398
842
8,547
2,207
(1,938)
(53,973)
1,267,392
390,282
372,527
1,285,112
155,922
1,312,731
60,169
20,709
7,051
52,673
58,064
3,327
1,044
59,745
(138,920)
2,877,627
661,565
-
49,692
-
1,255,979
-
37,554
-
3,240
-
83,568
-
38,149
1,065
26,905
-
35,523
-
777
-
72,323
28,241
(1,760)
(191)
2,263,515
29,115
661,565
49,692
1,255,979
37,554
3,240
83,568
39,214
26,905
35,523
777
100,564
(1,951)
2,292,630
35,648
18,095
661
94
56,720
23,749
-
-
-
-
-
58,021
23,836
38,168
16,017
5
-
(94,832)
(39,764)
94,391
42,027
715,308
50,447
1,336,448
37,554
3,240
83,568
39,214
26,905
117,380
54,962
100,569
(136,547)
2,429,048
2,000,420
$
206,369
$
2,649,179
$
97,723
$
23,949
$
90,619
$
91,887
$
84,969
$
120,707
$
The accompanying note is an integral part of these consolidating financial statements.
37
56,006
$
160,314
$
(275,467)
$
5,306,675
Hackensack Meridian Health, Inc.
Consolidating Statement of Operations
Six Month Period Ending December 31, 2016
(in thousands)
Hackensack
University
Medical
Center &
Subsidiaries
Revenues
Patient service revenue, net of contractual
allowances and discounts
Provision for bad debts
$
Net patient service revenue, less provision for bad debts
Other revenue
Net assets released from restrictions operating activities
Total revenues
Expenses
Salaries and contracted labor
Physician salaries and fees
Employee benefits
Supplies and other expenses
Depreciation and amortization
Interest
Provision for bad debts
Total expenses
774,066
(27,285)
Meridian
Hospitals
Corporation
&
Subsidiary
HackensackUMC
Palisades
&
Affiliates
$
103,213
(9,621)
$
992,820
(32,417)
Hackensack
Meridian
Nursing and
Rehabilitation,
Inc.
$
53,475
-
Hackensack
Meridian
Home Care
Services, Inc.
& Subsidiary
Meridian
Medical
Group
$
-
$
34,020
-
Hackensack
Meridian
Health Realty
Corporation &
Subsidiaries
$
-
Coastal
Medical
Insurance
Limited
$
-
Meridian
Health
Foundation Inc,
&
Subsidiaries
HackensackUMC
Foundation
$
$
-
-
Other
Affiliates
$
Eliminations
938
-
$
Total
(1,439)
-
$
1,957,093
(69,323)
746,781
93,592
960,403
53,475
-
34,020
-
-
-
-
938
(1,439)
1,887,770
98,749
6,515
26,140
2,523
112,424
4,324
16,735
8,956
3,680
5,005
64,007
(103,052)
246,006
301
-
1,970
-
-
-
-
-
-
725
-
(703)
2,293
845,831
100,107
988,513
55,998
112,424
38,344
16,735
8,956
3,680
5,730
64,945
(105,194)
2,136,069
281,127
67,263
64,384
336,245
35,885
12,940
-
47,666
6,749
9,762
30,068
4,703
1,157
-
360,259
28,474
75,784
349,572
35,109
15,389
-
28,947
6,835
17,940
1,476
404
1,669
11,384
55,369
7,091
33,118
1,214
5,322
19,403
3,927
9,349
114
4
266
40
13,807
1,120
676
-
10,660
-
1,988
379
1,100
36
75
1,168
259
9,070
-
15,770
19
4,426
47,020
1,002
536
(2)
(7,958)
(13,636)
(6,401)
(77,059)
(140)
-
760,020
144,238
166,486
780,890
80,519
31,102
7,068
797,844
100,105
864,587
57,271
113,498
32,797
15,909
10,660
3,578
10,497
68,771
(105,194)
1,970,323
2
123,926
(1,273)
5,547
826
(1,704)
(4,767)
(3,826)
-
248
-
13
-
1,207
-
1,098
1,240
(1,145)
(313)
-
5,795
839
(2,946)
-
218,933
-
-
(4,059)
(24,431)
6,172
Excess (deficiency) of revenues over expenses before
other adjustments
47,987
Other operating adjustments
Investment income
Unrealized gain on derivative investments
Loss on extinguishment of debt
Other losses (gains), net
Provision for income taxes
Excess (deficiency) of
17,811
(4,975)
-
revenues over expenses
60,823
Other changes in unrestricted
net assets:
Distributions to noncontrolling interests
Pension-related adjustments
Changes in net unrealized gains (losses) on investments
Net assets released from
restrictions - capital acquisitions
Other changes in net assets
Transfers (to)/from affiliates
(Decrease) increase in
unrestricted net assets
1,335
(1,554)
-
$
(217)
(4,035)
(58,668)
-
21,723
-
589
(6,452)
(36,042)
-
(43,785)
12,832
26,987
(2,485)
-
$
21,506
161,260
$
(1,074)
362
14
-
-
(897)
(1,074)
12,514
5,491
-
-
24
3,080
(1,413)
(5,169)
-
-
-
175,763
$
(897)
$
(1,074)
$
5,819
797
2
-
(497)
(42)
$
102
$
104
-
(24)
657
-
5,096
(3,716)
(497)
510
-
$
2,117
(4,257)
(2,195)
$
The accompanying note is an integral part of these consolidating financial statements.
38
-
(6,452)
216
42,050
$
39,320
165,746
35,418
26,987
(5,289)
(3,616)
(313)
(5,096)
6,476
5,072
$
6,452
3,669
(1,215)
$
199,069
Hackensack Meridian Health, Inc.
Note to Consolidating Supplemental Schedules
Six Month Period Ending December 31, 2016
1.
Basis of Presentation
The consolidating supplemental schedules (“consolidating schedules”) presented on pages 37-38
was derived from and relates directly to the underlying accounting and other records used to
prepare the consolidating financial statements. The consolidating schedules are presented for
purposes of additional analysis of the consolidating financial statements rather than to present the
financial position, results of operations, changes in net assets and cash flows of the individual
companies within the Network and are not a required part of the consolidated financial statements.
The individual companies within the Network as presented within the consolidating schedules are
disclosed within Note 1 to the consolidated financial statements.
39
APPENDIX B-2
Hackensack University Medical Center Consolidated Financial Statements,
December 31, 2016 and 2015
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
Hackensack University
Medical Center
Consolidated Financial Statements
December 31, 2016 and 2015
Hackensack University Medical Center
Index
December 31, 2016 and 2015
Page(s)
Report of Independent Auditors........................................................................................................ 1
Consolidated Financial Statements
Balance Sheets ..................................................................................................................................... 2
Statements of Operations ..................................................................................................................... 3
Statements of Changes in Net Assets .................................................................................................. 4
Statements of Cash Flows .................................................................................................................... 5
Notes to Financial Statements ........................................................................................................ 6–37
Report of Independent Auditors
To the Board of Trustees of
Hackensack Meridian Health, Inc.
We have audited the accompanying consolidated financial statements of Hackensack University Medical
Center and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2016
and 2015, and the related consolidated statements of operations, of changes in net assets and of cash
flows for the years then ended.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Hackensack University Medical Center and its subsidiaries as of
December 31, 2016 and 2015, and the results of their operations, changes in their net assets and their
cash flows for the years then ended in accordance with accounting principles generally accepted in the
United States of America.
March 28, 2017
PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017
T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us
Hackensack University Medical Center
Consolidated Balance Sheets
December 31, 2016 and 2015
(in thousands of dollars)
2016
Assets
Current assets
Cash and cash equivalents
Investments
Current portion of assets whose use is limited
Accounts receivable
Patients (less allowance for doubtful accounts of
$51,697 and $58,998 in 2016 and 2015, respectively)
Other
Due from affiliates
Inventories
Prepaid expenses
Total current assets
$
221,793
461,240
27,568
2015
$
166,490
434,590
31,970
162,487
39,331
33,496
37,305
14,229
997,449
157,884
40,063
8,830
37,971
17,609
895,407
Assets whose use is limited
Board designated
Deferred employee benefit plan assets
Trustee held assets under bond indenture
Assets held for captive insurance program
Donor-restricted assets
Total assets whose use is limited, less current portion
76,093
27,717
32,814
23,343
3,881
163,848
69,595
25,314
27,651
25,586
3,694
151,840
Investments in joint ventures
Investments, net of current portion
Property and equipment, net
Due from affiliates
Beneficial interest in net assets of the Foundation
Other assets
77,749
21,733
655,300
1,524
54,963
27,854
56,760
22,959
658,224
1,586
45,849
60,849
Total assets
Liabilities and Net Assets
Current liabilities
Accounts payable and accrued expenses
Accrued interest payable
Current portion of long-term debt
Other current liabilities
Due to affiliates
Total current liabilities
$
2,000,420
$
1,893,474
$
209,112
14,516
115,966
57,949
22,853
420,396
$
171,665
16,560
45,533
53,654
20,933
308,345
Long-term debt, less current portion
Accrued pension benefits
Estimated professional and workers compensation liabilities
Other liabilities
Total liabilities
Net assets
Unrestricted
Noncontrolling interest in subsidiary
Total unrestricted net assets
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
$
533,039
241,179
43,188
47,310
1,285,112
635,882
189,934
43,556
41,656
1,219,373
661,565
661,565
613,011
25,862
638,873
35,648
18,095
715,308
24,369
10,859
674,101
2,000,420
$
1,893,474
The accompanying notes are an integral part of these consolidated financial statements.
2
Hackensack University Medical Center
Consolidated Statements of Operations
December 31, 2016 and 2015
2015
2016
(in thousands of dollars)
Revenues
Net patient service revenue before provision for bad debts
Provision for bad debts
Net patient service revenue after provision for bad debts
$
1,530,468
(51,136)
1,479,332
$
1,445,663
(58,618)
1,387,045
Other revenues
Net assets released from restrictions - operations
Total revenues
228,258
306
1,707,896
238,041
2,283
1,627,369
Expenses
Salaries and contracted labor
Employee benefits
Supplies and other
Depreciation and amortization
Interest expense
Total expenses
Excess of revenues over expenses before other adjustments
707,241
131,698
678,879
68,548
26,640
1,613,006
94,890
685,706
116,211
641,412
62,264
26,597
1,532,190
95,179
Other operating adjustments
Investment income (loss) - net
Change in beneficial interest in net assets of Foundation
Loss on extinguishment of debt
Excess of revenues over expenses
30,521
(7,421)
(4,975)
113,015
(5,230)
(3,363)
86,586
Other adjustments in unrestricted net assets
Pension-related adjustments
Distributions to noncontrolling interests
Equity transfers to affiliates
Net assets released from restrictions - capital acquisitions
(42,768)
(7,738)
(41,236)
1,419
(17,233)
(6,709)
(2,650)
7,414
$
Increase in unrestricted net assets
22,692
$
The accompanying notes are an integral part of these consolidated financial statements.
3
67,408
Hackensack University Medical Center
Consolidated Statements of Changes in Net Assets
Years Ended December 31, 2016 and 2015
(in thousands of dollars)
2016
Unrestricted net assets
Excess of revenues over expenses
Pension-related adjustments
Distributions to noncontrolling interests
Equity transfer to affiliates
Net assets released from restrictions - capital acquisitions
Increase in unrestricted net assets
$
113,015
(42,768)
(7,738)
(41,236)
1,419
22,692
2015
$
86,586
(17,233)
(6,709)
(2,650)
7,414
67,408
Temporarily restricted net assets
Investment loss
Restricted gifts, bequests, and similar items
Change in beneficial interest in net assets of Foundation
Net assets released from restrictions
Increase in temporarily restricted net assets
(29)
1,540
11,493
(1,725)
11,279
(97)
9,648
7,696
(9,697)
7,550
Permanently restricted net assets
Restricted gifts, bequests, and similar items
Increase in permanently restricted net assets
Increase in net assets
7,236
7,236
41,207
798
798
75,756
674,101
598,345
Net assets
Beginning of year
End of year
$
715,308
$
674,101
The accompanying notes are an integral part of these consolidated financial statements.
4
Hackensack University Medical Center
Consolidated Statements of Cash Flows
Years Ended December 31, 2016 and 2015
(in thousands of dollars)
2016
Cash flows from operating activities
Change in net assets
Adjustments to reconcile change in net
assets to net cash provided by operating activities
Provision for bad debts
Depreciation and amortization
Equity transfer to affiliate
Loss (gain) on sale or disposal of property and joint venture
Amortization of premium/discount on bonds
Decrease in long-term accreted bond interest
Change in the value of investments
accounted for on the equity basis of accounting
Net unrealized (gain) losses on investments
Net realized losses on investments
Contributions restricted for capital acquisitions
Pension-related adjustments
Changes in operating assets and liabilities
Patients accounts receivable
Inventories and other assets
Beneficial interest in net assets of the Foundation
Due from affiliates
Accounts payable and accrued expenses
Accrued interest payable
Accrued pension benefits
Estimated professional liability costs
Other current liabilities
Other liabilities
$
41,207
2015
$
75,756
51,136
68,548
43,430
3,949
833
(3,472)
58,618
62,264
(9,566)
(194)
(1,764)
(2,517)
(20,061)
3,167
(1,419)
(42,768)
(3,483)
25,850
1,274
(7,414)
(17,233)
(57,102)
4,619
(9,114)
(22,684)
32,138
2,596
94,013
(368)
4,295
5,654
(57,679)
(33,278)
(3,696)
314
7,844
5,350
38,263
25,140
5,374
(909)
196,080
170,831
(63,580)
(17,911)
27
(19,646)
(42,850)
45,799
(170,967)
(4,904)
11,070
(81,062)
(47,929)
51,778
Net cash used in investing activities
(98,161)
(242,014)
Cash flows from financing activities
Issuance of long-term debt
Payment of deferred financing fees
Payments of long-term debt
Distributions to noncontrolling interests
Equity transfer to affiliate
Contributions restricted for capital acquisitions
94,374
(127,671)
(7,738)
(3,000)
1,419
120,203
(458)
(48,035)
(6,709)
7,414
(42,616)
72,415
55,303
1,232
166,490
165,258
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Investment in joint venture
Proceeds from sale of property and joint venture
Change in trading securities, net
Purchases of other than trading securities
Proceeds from sales of other than trading securities
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents
Beginning of year
End of year
$
221,793
$
166,490
Supplemental information
Cash paid for interest
Change in noncash acquisitions of property and equipment
$
24,827
4,562
$
22,377
5,434
The accompanying notes are an integral part of these consolidated financial statements.
5
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
1.
Organization and Summary of Significant Accounting Policies
Organization
Hackensack University Medical Center and its subsidiaries and controlled entities (the “Medical
Center”) comprise an integrated health care delivery system. The Medical Center is a 775-licensed
bed, nonprofit acute care hospital, which is incorporated as a New Jersey nonprofit, nonstock
corporation established to promote and carry out charitable, scientific, academic and research
activities.
Prior to July 1, 2016, the Medical Center was a subsidiary of Hackensack University Health
Network (“HUHN”). On March 1, 2016, HUHN completed the acquisition of the entities that
comprised the Palisades Healthcare System, Inc., becoming the parent or controlling entity to the
following entities:





Palisades Medical Center, since renamed HackensackUMC Palisades (“Palisades”), a 202bed community hospital located in North Bergen, New Jersey;
Palisades General Care (“PGC”), also known as The Harborage, a 247-bed skilled nursing
facility which is adjacent to Palisades;
Palisades Medical Associates (“PMA”), a multi-specialty medical group that provides health
services primarily to residents of northeast New Jersey;
Palisades Medical Center Foundation (“PMCF”), established primarily to raise funds for
Palisades; and
Palisades Management Enterprises, Inc. (“PME”) owns medical space and operates a child
care center as sole shareholder of Palisades Child Care Center, Inc.
On July 1, 2016, HUHN and Meridian Health System, Inc. (“MHS”) completed a merger, with MHS
as the surviving parent entity, which was renamed Hackensack Meridian Health, Inc. (“HMH” or the
“Network”). This newly merged Network consists of 11 hospitals (including two academic medical
centers, two children’s hospitals and seven acute care hospitals), along with physician practices,
more than 120 ambulatory care centers, surgery centers, home health services, long-term care and
assisted living communities, ambulance services, lifesaving air medical transportation, fitness and
wellness centers, rehabilitation centers, urgent care, and after-hours centers.
The Medical Center is the sole shareholder of 20 Prospect Holdings, LLC, a for-profit disregarded
entity, established in 2015 for the purpose of purchasing a medical office building and its adjoining
parking garage.
The Medical Center and 20 Prospect Holdings, LLC have various bond issues and bank loans
outstanding and is considered the legally Obligated Group (See Note 5).
6
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The accompanying consolidated financial statements include the accounts of the following Medical
Center-controlled tax-exempt and taxable professional corporations: Hackensack University
Medical Group, P.C. (“HUMG”), HUMC Cardiovascular Partners, P.C. (“HUMCCP”), HUMC
Primary Care Associates, P.C. (“HUMCPCA”), New Amsterdam Medical Associates, P.C.
(“NAMA”), Hackensack Specialty Care Associates, P.C. (“HSCA”), Hackensack Medical
Observation, P.A. (“HMO”), Hackensack Occupational Medicine Associates, P.C. (“HOM”), and
The Auxiliary of Hackensack University Medical Center. Additionally, Hackensack University
Medical Center Casualty Company, LTD (“HUMCCO”), is a wholly-owned subsidiary of the Medical
Center, domiciled in Bermuda, that was established in 2003 to provide the Medical Center with
medical professional liability insurance (See Note 13). These entities, while controlled by the
Medical Center, are excluded from the Obligated Group for the Medical Center’s outstanding bonds
and loans.
During 2012, the Medical Center entered into two separate joint ventures with unrelated entities.
Under the first joint venture arrangement, entered into on March 23, 2012, the Medical Center
contributed the existing property and equipment of the former Pascack Valley Hospital campus for
a 35% interest in the joint venture which was valued at $51,100. The investment in the Pascack
Valley joint venture recorded on the consolidated balance sheets was $35,228 and $29,903 as of
December 31, 2016 and 2015, respectively.
Under the second joint venture, entered into on July 1, 2012, the Medical Center purchased a 20%
ownership interest in Mountainside Hospital. For its ownership interest, the Medical Center
contributed $10,644 in cash and entered into a nonrecourse loan agreement with its joint venture
partner. The interest rate on the loan is 8.875% per annum, with principal and interest payments to
be made on a non-recourse basis from the distribution of profits of the Medical Center’s share in
the joint venture. On July 28, 2016, the Medical Center entered into a bank loan for the purpose of
paying the remaining outstanding balance on the nonrecourse loan and its accrued interest
(See Note 5). The investment in the Mountainside joint venture recorded on the consolidated
balance sheets was $27,521 and $23,464 as of December 31, 2016 and 2015, respectively.
Joint ventures in which the Medical Center exerts significant influence in the operations of the
unconsolidated entities primarily through shared representation on the governing bodies of the
investee and equal voting rights, has an equity interest of 20% but less than 50% are accounted for
under the equity method of accounting.
During 2012, the Medical Center and a separate unrelated entity purchased a 51% interest in two
ambulatory surgical centers (the “Centers”) located in Bergen County, New Jersey, with the
Medical Center receiving 50.1% voting rights. As a result, the Medical Center consolidated the
Centers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 810, Not-for-Profit Entities – Consolidation, and reflected a noncontrolling
interest for the equity related to the previous owners and the unrelated party in accordance with
ASC 810. The net assets acquired of the Centers were $34,950 (including goodwill of $34,250).
Effective December 31, 2016, the Medical Center transferred its interest in the Centers to
Hackensack Meridian Ambulatory Ventures, Inc., a wholly-owned subsidiary of HMH.
7
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The following schedule of changes in consolidated net assets attributable to the Medical Center
and the noncontrolling interest reconciles beginning and ending balances of the parent’s controlling
interest and noncontrolling interest for fiscal years 2016 and 2015:
Total
Balances at December 31, 2014
$
571,465
The Medical Center
Controlling
Noncontrolling
Interest
Interests
$
545,436
$
26,029
Excess revenues over expenses (from
continuing operations)
Distributions to noncontrolling interests
Other changes
Change in unrestricted net assets
89,949
(6,709)
(15,832)
67,408
83,407
(15,832)
67,575
6,542
(6,709)
(167)
Balances at December 31, 2015
638,873
613,011
25,862
Excess revenues over expenses (from
continuing operations)
Distributions to noncontrolling interests
Other changes
Transfers to affiliate
Change in unrestricted net assets
113,015
(7,738)
(41,349)
(41,236)
22,692
104,025
(41,349)
(14,122)
48,554
8,990
(7,738)
(27,114)
(25,862)
Balances at December 31, 2016
$
661,565
$
661,565
$
-
In June 2015, the former HUHN, now replaced by the Network, and Seton Hall University
(“SHU”) signed a definitive agreement to form a new four-year school of medicine. The
partnership will establish the only private school of medicine in the State of New Jersey . In
conjunction with the formation of the new school of medicine, the Network and SHU entered
into a long-term lease for two buildings in the town of Nutley and city of Clifton, New Jersey.
During 2016, the Medical Center made an initial contribution of $15,000 to the school of
medicine which has been included as an investment in joint ventures on the consolidated
balance sheet as of December 31, 2016.
In November 2016, the Network signed a letter of intent to explore the acquisition of JFK
Health System, Inc., which includes JFK Medical Center, a 498-bed medical center located in
Edison, New Jersey.
Basis of Accounting and Principles of Consolidation
The consolidated financial statements are prepared on the accrual basis of accounting in
conformity with accounting principles generally accepted in the United States of America.
Transactions among the various Medical Center entities in the accompanying consolidated
financial statements relate to the sharing of certain services, facilities, equipment and
personnel. These transactions are recorded within operating revenues and expenses within
the consolidated statements of operations and eliminate among the Medical Center entities in
consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
8
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates include the reserves
on accounts receivable such as allowance for doubtful accounts and contractual allowances,
valuation of alternative investments, estimated amounts due to and from third-party payers,
professional liability costs and accrued employee benefit costs. Actual results could differ from
those estimates.
Cash and Cash Equivalents
The Medical Center considers certain investments in highly liquid investment securities with an
original maturity of three months or less when purchased to be cash equivalents. Cash and cash
equivalents are also held in its investment portfolio and assets whose use is limited.
Investments, Assets whose use is limited, and Investment Income
Investments and assets whose use is limited are recorded at fair values, which are based on the
assumptions and methods described in the “Fair Value Measurements” section of this note.
Assets whose use is limited include cash and investments set aside by the Network Board of
Trustees (the “Board”) for future capital improvements over which the Board retains control and
may, at its discretion, subsequently use for other purposes, assets held by trustees under indenture
agreements, assets held in connection with the captive insurance program, assets held for deferred
employee benefit plans, and donor-restricted assets. Amounts required to meet current liabilities of
the Medical Center are classified as current assets.
A majority of the Medical Center’s investments in equity securities with readily determinable fair
values and investments in debt securities are reported as trading securities based on the Medical
Center’s investment strategy and investment philosophies. Trustee-held assets under bond
indenture, which are primarily comprised of cash and short-term investments, as well as alternative
investments, are classified as other than trading.
Investment income or losses (including realized gains and losses on investments, interest,
dividends, holding gains and losses on trading securities, declines in fair value that are determined
by management to be other-than-temporary, and changes in the value of investments accounted
for on the equity basis of accounting) are included in the accompanying consolidated statements of
operations as nonoperating revenues (losses), unless the income or loss is restricted by donor or
law. Gains and losses on sales of investment assets are determined using the first-in first-out
method. Investments classified as current assets are available to support current operations.
Investments, in general, are exposed to various risks, such as interest rate, credit, and overall
market volatility. As such, it is reasonably possible that changes in the values of investments will
occur in the near term and that such changes could materially affect the amounts reported in the
consolidated financial statements.
9
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy of
valuation inputs based on the extent to which the inputs are observable in the marketplace.
Observable inputs reflect market data obtained from sources independent of the reporting entity
and unobservable inputs reflect the entities own assumptions about how market participants would
value an asset or liability based on the best information available. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. The guidance describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value.
The following describes the hierarchy of inputs used to measure fair value and the primary
valuation methodologies used by the Medical Center for financial instruments measured at fair
value on a recurring basis. The three levels of inputs are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities, or quoted prices in markets that are not
active.
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are based on one or more of three valuation
techniques. The three valuation techniques are as follows:

Market Approach (M) - Prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities;

Cost Approach (C) - Amount that would be required to replace the service capacity of an
asset (i.e. replacement cost); and

Income Approach (I) - Techniques to convert future amounts to a single present amount
based on market expectations (including present value techniques, option-pricing models,
and lattice models).
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Inputs are used in applying the various
valuation techniques and broadly refer to the assumptions the market participants use to make
valuation decisions. Inputs may include price information, credit data, liquidity statistics and other
factors.
The Medical Center utilized the best available information in measuring fair value.
10
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments held by the Medical Center:
Cash Equivalents and Mutual Funds
Estimated fair values of cash equivalents (money market funds) and mutual funds are based
on daily values (closing price on primary market) that are validated with a sufficient level of
observable activity (i.e., purchases and sales) and are therefore classified as Level 1.
Marketable Equity Securities
Fair value estimates for publicly traded common stock, exchange funds, and master limited
partnerships are based on quoted market prices are classified as Level 1. For investments
in asset and mortgage backed securities, fair value is based on the average of the last
reported bid or ask prices, therefore these investments are rendered Level 2 unless external
price data is not observable in which case they are rendered Level 3.
U.S. Government Securities and Corporate Bonds
For investments in U.S. Securities (notes, bonds, and treasuries) and corporate bonds fair
value is based on the average of the last reported bid or ask prices; therefore, these
investments are classified as Level 2. These investments fluctuate in value based on
changes in the interest rates. Fair values of debt securities that do not trade on a regular
basis in active markets are classified as Level 2.
Common and Collective Trusts
Fair value is based on the net asset value per unit of the trust, and common and collective
trusts are classified as Level 2.
Annuity Contracts
Fair value of annuity contracts are measured based on unobservable inputs that cannot be
corroborated by observable market data and are therefore classified as Level 3.
Limited Partnerships
Fair value of limited partnerships are measured based on unobservable inputs that cannot
be corroborated by observable market data and are therefore classified as Level 3 for the
Medical Center’s pension plan assets (See Note 7). The Medical Center's investments in
limited partnerships included in assets whose use and limited and investments are
accounted for under the equity method of accounting, and as such, are excluded from the
fair value hierarchy tables (See Note 11).
The Medical Center invests in limited partnerships, which are alternative investments issued
by nontraditional firms or “hedge funds,” which engage in a variety of investment strategies
and are managed by money managers. The investments in alternative investments are
valued by management at fair value utilizing the net asset value (NAV) provided by the
respective fund manager of the underlying investment companies unless management
determines some other valuation is more appropriate. Such fair value estimates do not
reflect early redemption penalties as the Medical Center does not intend to sell such
investments before the expiration of the early redemption periods. The fair values of the
securities held by limited partnerships that do not have readily determinable fair values are
determined by the general partner and are based on historical cost, appraisals, or other
estimates that require varying degrees of judgment. If no public market exists for the
investment securities, the fair value is determined by the general partner taking into
11
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
consideration, among other things, the cost of securities, prices of recent significant
placements of securities of the same issuer, and subsequent developments concerning the
companies to which the securities relate. Changes in the value of these alternative
investments are included in investment income - net, in the consolidated statements of
operations. Generally, alternative investments upon which redemptions may be made
annually with written notice of 100 days are recorded as current assets. Limited
partnerships which do not provide for voluntary withdrawal and are long term in nature are
classified as noncurrent assets.
Other Receivables
Other receivables primarily consist of receivables for physician fees, pledges and grants, rent,
interest, charity care subsidies, and other nonpatient receivables.
Inventories
Inventories are stated at the lower of cost (determined on an average cost basis) or market.
Property and Equipment
Property and equipment acquisitions are recorded at cost. Donated items are recorded at fair
value on the date of the contributions. Depreciation is provided over the estimated useful life of
each class of depreciable asset and is computed using the straight-line method. Interest costs
incurred on borrowed funds during the period of construction of capital assets are capitalized as a
component of the cost of acquiring those assets.
Gifts of long-lived assets, such as land, buildings, or equipment, are reported as unrestricted
support, unless explicit donor stipulations specify how the donated assets must be used. Gifts of
long-lived assets with explicit restrictions that specify how the assets are to be used, and gifts of
cash or other assets that must be used to acquire long-lived assets are reported as restricted
support. Absent explicit donor stipulations about how long those long-lived assets must be
maintained, expirations of donor restrictions are reported when the donated or acquired long-lived
assets are placed in service.
Estimated lives of property, plant and equipment by class are as follows:
Years
Land improvements
Buildings and building improvements
Fixed equipment
Movable equipment
5-25
10-40
5-20
3-15
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever circumstances
indicate that the carrying amount of an asset may not be recoverable. If such assets are deemed
to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value, less cost to sell. There were no impairments of
long-lived assets at December 31, 2016 and 2015.
12
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Deferred Financing Costs
Deferred financing costs include legal, financing, and placement fees associated with the issuance
of long-term debt, and are presented net of the related long-term debt issuances, in accordance
with FASB Accounting Standards Update (ASU) 2015-03. These costs are amortized using the
interest method over the period the related obligations are outstanding.
Long-Term Accreted Bond Interest Payable
The Medical Center accretes interest payable on the capital appreciation portion of the Series 1997
bonds due between January 1, 2012 and January 1, 2022. The accreted bond interest payable is
included in long-term debt as of December 31, 2016 and 2015 (See Note 5).
Accounting for Employee Benefit Plans
The Medical Center follows pension accounting which requires plan sponsors of defined benefit
pension and postretirement benefit plans to recognize the overfunded or underfunded status of its
plans in the consolidated balance sheets, measure the fair value of plan assets and benefit
obligations as of the fiscal year end, and provide certain disclosures. The guidance also requires
that changes that occur in the funded status of the plans other than amounts related to the net
periodic cost be recognized by the Medical Center in the year in which the changes occur as a
change in unrestricted net assets presented below excess of revenues over expenses in the
consolidated statements of operations and changes in net assets. These items will be amortized
and recognized as part of net periodic benefit cost in future periods (See Note 7).
Professional, General and Workers Compensation Liabilities
Liabilities recorded for estimated professional, general and worker’s compensation claims include
estimates of the ultimate costs for both reported claims and claims incurred, but not reported. The
Medical Center also records an estimate for expected insurance recoveries associated with these
claims, which is recorded within other assets on the consolidated balance sheets (See Note 13).
Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets are those whose use has been limited by donors to a specific
time period or purpose. Permanently restricted net assets have been restricted by donors to be
maintained by the Medical Center in perpetuity.
The Hackensack University Medical Center Foundation (“Foundation”) is a nonprofit charitable
organization that was established primarily to raise funds for the Medical Center. The Medical
Center accounts for its interest in the net assets of the Foundation in accordance with the guidance
for organizations that raise and hold contributions for others. Changes in the Medical Center’s
beneficial interest in the net assets of the Foundation are reported in the accompanying
consolidated statements of operations and changes in net assets (See Note 6).
Unconditional promises to give cash and other assets are reported at fair value at the date the
promise is received. The gifts are reported as either temporarily or permanently restricted support
if they are received with donor stipulations that limit the use of the donated assets. When a donor
restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is
accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and
reported as net assets released from restrictions. Donor-restricted contributions whose restrictions
are met within the same year as received are reflected as unrestricted net assets. In the absence
of donor specification that income and gains on donated funds are restricted, such income and
gains are reported as income of unrestricted net assets.
13
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Performance Indicator
Excess of revenues over expenses is the performance indicator. Changes in unrestricted net
assets which are excluded from the performance indicator, consistent with industry practice,
include pension-related adjustments, distributions to noncontrolling interests, equity transfers to
affiliates, and net assets released from restrictions for capital acquisitions.
Net Patient Service Revenue and Patient Accounts Receivable
Net patient service revenue is accounted for on the accrual basis in the period in which the service
is provided. These amounts are net of appropriate allowances to give recognition to differences
between Medical Center charges and reimbursement rates from third party payers. The Medical
Center is reimbursed from third party payers under various methodologies based on the level of
care provided. Certain net revenues received are subject to audit and retroactive adjustment for
which amounts are accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined. The Medical Center has
recorded net liabilities for estimated third party payer settlements totaling $59,943 and $55,886,
which is included in current and non-current other liabilities on the consolidated balance sheets at
December 31, 2016 and 2015. The net positive adjustment included within the consolidated
statement of operations relating to prior year estimates was approximately $7,419 for the year
ended December 31, 2016. The net negative adjustment included within the consolidated
statement of operations relating to prior year estimates was approximately $2,355 for the year
ended December 31, 2015.
The process for estimating the ultimate collection of receivables involves significant assumptions
and judgments. Account balances are written off against the allowance when management
determines it is probable the receivable will not be recovered. The use of historical collection and
payer reimbursement experience is an integral part of the estimation of reserves for uncollectible
accounts. Revisions in reserve for uncollectible accounts estimates are recorded as an adjustment
to the provision for bad debts.
A summary of the payment arrangements with major third-party payers is as follows:

Medicare - inpatient acute care services and most outpatient services rendered to
Medicare program beneficiaries are paid at prospectively determined rates per discharge.
These rates vary according to a patient classification system that is based on clinical,
diagnostic and other factors. Inpatient nonacute services and defined capital and medical
education costs related to Medicare beneficiaries are paid based on a cost
reimbursement methodology. The Medical Center is reimbursed for certain reimbursable
items at a tentative rate with final settlement determined after submission of the annual
cost report by the Medical Center and audits thereof by the Medicare fiscal intermediary.
The Medical Center’s classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by a peer review
organization under contract with the Medical Center. The Medical Center’s Medicare cost
reports have been audited and finalized by the Medicare fiscal intermediary through
December 31, 2013, with the exception of 2010, which remains audited but not settled.

Medicaid - inpatient acute care services rendered to Medicaid program beneficiaries are
paid at prospectively determined rates per discharge. These rates vary according to a
patient classification system that is based on clinical, diagnostic and other factors.
Outpatient services are paid based upon a cost reimbursement methodology and certain
14
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
services are paid based on a Medicaid fee schedule. The Medical Center is paid for
reimbursable costs at a tentative rate with final settlement determined after submission of
the annual cost report by the Medical Center and audit thereof by the Medicaid fiscal
intermediary. The Medical Center’s Medicaid cost reports have been audited through
December 31, 2013, and have been finalized by the Medicaid fiscal intermediary through
December 31, 2006.

The Medical Center has also entered into payment agreements with certain commercial
insurance carriers, health maintenance organizations and preferred provider
organizations. The basis for payment to the Medical Center under these agreements
includes prospectively determined rates per day/case and discounts from established
charges.
Patient service revenue, net of contractual allowances and discounts (but before the provision for
bad debts), recognized in the period from these major sources, is as follows for the years ended
December 31, 2016 and 2015:
2016
Gross charges
Allowances
Patient service revenue,
net of contractual allowances
$
4,790,917
(3,260,449)
2015
$
1,530,468
Bad debt provision
1,445,663
(51,136)
Total net patient service revenue
$
1,479,332
4,649,874
(3,204,211)
(58,618)
$
1,387,045
The Medical Center grants credit without collateral to its patients, most of who are local residents
and are insured under third-party payer arrangements. The mix of patient service revenue, net of
contractual allowances from patients and third-party payers for the years ended December 31,
2016 and 2015 are as follows:
2016
2015
Medicare
Medicaid
New Jersey Blue Cross
Other managed care and commercial
Uninsured
25 %
11
21
42
1
25 %
10
21
43
1
100 %
100 %
The current Medicare and Medicaid programs are based upon complex laws and regulations.
Noncompliance with such laws and regulations could result in fines, penalties, and exclusion from
such programs. The Medical Center is not aware of any noncompliance with all applicable laws
and regulations and is not aware of any pending or threatened investigations involving allegations
of potential wrongdoing that could have a material adverse effect on its consolidated financial
statements.
15
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Tax Status
The Medical Center and its subsidiaries and controlled entities, except as noted below, are Section
501(c) (3) organizations exempt from Federal income taxes under Section 501(a) of the Internal
Revenue Code. The Medical Center is also exempt from State taxes.
HUMCCO is registered under the laws of Bermuda and is exempt from income and capital gains
tax until 2035.
HUMCPCA, NAMA, and NJOM are taxable entities.
New Authoritative Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This
standard implements a single framework for recognition of all revenue earned from customers.
This framework ensures that entities appropriately reflect the consideration to which they expect to
be entitled in exchange for goods and services by allocating transaction price to identified
performance obligations and recognizing revenue as performance obligations are satisfied.
Qualitative and quantitative disclosures are required to enable users of financial statements to
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The standard is effective for fiscal years beginning after December 15,
2017. The Medical Center is currently assessing the impact the adoption of this standard will have
on their consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest, aims to simplify the
presentation of debt issuance costs. This standard requires all costs incurred to issue debt to be
presented in the balance sheets as a direct deduction from the carrying value of the associated
debt liability. The standard is effective for fiscal years beginning after December 15, 2015. The
Medical Center adopted this standard, and the updated presentation is reflected in the consolidated
balance sheets as of December 31, 2016 and 2015.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement and Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This
guidance requires entities to present investments that use net asset value (NAV) as a practical
expedient for valuation purposes separately from other investments categorized in the fair value
hierarchy described in Note 1. The standard is effective for fiscal years beginning after
December 15, 2016. The Medical Center is currently assessing the impact the adoption of this
standard will have on their consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 82510): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance
primarily affects the accounting for equity investments, financial liabilities under the fair value
option, and the presentation and disclosure requirements for financial instruments. Certain
financial institutions and companies with large equity investment portfolios that are not currently
being measured at fair value through the income statement are most affected by the new standard.
The new standard also allows entities that are not public business entities and do not carry
financial instruments at fair value in the statement of financial position to no longer be required to
disclose the fair value and significant assumptions used to estimate the fair value of such financial
instruments. The standard is effective for fiscal years beginning after December 15, 2018 for
nonpublic business entities. The Medical Center early adopted the portion of the standard that
eliminates the disclosure requirement for financial instruments that are not recorded at fair value.
16
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
As such, the Medical Center has removed the disclosures of fair value of debt as of December 31,
2016 and 2015.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance,
lessees will be required to recognize the following for all leases (with the exception of leases with a
term of twelve months or less) at the commencement date: (a) a lease liability, which is a lessee‘s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. Under the new guidance, lessor accounting is largely
unchanged. The guidance requires a modified retrospective transition approach for leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for
leases that expire before the earliest comparative period presented. A full retrospective transition
approach is not permitted. This guidance will be effective for the Medical Center beginning in fiscal
year 2019. Early application is permitted. The Medical Center is currently assessing the impact
the adoption of this standard will have on their consolidated financial statements.
In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements for Not-forProfit Entities. This standard marks the completion of the first phase of a larger project aimed at
improving not-for-profit financial reporting. Under the new guidance, the existing three categories of
net assets will be replaced with a simplified model that combines temporarily restricted and
permanently restricted net assets into a single category called “net assets with donor restrictions”
and renames unrestricted net assets as “net assets without donor restrictions.” There will be new
reporting requirements for expenses and additional disclosures to describe an organization’s
liquidity. The standard is effective for fiscal years beginning after December 15, 2017. The Medical
Center is currently assessing the impact this standard will have on their 2018 consolidated financial
statements.
2.
Charity and Uncompensated Care
In furtherance of its charitable purpose, the Medical Center provides a wide array of services to the
community, including various community-based social service programs, health screenings, trauma
services, training for emergency service personnel, social service and support counseling for
patients and families, pastoral care, crisis intervention, and transportation to and from the Medical
Center. Additionally, a large number of health-related educational programs are provided for the
benefit of the community, including health enhancements and wellness, classes on specific
conditions, medical education, telephone information services, and programs designed to improve
the general standards of the health of the community.
The Medical Center provides medical care without charge or at reduced costs to residents of its
community. The Medical Center definition of charity care includes the following: (a) services
provided at no charge to the uninsured or underinsured and (b) services provided to patients
expressing a willingness to pay, but who are determined to be unable to pay because of
socioeconomic factors.
Charity care is provided to patients who meet the criteria under the Chapter 160 System for charity
care or to those patients who qualify for a new program established by the Medical Center in 2008.
17
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The Medical Center offers its own charity care to uninsured patients who do not qualify under the
Chapter 160 System. The difference between the Medical Center’s charges and the reduced rates
are considered the Medical Center’s self-pay charity care. The Medical Center maintains records
to identify and monitor the level of charity care it provides. Such foregone charges for 2016 and
2015 were as follows:
2016
Chapter 160 system
Medical Center's self-pay charity care program
Total charges foregone
2015
$
69,941
82,508
$
89,054
70,185
$
152,449
$
159,239
Of the Medical Center’s total expenses reported in 2016 and 2015, an estimated $51,518 and
$53,076 arose during 2016 and 2015, respectively, from providing services to charity care patients.
The estimated costs of providing charity services are based on a calculation which applies a ratio
of costs to charges to the gross uncompensated charges associated with providing care to charity
patients. The ratio of cost to charges is calculated based on the Medical Center’s total expenses
divided by gross patient service revenue. Additionally, the New Jersey Health Care Reform Act of
1992 provided for certain subsidy payments from the state to qualified hospitals to partially fund
uncompensated care and certain other costs. Subsidy payments recognized as revenue amounted
to approximately $2,789 and $4,825 for 2016 and 2015, respectively, and are included in net
patient service revenue in the accompanying consolidated statements of operations.
18
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
3.
Investments and Assets Whose Use is Limited
Investments
Investments are comprised of pooled investments and other long-term investments. The Medical
Center invests cash from operations together with board-designated assets in a pooled portfolio.
Funds in this pool participate in income, gains, and losses based upon their proportionate share of
the total pool. The composition of the investment portfolio as of December 31, 2016 and 2015 is as
follows:
2016
Pooled investments
Cash and cash equivalents and money market funds
Marketable equity securities
Investments in limited and master limited partnerships
Common/collective trusts
Mutual funds
Corporate debt
U.S. treasury and other government obligations
Accrued interest receivable
Total pooled investments
$
10,182
180,899
100,093
3,540
135,634
43,920
16,876
660
491,804
2015
$
34,235
152,360
109,660
2,892
112,950
34,865
15,085
542
462,589
Other investments
Money market funds
Marketable equity securities
U.S. treasury and other government obligations
Corporate debt
Total pooled and other investments
6,781
10,400
20,288
26,275
555,548
860
9,496
20,921
29,834
523,700
Less: Pooled investments included in board-designated assets
included in assets whose use is limited
Total investments
72,575
482,973
66,151
457,549
Less: Investments available for current operations
Less: Pooled investments available for current operations
61,723
399,517
61,111
373,479
Long-term investments
$
19
21,733
$
22,959
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Assets Whose Use is Limited
The composition of assets, whose use is limited as of December 31, 2016 and 2015, is as follows:
2016
Board designated
Cash and cash equivalents
Marketable equity securities
Pooled investments
Fixed income securities
Real estate
Accrued interest receivable
Total board designated
$
Deferred employee benefit plan assets
Cash and cash equivalents
Marketable equity securities
Corporate debt and other fixed income securities
Total deferred employee benefit plan assets
111
1,615
72,575
1,693
97
2
76,093
2015
$
145
1,524
66,151
1,644
114
17
69,595
1
25,089
2,627
27,717
1
23,134
2,179
25,314
Trustee-held assets under bond indenture
Cash and cash equivalents
U.S. treasury and other government obligations
Less: Current portion of assets whose use is limited
Total trustee-held assets under bond indenture
33,978
26,404
(27,568)
32,814
35,221
24,400
(31,970)
27,651
Assets held for captive insurance program
Cash and cash equivalents
Marketable equity securities
Fixed income securities
Total assets held for captive insurance program
2,463
5,588
15,292
23,343
497
5,670
19,419
25,586
83
869
1,860
53
1,016
3,881
132
762
1,731
62
1,007
3,694
Donor-restricted assets
Cash and cash equivalents
Marketable equity securities
Mutual funds
Real estate
Corporate debt and other fixed income securities
Total donor-restricted assets
Long-term assets whose use is limited
20
$
163,848
$
151,840
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Total return on investments and assets whose use is limited for the years ended December 31,
2016 and 2015, is as follows:
2016
Investment income (losses) - net
Interest and dividend income
Net realized loss on investment securities
Change in the value of investments accounted for
on the equity basis of accounting
Holding net gain (loss) on trading securities
Net gain on sale of investment in joint venture
Subtotal investment income (losses) - net
$
14,187
(3,167)
4.
$
(560)
20,061
30,521
Changes in temporarily restricted net assets
Investment income - all other
Change in net unrealized gain (loss) on
investment securities available for sale
Subtotal changes in temporarily restricted net assets
Total return
2015
$
15,734
(1,274)
(1,583)
(25,850)
7,743
(5,230)
58
73
(87)
(29)
(170)
(97)
30,492
$
(5,327)
Property and Equipment
Property and equipment as of December 31, 2016 and 2015, is as follows:
2016
Land
Land improvements
Buildings
Fixed equipment
Movable equipment
Total property and equipment
$
Less: Accumulated depreciation and amortization
Add: Construction in progress
Property and equipment, net
8,189
5,491
771,987
98,941
457,237
1,341,845
2015
$
(704,646)
18,101
$
655,300
6,412
5,478
764,288
94,944
447,598
1,318,720
(672,988)
12,492
$
658,224
Depreciation expense for the years ended December 31, 2016 and 2015 was $65,849 and $58,495
respectively.
21
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
5.
Long-Term Debt
Long-term debt at December 31, 2016 and 2015 consists of the following:
2016
New Jersey Economic Development Authority Series 1997 Revenue Bonds which mature
annually from January 1, 1998 through January 1, 2022, and bear interest at stated rates
ranging from 4.1% to 5.7%(1)
$
Accreted bond interest payable on the capital appreciation portion of the Series 1997
bonds due between January 1, 2012 and January 1, 2022(1)
Serial bonds, Series 2008, which mature annually from January 1, 2009 through
January 1, 2018, and bear interest at rates ranging from 3.5% to 5.0%, payable
semiannually(2)
Term bonds, Series 2008, which mature from January 1, 2021 through January 1, 2041,
and bear interest at rates ranging from 5.125% to 5.375% payable semiannually(2)
2015
16,101
$
18,666
32,085
34,095
3,575
4,185
212,160
216,985
Serial bonds, Series 2010, which mature annually from January 1, 2011 through
January 1, 2025, and bear interest at rates ranging from 3.0% to 4.5%, payable
semiannually(3)
25,885
29,790
Term bonds, Series 2010, which mature from January 1, 2030 through January 1, 2034,
and bear interest at rates ranging from 4.625% to 5.0% payable semiannually(3)
38,480
38,480
Serial bonds, Series 2010B, which mature annually from January 1, 2012 through
January 1, 2025, and bear interest at rates ranging from 4.0% to 4.25%, payable
semiannually(4)
25,160
71,805
Term bonds, Series 2010B, which mature from January 1, 2026 through January 1, 2028
and bear interest at rates ranging from 4.25% to 5.0% payable semiannually(4)
10,840
28,455
Bank loan, Series 2013A, which has an annual interest rate of 1.93% and a term of 84
months with a fixed monthly payment of $957, commencing May 1, 2013 and ending
April 1, 2020(5)
37,019
47,659
Bank loan, Series 2013B, which has an annual interest rate of 1.80% and a term of 84
months with a fixed monthly payment of $1,270, commencing May 1, 2013 and ending
April 1, 2020(5)
49,241
63,436
Bank loan (tax -exempt), Series 2015A, which has an annual interest rate of 2.38%, a
term of 120 months with a 25-year amortization, and a fixed monthly payment of $372;
commencing August 12, 2015 and ending July 12, 2040(6)
80,615
83,122
Bank loan, Series 2015B, which has an annual interest rate of 3.31%, a term of 120
months with a 25-year amortization, and a fixed monthly payment of $177; commencing
August 12, 2015 and ending July 12, 2040(6)
34,736
35,680
Bank loan, Series 2016, which has an annual interest rate of 2.59%, a term of 120
months with a 25-year amortization, and a fixed monthly payment of $92; commencing
July 28, 2016 and ending July 28, 2041(7)
20,114
-
Bank line of credit, with an interest rate of 1-Month Libor + 0.30%, reset on a monthly basis.
Monthly payments due are of interest only; and the maturity date is June 30, 2017(4)
73,763
-
Nonrecourse loan with joint venture partner, which has an annual interest rate of 8.03%,
a term of 240 months, with payments made only from distribution of joint venture profits.
(See Note 1)
-
17,842
Other promissory notes
659,774
1,549
691,749
Less: Current portion of accreted interest (included in accrued interest payable)
Less: Unamortized bond discount
Add: Unamortized bond premium
(6,102)
(1,127)
1,530
654,075
(4,640)
(1,182)
3,223
689,150
(5,070)
(115,966)
(7,735)
(45,533)
Less: Deferred financing cost
Less: Current portion of long-term debt net
Long-term debt
$
22
533,039
$
635,882
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
(1) The New Jersey Economic Development Authority Revenue Bonds Series 1997 (the “Series
1997 Bonds”) include: Capital Appreciation Bonds which are payable annually from January 1,
2012 through January 1, 2022, with interest rates ranging from 5.5% to 5.7%, with an
outstanding balance of $16,101 at December 31, 2016. These bonds accrete interest from
their date of issuance compounded initially on January 1, 1998, and semiannually thereafter.
The interest is payable at maturity. Capital Appreciation Bonds, including accreted bond
interest payable, totaled approximately $48,186 and $52,761 as of December 31, 2016 and
2015, respectively.
The Series 1997 Bonds are secured by a first mortgage lien on certain land, buildings, and
improvements, a security interest in certain equipment, and real property. The Medical Center
is subject to covenants under the Loan Agreement with the New Jersey Economic
Development Authority containing restrictions and limitations with respect to mergers,
maintenance of existence, sale or transfer of assets, use of property, and pledged funds.
(2) During 2008, the Obligated Group issued bonds under the New Jersey Health Care Facilities
Financing Authority (the “Series 2008 Bonds”). The proceeds of the loan were used by the
Medical Center to (1) advance refund the outstanding principal amount of the Series 2004
bonds; (2) construct and equip the Cancer Center, which includes diagnostic facilities,
chemotherapy preparation and infusion areas, pharmacy and laboratory resources, as well as
radiation oncology services; (3) construct and equip an adjacent freestanding parking garage
facility consisting of approximately 975 parking spaces; (4) acquire medical and other
equipment at its facilities; (5) pay capitalized interest on a portion of the Series 2008 Bonds;
(6) fund the Debt Service Reserve Fund; and (7) pay the costs of issuance of the Series 2008
Bonds.
The Series 2008 Bonds are secured by the Obligated Group’s gross receipts and a Series
2008 note which was issued in the same aggregate principal amount as the Series 2008
Bonds and contains payment provisions corresponding to those of the Series 2008 Bonds.
The Obligated Group is subject to covenants under the Master Trust Indenture agreement
(“MTI”). The Series 2008 Bonds are also secured by a first mortgage lien on the principal
facilities of the Medical Center in favor of the Master Trustee under the MTI.
(3) During August, 2010, the Obligated Group issued $86,295 of New Jersey Health Care
Facilities Financing Authority Revenue and Refunding Bonds (the “Series 2010 Bonds”). The
proceeds of the loan were used to advance refund the outstanding principal amount of the
Series 2000 bonds and also to refinance $10,000 of the Obligated Group’s Series 1997
bonds.
The Series 2010 bonds are secured by the Obligated Group’s gross receipts and a Series
2010 note, which was issued in the same aggregate amount as the Series 2010 bonds and
contains payment provisions corresponding to those of the Series 2010 bonds. The Obligated
Group is subject to covenants under the MTI. The Series 2010 bonds are also secured by a
first mortgage lien on the principal facilities of the Medical Center in favor of the Master
Trustee under the MTI.
23
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
(4) During October 2010, the Obligated Group issued $121,240 of New Jersey Health Care
Facilities Financing Authority Revenue and Refunding Bonds (the “Series 2010B Bonds”).
The proceeds of the loan were used to advance refund the outstanding principal amount
of the Series 1998 bonds.
The Series 2010B bonds are secured by the Obligated Group’s gross receipts and a Series
2010B note which was issued in the same aggregate principal amount as the Series 2010B
bonds and contains payment provisions corresponding to those of the Series 2010B bonds.
The Obligated Group is subject to covenants under the MTI. The Series 2010B bonds are
also secured by a first mortgage lien on the principal facilities of the Medical Center in favor of
the Master Trustee under the MTI.
In December 2016, the Obligated Group entered into an $80,000 line of credit, of which
$73,800 was drawn. The loan has an interest rate of 1-month Libor + 0.30%, reset on a
monthly basis. Monthly payments due are of interest only; and the maturity date is
June 30, 2017.
The funds from this loan were used to defease: (1) the portion of Series 2010B bonds with a
call date of January 1, 2020 at a par amount of $58,440 plus interest escrowed to the call date
of $8,289; and (2) the portion of Palisades Series 2013 bonds with a call date of July 1, 2023
at a par amount of $7,780 plus interest escrowed to the call date of $2,510.
(5) On March 22, 2013, the Obligated Group entered into the Series 2013A and Series
2013B taxable term loans from two banks totaling $175,000. The net proceeds of the
loans were used to fund the Medical Center’s noncontributory defined benefit retirement
plan and reduce its corresponding liability. The Obligated Group is subject to covenants
under the bank loans. The loans are secured by the Obligated Group’s gross receipts and
a mortgage lien on the Medical Center’s principal facilities.
(6) In August 2015, the Obligated Group completed two borrowings to finance the purchase
of a medical office building and its adjoining parking garage on the Medical Center’s
property. Both borrowings are obligations under the MTI. Series 2015A is an $84,000
tax-exempt bond issuance through the New Jersey Health Care Facilities Financing
Authority Series 2015B is a $36,000 taxable bank loan. The loans carry a combined
blended rate of 2.63%, and require fixed monthly payments over a 120-month period from
August 2015 to August 2025, at which point a balloon payment is due for the remaining
outstanding principal due on the borrowings.
(7) In August 2016, the Obligated Group entered into a bank loan totaling $20,300. The net
proceeds of this loan was used to re-pay the outstanding nonrecourse loan including its
accrued interest in its entirety. The loan requires a fixed monthly payment over a 120month period from September 2016 to August 2026, at which point a balloon payment is
due for the remaining outstanding principal due on the borrowings. The loan is secured
under the Master Trust Indenture (MTI). MTI collateral is the Obligated Group’s gross receipts
and a mortgage lien on the Medical Center’s principal facilities.
24
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The Medical Center’s most restrictive covenants are meeting minimum requirements for debt
service coverage ratio, days cash on hand and a cushion ratio. During the years ended
December 31, 2016 and 2015, the Medical Center was in compliance with all financial ratio
covenants.
Required principal payments (including accreted bond interest payable) for the next five years and
thereafter at December 31, 2016, are as follows:
December 31,
2017
2018
2019
2020
2021
Thereafter
Total principal payments
$
122,842
50,137
51,295
34,577
26,410
374,513
$
659,774
Interest cost on long-term debt (excluding interest on promissory notes) was $26,134 and $25,452
at December 31, 2016 and 2015, respectively.
6.
Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets are those funds whose use has been limited by donors to a
specified time period and/or purpose. Temporarily restricted net assets are available for the funding
of healthcare services and capital acquisitions. Temporarily restricted net assets available for
capital acquisitions are $11,125 and available for operating activities are $24,523.
Permanently restricted net assets at December 31, 2016 and 2015, include $2,078 in investments
required by donors to be held in perpetuity by the Medical Center. Income earned on these
investments is expendable to support patient care services, or as specified by the donor.
Permanently restricted net assets at December 31, 2016 and 2015 also include the Medical
Center’s beneficial interest in permanently restricted net assets of the Foundation totaling $16,017
and $8,781, respectively.
7.
Accrued Pension Benefits
The Medical Center has a noncontributory defined benefit retirement plan covering most
employees. The Medical Center’s funding policy is to contribute annually an amount no less than
the minimum amount required by the Employee Retirement Income Security Act.
In 2010, the Medical Center announced to all employees a change in its qualified defined benefit
pension plan. Beginning January 1, 2011, most of its employees automatically earned retirement
benefits under two new retirement plans, a defined contribution plan and a retirement savings plan.
Any employee whose age and years of vesting service total at least 65 remains in the defined
benefit plan and earns benefits under a new pension formula. The new pension formula continues
to use an employee’s compensation and years of service, but benefits grow more evenly and
slower over the remaining course of an employee’s career.
25
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The defined contribution plan and the retirement savings plan both provide for employer
contributions. The retirement savings plan is a noncontributory plan whereby the employer
contribution is specific to employees who do not accrue benefits under the old defined benefit plan
and equals two percent of the participant’s eligible compensation. The defined contribution plan
provides for employee and employer matching contributions. The matching employer contribution
is equal to 50 percent of the employee’s elective contribution up to a maximum employer
contribution ranging from 1.5% to 3% of eligible compensation, based on years of service
beginning in 2011. For the years ended December 31, 2016 and 2015, the contribution expense
related to the plans was $17,254 and $14,268, respectively, and is included in employee benefits
within the consolidated statements of operations.
The Medical Center also sponsors a nonqualified, unfunded supplementary employee retirement
plan for certain other employees. Similar to the changes under the qualified pension plan, the
Medical Center froze benefits under the nonqualified deferred compensation plan as of
December 31, 2010. Beginning January 1, 2011, certain management employees earn benefits
under a newly designed supplemental employee retirement plan. This plan is intended to remain
as an unfunded nonqualified deferred compensation plan which provides for an annual contribution
in the form of a percentage of base payroll.
The Medical Center also sponsors a defined benefit postretirement health care plan that covers
both salaried and nonsalaried employees, and is contributory to the level of the annual major
medical deductible.
The Medical Center has recognized liabilities, in connection with a self-insured medical and dental
plan for its employees of $4,563 and $4,396 at December 31, 2016 and 2015, respectively. This
liability is included in accounts payable and accrued expenses in the consolidated balance sheets.
26
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The following table provides a reconciliation of the benefit obligations, plan assets and funded
status of the Medical Center’s defined benefit retirement plans and other postretirement benefit
plans, and the related amounts that are recognized in the accompanying consolidated balance
sheets at December 31, 2016 and 2015:
Pension Benefits
2016
2015
Other Benefits
2016
2015
Change in benefit obligation
Benefit obligation, January 1
Service cost
Interest cost
Actuarial loss (gain)
Plan amendments
Benefits paid
Benefit obligation, December 31
$
796,514
13,426
37,170
32,076
(21,472)
857,714
$
837,321
13,864
35,844
(46,358)
(2,783)
(41,374)
796,514
$
838
35
8
(53)
828
$
910
35
(40)
(67)
838
Change in plan assets
Fair value of plan assets, January 1
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets, December 31
602,194
29,534
523
(21,472)
610,779
Funded status/accrued pension liability
Accumulated benefit obligation
664,707
(21,223)
84
(41,374)
602,194
53
(53)
-
67
(67)
-
$ 246,935
$ 194,320
$
828
$
838
$ 848,071
$ 788,343
$
828
$
838
At December 31, 2016 and 2015 the accrued pension liability is included in the consolidated
balance sheets as follows:
Pension Benefits
2016
2015
Current liabilities
Accounts payable and accrued expenses
$
Noncurrent Liabilities
Accrued pension benefits
Other liabilities
Total accrued pension liability
5,756
$
241,179
$
246,935
27
4,386
Other Benefits
2016
2015
$
189,934
$
194,320
85
$
743
$
828
84
754
$
838
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
At December 31, 2016 and 2015, unrestricted net assets include the following amounts not yet
recognized as a component of net periodic benefit costs:
Pension Benefits
2016
2015
Prior service credit
Net loss (gain)
Adjustment to unrestricted
net assets (obligations)
$
Accumulated contributions surplus in
excess of periodic benefit cost
Net amount recognized in
consolidated balance sheets
$
(32,020)
407,806
$
Other Benefits
2016
2015
(36,174)
369,351
$
(1,709)
$
(1,868)
375,786
333,177
(1,709)
(1,868)
(128,851)
(138,857)
2,537
2,706
246,935
$
194,320
$
828
$
838
The changes in plan assets and benefit obligation recognized in unrestricted net assets not yet
recognized in net periodic benefit cost for the years ended December 31, 2016 and 2015, which
are included in unrestricted net assets, are as follows:
2016
Pension
Benefits
Amortization of net actuarial (loss) gain
Amortization of prior service credit
New prior service credit
Net loss (gain)
Total pension-related adjustments
2015
Other
Benefits
Pension
Benefits
Other
Benefits
$
(9,071)
4,153
47,526
$
151
9
$
(8,201)
4,072
(2,783)
24,031
$
154
(40)
$
42,608
$
160
$
17,119
$
114
The amounts expected to be recognized in net periodic benefit cost from unrestricted net assets
during 2017 are as follows:
Pension
Benefits
Prior service credit
Net loss (gain)
$
28
(4,153)
10,227
Other
Benefits
$
(145)
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The components of net periodic benefit cost for the years ended December 31, 2016 and 2015,
were as follows:
Pension Benefits
2016
2015
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss (gain)
Amortization of prior service credit
Net periodic benefit cost
Other Benefits
2016
2015
$
13,426
37,170
(44,984)
9,071
(4,153)
$
13,864
35,844
(49,167)
8,201
(4,072)
$
35
(151)
-
$
35
(154)
-
$
10,530
$
4,670
$
(116)
$
(119)
At December 31, 2016 and 2015, the Medical Center used the following weighted average
assumptions in determining the following amounts:
2016
2015
Benefit obligation
Discount rate
Retirement income plan
Deferred compensation plan
Other benefits
Rate of increase in future compensation levels
4.54
3.67
4.21
3.00
%
%
%
%
4.77
3.95
4.46
3.00
%
%
%
%
Net periodic benefit cost
Discount rate
Retirement income plan
Deferred compensation plan
Other benefits
Expected long-term rate of return on plan assets
Rate of increase in future compensation levels
4.77
3.95
4.46
7.63
3.00
%
%
%
%
%
4.36
3.57
4.03
7.52
3.00
%
%
%
%
%
Plan Assets
The assets of the pension plans are invested as follows:
Target
Asset
Allocation
Investment
Equities
Fixed income
Real assets
Directional equity hedge
Credit/arbitrage strategies
43 %
30
7
15
5
100 %
29
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The Medical Center’s investment policy and strategy, as established by its Investment Committee,
is to provide for growth of capital with a moderate level of volatility by investing assets based on the
target allocations. The target allocations above have been set to achieve a long-term rate of return
of 7.63% while minimizing risk. The expected long-term rate of return assumptions are based on
forward-looking return forecasts for the modeled asset classes provided by the Medical Center’s
investment management consultants. The long-term forecasts are based on their analysis of longcycle historical data as well as their longer-term global views.
The following table presents information as of December 31, 2016 and 2015 about the Plan’s
financial assets that are measured at fair value on a recurring basis:
Assets at Fair Value at December 31, 2016
Quoted Prices
Significant
in Active
Other
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Cash equivalents
$
Marketable equity securities
Common stock - domestic
Common stock - international
Asset backed securities
Mortgage backed securities
Master limited partnership
Mutual funds
Equity
Fixed income
Corporate bonds
Government securities
Government bonds
Treasuries
Common/collective trust
Equities
Limited partnerships
$
11,564
$
-
$
-
$
Valuation
Technique
Total
(1)
11,564
M
190,415
3,848
21,677
3,603
11,252
-
-
190,415
3,848
3,603
11,252
21,677
M
M
M
M
M
39,476
76,790
-
57,931
-
39,476
76,790
57,931
M
M
M
-
2,529
18,228
-
2,529
18,228
M
M
-
24,378
-
148,746
24,378
148,746
343,770
$
30
117,921
$
148,746
$
610,437
M
M, C
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Assets at Fair Value at December 31, 2015
Quoted Prices
Significant
in Active
Other
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Cash equivalents
$
Marketable equity securities
Common stock - domestic
Common stock - international
Asset backed securities
Mortgage backed securities
Master limited partnership
Mutual funds
Equity
Fixed income
Corporate bonds
Government securities
Government bonds
Treasuries
Common/collective trust
Equities
Limited partnerships
$
13,492
$
-
$
-
$
Valuation
Technique
Total
(1)
13,492
M
148,556
30,530
32,240
4,214
10,299
-
-
148,556
30,530
4,214
10,299
32,240
M
M
M
M
M
36,032
83,485
-
51,844
-
36,032
83,485
51,844
M
M
M
-
2,569
11,497
-
2,569
11,497
M
M
-
22,817
-
153,462
22,817
153,462
M
M, C
344,335
$
103,240
$
153,462
$
601,037
(1) See Note 1.
At December 31, 2016 and 2015 there was $342 and $1,157, respectively of cash that is not
considered a recurring fair value measure included in Plan’s financial assets.
Reconciliation of Level 3 Investments
The following table presents the changes in fair value measurements for the investments that have
unobservable inputs at December 31, 2016 and 2015:
Hedge Fund
Balances at December 31, 2014
$
Net realized gain
Net unrealized gain
Transfers out
Purchases
Sales
133,175
$
339
2,630
3,500
(1,186)
Balances at December 31, 2015
138,458
Net realized gain
Net unrealized gain
Transfers out
Purchases
Sales
Balances at December 31, 2016
Private Equity
(135)
134
(823)
$
137,634
31
$
15,017
Real Estate
$
8,110
(507)
232
64
(4,929)
936
(1,016)
407
(3,310)
9,877
5,127
(984)
598
30
(1,639)
437
(978)
98
(1,454)
7,882
$
3,230
Total
$
156,302
768
1,846
3,971
(9,425)
153,462
(682)
(246)
128
(3,916)
$
148,746
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Cash Flows
The Medical Center does not expect to make a contribution during 2017.
Estimated Benefit Payments
The Medical Center expects to pay the following for pension benefits, which reflect expected future
service as appropriate, and expected postretirement benefits in the following years:
Pension
Benefits
Year Ending December 31,
2017
2018
2019
2020
2021
2022–2026
8.
$
30,828
28,898
32,234
34,808
37,827
234,617
Other
Benefits
$
85
81
76
73
69
296
Other Revenues
Other revenues at December 31, 2016 and 2015, consist of the following:
2016
9.
2015
Physician fee revenue
Grant and research income
Other
$
156,135
12,425
59,698
$
170,735
12,441
54,865
Total
$
228,258
$
238,041
Leases
The Medical Center rents certain office space and equipment under various noncancelable
operating leases. Future payments relating to these leases, by year, at December 31, 2016, are as
follows:
2017
2018
2019
2020
2021
Thereafter
$
9,676
4,943
4,521
2,840
2,643
16,085
$
40,708
Rent expense charged to operations under operating leases for 2016 and 2015 was approximately
$12,642 and $18,381, respectively.
32
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
10.
Functional Expenses
The Medical Center provides general health care services to residents within its geographic
location. Expenses related to providing these services for the years ended December 31, 2016
and 2015, are as follows:
2016
Health care services
General and administrative
Total expenses
11.
2015
$
1,344,389
268,617
$
1,273,301
258,889
$
1,613,006
$
1,532,190
Fair Value Measurements
The following table presents information as of December 31, 2016 and 2015, about the Medical
Center’s financial assets that are measured at fair value on a recurring basis:
Assets at Fair Value at December 31, 2016
Quoted Prices
Significant
in Active
Other
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Cash equivalents
$
Marketable equity securities
Common stock - domestic
Common stock - international
Asset backed securities
Mortgage backed securities
Master limited partnership
Mutual funds
Equity
Fixed income
Corporate bonds
Government securities
Government bonds
Treasuries
Common/collective trust
Equities
Limited partnerships
$
11,564
$
-
$
-
$
Valuation
Technique
Total
(1)
11,564
M
190,415
3,848
21,677
3,603
11,252
-
-
190,415
3,848
3,603
11,252
21,677
M
M
M
M
M
39,476
76,790
-
57,931
-
39,476
76,790
57,931
M
M
M
-
2,529
18,228
-
2,529
18,228
M
M
-
24,378
-
148,746
24,378
148,746
M
M, C
343,770
$
117,921
33
$
148,746
$
610,437
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Assets at Fair Value at December 31, 2015
Quoted Prices
Significant
in Active
Other
Significant
Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Cash equivalents
$
Marketable equity securities
Common stock - domestic
Common stock - international
Asset backed securities
Mortgage backed securities
Master limited partnerships
Mutual funds
Equity
Fixed income
Annuity contract
Corporate bonds
Government securities
Government bonds
Treasuries
Common/collective trust
Equities
$
70,816
$
-
$
-
$
Valuation
Technique
Total
(1)
70,816
M
102,954
46,026
23,795
9,904
11,075
-
-
102,954
46,026
9,904
11,075
23,795
M
M
M
M
M
32,948
107,692
-
74,787
2,180
-
32,948
107,692
2,180
74,787
M
M
-
33,307
36,823
-
33,307
36,823
M
M
2,892
M
384,231
2,892
$
168,788
$
2,180
$
M
555,199
(1) See Note 1.
At December 31, 2016 and 2015 included in investments and assets whose use is limited is
approximately $7,098 and $295, respectively, which consists of cash that is not considered a
recurring fair value measure.
The Medical Center’s investment portfolio includes alternative investments of $81,336 and $85,865
at December 31, 2016 and 2015, respectively. However, as these investments are accounted for
under the equity method of accounting, they are excluded from the above tables.
Investment Funds
Ironwood Partners
Monarch
Pointer
Silver Creek Low Vol
Weatherlow
Blackstone IV
Blackstone V
Blackstone VI
Metropolitan Real Estate II
Metropolitan Real Estate V
Penn Square
Citigroup Real Estate Partners
Abraaj Growth Markets Fund
Goldman Sachs Vintage
Hamilton Lane
Macquarie Infrastructure Partners
Alternative Investments In Limited Partnerships at December 31, 2016
Pooled Investments
Retirement Plan Assets
Fair
Unfunded
Fair
Unfunded
Investment Strategy
Value
Commitments
Value
Commitments
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Real Estate
Real Estate
Real Estate
Real Estate
Real Estate
Real Estate
Real Estate
Private Equity
Private Equity
Private Equity
Private Equity
$
$
6,487
7,623
38,378
1,634
7,501
2,486
2,049
1,278
453
N/A
N/A
1,116
2,576
1,294
3,987
4,474
81,336
$
$
N/A
N/A
N/A
N/A
N/A
556
209
147
82
N/A
N/A
130
2,450
864
839
35
5,312
$
$
20,293
9,810
62,428
1,683
43,417
N/A
N/A
2,152
N/A
442
639
N/A
N/A
N/A
3,408
4,474
148,746
$
$
N/A
N/A
N/A
N/A
N/A
N/A
N/A
240
N/A
144
825
N/A
N/A
N/A
839
35
Redemption
Frequency
Redemption
Notice Period
Quarterly
Biennial
Annual
**
Quarterly
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
95 Days notice
90 Days notice
105 Days notice
**
65 Days notice
*
*
*
*
*
*
*
*
*
*
*
2,083
*
The Medical Center and/or Plan may not directly or indirectly transfer or sell their interest without consent from the
general partner.
**
The Funds are currently in liquidation and redemptions are no longer permitted.
34
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
Investment Funds
Ironwood Partners
Monarch
Pointer
Silver Creek Long Short
Silver Creek Low Vol
Weatherlow
Blackstone IV
Blackstone V
Blackstone VI
Metropolitan Real Estate II
Metropolitan Real Estate V
Penn Square
Citigroup Real Estate Partners
Abraaj Growth Markets Fund
Goldman Sachs Vintage
Hamilton Lane
Macquarie Infrastructure Partners
Fortress
Alternative Investments In Limited Partnerships at December 31, 2015
Pooled Investments
Retirement Plan Assets
Fair
Unfunded
Fair
Unfunded
Investment Strategy
Value
Commitments
Value
Commitments
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Hedge Fund of Funds
Real Estate
Real Estate
Real Estate
Real Estate
Real Estate
Real Estate
Real Estate
Private Equity
Private Equity
Private Equity
Private Equity
Private Equity
$
$
12.
6,403
7,355
38,031
259
2,292
7,491
2,269
3,596
1,873
621
N/A
N/A
1,157
2,223
1,829
4,707
4,684
1,075
85,865
$
$
N/A
N/A
N/A
N/A
N/A
N/A
730
209
155
90
N/A
N/A
155
3,500
863
1,027
35
N/A
6,764
$
$
18,169
9,466
64,718
379
2,364
43,359
N/A
N/A
3,301
N/A
860
969
N/A
N/A
N/A
4,118
4,684
1,075
153,462
$
$
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
259
N/A
144
825
N/A
N/A
N/A
899
35
N/A
Redemption
Frequency
Redemption
Notice Period
Quarterly
Biennial
Annual
**
**
Quarterly
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Illiquid
Annual
95 Days notice
90 Days notice
105 Days notice
**
**
65 Days notice
*
*
*
*
*
*
*
*
*
*
*
185 Days notice
2,162
*
The Medical Center and/or Plan may not directly or indirectly transfer or sell their interest without consent from the
general partner.
**
The Funds are currently in liquidation and redemptions are no longer permitted.
Commitments and Contingencies
Lines of Credit
The Medical Center had available lines of credit totaling $125,000 and $45,000 at December 31,
2016 and December 31, 2015, respectively. The Medical Center has drawn $73,800 as of
December 31, 2016 (see note 5).
Litigation
Various suits and claims arising in the normal course of operations are pending or are in progress
against the Medical Center. Such suits and claims are either specifically covered by insurance,
provided for through estimated self-insurance liabilities, or are not material. While the outcome of
these other suits cannot be determined at this time, management, based on advice from legal
counsel, believes that any loss which may arise from these actions will not have a material adverse
effect on the consolidated financial position or results of operations of the Medical Center.
35
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
13.
Professional, General and Workers Compensation Liabilities
The Medical Center’s estimated professional, general and workers compensation liabilities
recorded on the consolidated balance sheets are as follows at December 31, 2016 and 2015:
2016
Estimated professional and general liabilities
HUMCCO insured liabilities
Incurred but not reported
Total professional liabilities
$
Estimated workers compensation liabilities
Third party insured liabilities
Incurred but not reported
Total workers compensation liabilities
Total estimated professional and workers
compensation liabilities
Less: Current portion included in accounts payable
and accrued expenses
Total estimated professional and workers
compensation liabilities, net
$
16,351
7,293
23,644
2015
$
18,574
7,454
26,028
19,783
1,761
21,544
19,528
19,528
45,188
45,556
(2,000)
(2,000)
43,188
$
43,556
Effective August 1, 2003, HUMCCO, the Medical Center’s captive insurance company, began
providing the Medical Center with “claims-made” professional and general liability insurance.
The HUMCCO arrangement provided coverage of $6,000 per occurrence and $8,000 annual
aggregate from August 1, 2003 through July 31, 2004; $6,000 per claim, $11,500 annual aggregate
from August 1, 2004 through December 31, 2005; $6,000 per claim, $11,000 annual aggregate
from January 1, 2006 through December 31, 2008; and $6,000 per claim, $13,000 annual
aggregate from January 1, 2009 through December 31, 2016. For each of the years ended
December 31, 2009 through December 31, 2016, HUMCCO purchased annual reinsurance policies
in the amount of $5,000 with a $1,000 aggregate deductible in excess of the HUMCCO primary
coverage. The Medical Center has obtained an additional layer of insurance of $75,000 annual
aggregate through various commercial carriers.
HUMCCO is registered under the Bermuda Insurance Act of 1978 and the related regulations
(the “Insurance Act”) and is obliged to comply with various provisions of the Insurance Act
regarding solvency and liquidity. The minimum statutory capital and surplus at December 31, 2016
and 2015, was $1,846 and $990, respectively, and the actual statutory capital and surplus was
$14,338 and $15,819, respectively. In addition, a minimum liquidity ratio must be maintained
whereby relevant assets, as defined by the Insurance Act, must exceed 75% of relevant liabilities.
As of December 31, 2016 and 2015, the liquidity ratio was met.
The HUMCCO insured liability for reported claims is reported on an undiscounted basis and totals
approximately $16,351 and $18,574, of which $2,000 is included in accounts payable and accrued
expenses, at December 31, 2016 and 2015, respectively. The estimated liability for claims incurred
but not reported at December 31, 2016 and 2015, is reported on a discounted basis.
36
Hackensack University Medical Center
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(in thousands of dollars)
The Medical Center had an occurrence based policy for workers compensation claims with a third
party insurance company through June 30, 2016, for which it recorded an estimated liability and
corresponding insurance recoveries of $19,783 and $19,528 at December 31, 2016 and 2015,
respectively. Effective July 1, 2016, the Medical Center created its own self-insured workers
compensation plan. For the period from July 1, 2016 to December 31, 2016 the Medical Center
incurred $109 in claims paid and has recorded $1,761 for claims incurred, but not reported on the
consolidated balance sheet as of December 31, 2016.
14.
Concentrations of Credit Risk
The Medical Center grants credit without collateral to its patients, most of whom are local residents
and are insured under third-party agreements. The mix of net accounts receivable from third-party
payers and patients (excluding accounts with collection agencies) at December 31, 2016 and 2015,
is as follows:
2016
Medicare (including managed)
Medicaid (including managed)
New Jersey Blue Cross
Other managed care and commercial
15.
2015
20 %
14
18
48
25 %
11
17
47
100 %
100 %
Related Party Transactions
The Medical Center enters into various transactions with its unconsolidated affiliates (see Note 1).
At December 31, 2016 and 2015, the amounts due to or from affiliates are as follows:
2016
Due from affiliates
Various HMH affiliates
Palisades and PMCF, net
$
20,597
14,423
$
10,416
-
Total
$
35,020
$
10,416
$
22,853
$
20,933
$
22,853
$
20,933
Due to affiliates
Foundation
Total
16.
2015
Subsequent Events
Subsequent events have been evaluated through March 28, 2017, which is the date the
consolidated financial statements were issued. No subsequent events have occurred that require
disclosure in or adjustment to the consolidated financial statements.
37
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
APPENDIX B-3
Meridian Hospitals Corporation and Meridian Nursing and Rehabilitation, Inc. Combined Financial
Statements and Combining Supplemental Schedules, December 31, 2016 and 2015
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
Meridian Hospitals Corporation
and Meridian Nursing and
Rehabilitation, Inc.
Combined Financial Statements and
Combining Supplemental Schedules
December 31, 2016 and 2015
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Index
December 31, 2016 and 2015
Page(s)
Report of Independent Auditors ........................................................................................................... 1–2
Combined Financial Statements
Balance Sheets ............................................................................................................................................ 3
Statements of Operations ............................................................................................................................ 4
Statements of Changes in Net Assets ......................................................................................................... 5
Statements of Cash Flows ........................................................................................................................... 6
Notes to Financial Statements ............................................................................................................... 7–34
Combining Supplemental Schedules
Balance Sheet ............................................................................................................................................ 35
Statement of Operations ............................................................................................................................ 36
Note to Combining Supplemental Schedules ............................................................................................ 37
Report of Independent Auditors
To the Board of Trustees
Hackensack Meridian Health, Inc.
We have audited the accompanying combined financial statements of Meridian Hospitals Corporation and
its subsidiary and Meridian Nursing and Rehabilitation, Inc., which comprise the combined balance sheets
as of December 31, 2016 and 2015, and the related combined statements of operations, of changes in net
assets and of cash flows for the years then ended.
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of combined financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the combined financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the combined financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s
preparation and fair presentation of the combined financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the
combined financial statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017
T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects,
the financial position of the Meridian Hospitals Corporation and its subsidiary and Meridian Nursing and
Rehabilitation, Inc. as of December 31, 2016 and 2015, and the results of their operations, changes in
their net assets and their cash flows for the years then ended in accordance with accounting principles
generally accepted in the United States of America.
Other Matter
Our audit was conducted for the purpose of forming an opinion on the combined financial statements
taken as a whole. The combining balance sheet as of December 31, 2016 and the combining statement of
operations for the period from January 1, 2016 to December 31, 2016 (the “combining information”) is the
responsibility of management and was derived from and relates directly to the underlying accounting and
other records used to prepare the combined financial statements. The combining information has been
subjected to the auditing procedures applied in the audit of the combined financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the combined financial statements or to the combined
financial statements themselves and other additional procedures, in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the combining information is fairly
stated, in all material respects, in relation to the combined financial statements taken as a whole. The
combining information is presented for purposes of additional analysis of the combined financial
statements rather than to present the financial position, results of operations, changes in net assets and
cash flows of the individual organizations and is not a required part of the combined financial statements.
Accordingly, we do not express an opinion on the financial position, results of operations, changes in net
assets and cash flows of the individual companies.
March 28, 2017
New York, New York
2
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Balance Sheets
December 31, 2016 and 2015
(in thousands)
2016
Assets
Current assets
Cash and cash equivalents
Assets whose use is limited and investments
Patient accounts receivable, less allowance for uncollectible
accounts of $62,130 in 2016 and $53,911 in 2015
Due from affiliates
Other current assets
$
Total current assets
Assets whose use is limited and investments, noncurrent portion
Property and equipment, net
Other assets
Interest in net assets of foundations
Due from affiliates
Total assets
Liabilities and Net Assets
Current liabilities
Current maturities of long-term debt and capital lease obligations
Accounts payable and accrued expenses
Due to affiliates
Other current liabilities
272,202
412,769
2015
$
316,359
379,882
185,194
8,990
62,051
150,837
4,162
43,546
941,206
894,786
613,406
1,030,154
73,095
80,416
8,623
528,382
828,175
72,968
73,021
8,591
$
2,746,900
$
2,405,923
$
25,723
221,533
6,326
123,324
$
22,637
179,024
3,929
92,372
Total current liabilities
376,906
297,962
643,752
94,444
257,796
667,115
65,599
258,022
Total liabilities
1,372,898
1,288,698
Net assets
Unrestricted
Temporarily restricted
Permanently restricted
1,293,533
56,720
23,749
1,044,177
51,311
21,737
1,374,002
1,117,225
Long-term debt and capital lease obligations, less current maturities
Accrued pension liability
Other liabilities
Total net assets
Total liabilities and net assets
$
2,746,900
$
The accompanying notes are an integral part of these combined financial statements.
3
2,405,923
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Statements of Operations
Years Ended December 31, 2016 and 2015
(in thousands)
2016
Revenues
Patient service revenue, net of contractual allowances and discounts
Provision for bad debts
$
Net patient service revenue, less provision for bad debts
Other revenue
Net assets released from restrictions - operating activities
Total revenues
Expenses
Salaries and contracted labor
Employee benefits
Supplies and other expenses
Depreciation and amortization
Interest
Provision for bad debts
Total expenses
Excess of revenues over expenses before other adjustments
Other operating adjustments
Investment income
Unrealized gain on derivative instruments
Loss on extinguishment of debt
Contribution income - acquisition of Raritan Bay Medical Center
Other (losses) gains, net
2,026,624
66,746
2015
$
1,664,435
59,543
1,959,878
1,604,892
61,868
2,655
57,496
1,682
2,024,401
1,664,070
819,030
177,529
735,955
73,535
32,832
3,545
651,131
146,845
602,133
64,791
30,343
3,526
1,842,426
1,498,769
181,975
165,301
23,344
8,150
(686)
15,937
(2,464)
Excess of revenues over expenses
8,534
3,523
17
226,256
Other adjustments in unrestricted net assets
Change in net unrealized gains (losses) on other than trading securities
Net assets released from restrictions - capital acquisitions
Equity transfers to affiliates
Pension-related adjustments
Other changes in unrestricted net assets
Increase in unrestricted net assets
177,375
15,237
5,327
(8,176)
12,514
(1,802)
$
249,356
(4,389)
8,682
(36,492)
(10,751)
$
The accompanying notes are an integral part of these combined financial statements.
4
134,425
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Statements of Changes in Net Assets
Years Ended December 31, 2016 and 2015
(in thousands)
2016
Unrestricted net assets
Excess (deficiency) of revenues over expenses
Change in net unrealized gains (losses) on other than trading securities
Net assets released from restrictions - capital acquisitions
Equity transfers to affiliates, net
Pension-related adjustments
Other changes in unrestricted net assets
$
Increase in unrestricted net assets
226,256
15,237
5,327
(8,176)
12,514
(1,802)
2015
$
249,356
177,375
(4,389)
8,682
(36,492)
(10,751)
134,425
Temporarily restricted net assets
Change in interest in net assets of Foundation
Net assets released from restrictions - capital acquisitions
Net assets released from restrictions - operations
Contribution income - Raritan Bay Medical Center acquisition
12,653
(5,327)
(2,655)
738
15,868
(8,682)
(1,682)
-
Increase in temporarily restricted net assets
5,409
5,504
Permanently restricted net assets
Change in interest in net assets of Foundation
Contribution income - Raritan Bay Medical Center acquisition
79
1,933
(90)
-
2,012
(90)
Increase (decrease) in permanently restricted net assets
Increase in net assets
Net assets
Beginning of the year
End of year
$
256,777
139,839
1,117,225
977,386
1,374,002
$
The accompanying notes are an integral part of these combined financial statements.
5
1,117,225
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Statements of Cash Flows
Years Ended December 31, 2016 and 2015
(in thousands)
2016
Cash flows from operating activities
Change in net assets
Adjustments to reconcile change in net assets to net cash provided by operating activities
Net assets acquired from Raritan Bay Medical Center
Loss on disposal of assets
Provision for bad debts
Depreciation and amortization
Loss on extinguishment of debt
Amortization of original issue premium
Change in net realized and unrealized gains on investments
Unrealized gain on derivative instruments
Unrealized (gain) loss on trading securities
Restricted contributions for capital acquisitions
Pension-related adjustments
Equity transfers to affiliates
Changes in assets and liabilities
Increase in net patient accounts receivable
Increase in other assets
Increase in accounts payable and accrued expenses
Increase in other liabilities
$
256,777
2015
$
139,839
(18,608)
39
70,291
73,506
686
(1,646)
(21,870)
(8,150)
(4,248)
(5,327)
(12,514)
1,356
536
63,069
64,784
(1,775)
(263)
(3,523)
4,245
(8,682)
10,751
36,492
(80,276)
(14,879)
3,238
19,759
(75,324)
(11,326)
17,603
11,469
258,134
247,895
550
(187,274)
28
343,635
(403,322)
(84,888)
36
359,818
(544,227)
(246,383)
(269,261)
(23,900)
129,602
(165,417)
5,327
(164)
(1,356)
(19,090)
130,000
8,682
(277)
(36,492)
Net cash (used in) provided by financing activities
(55,908)
82,823
(Decrease) increase in cash and cash equivalents
(44,157)
61,457
Net cash provided by operating activities
Cash flows from investing activities
Cash acquired from Raritan Bay Medical Center
Purchases of property and equipment
Proceeds from sale of property and equipment
Sales of investment securities
Purchases of investment securities
Net cash used in investing activities
Cash flows from financing activities
Principal payments on long-term debt and capital lease obligations
Proceeds from borrowings
Extinguishment of debt
Restricted contributions for capital acquisitions
Payments of financing costs
Equity transfers to affiliates
Cash and cash equivalents
Beginning of year
316,359
End of year
Supplemental information
Cash paid for interest
Change in construction and retainage payable
Acquisition of Raritan Bay Medical Center, net of cash acquired
254,902
$
272,202
$
316,359
$
35,333
3,075
18,058
$
30,644
3,886
-
The accompanying notes are an integral part of these combined financial statements.
6
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
1.
Organization and Summary of Significant Accounting Policies
Organization
Meridian Health System, Inc. (“MH”), a not-for-profit corporation, is the parent organization and sole
member of Meridian Hospitals Corporation (“MHC”) and Meridian Nursing and Rehabilitation, Inc.
(“MNR”) (collectively the “Corporations”). On July 1, 2016, MH and Hackensack University Health
Network completed a merger, with MH as the surviving parent entity, which was renamed
Hackensack Meridian Health, Inc. (the “Network”). This newly merged Network consists of 13
hospitals (including two academic medical centers, two children’s hospitals and seven acute care
hospitals), along with physician practices, more than 120 ambulatory centers, surgery centers,
home health services, long-term care and assisted living communities, ambulance services,
lifesaving air medical transportation, fitness and wellness centers, rehabilitation centers, urgent
care, and after-hours centers.
MHC is a not-for-profit corporation that operates an acute care hospital system which provides
primary and tertiary care services to the residents of the Monmouth and Ocean County regions of
New Jersey. MHC was established for the promotion of health and to serve the public rather than
private interest. To further this purpose, MHC also provides various programs for medical training,
research, education and conducts activities established to improve the health of the community.
MHC was formed on January 1, 1997 and currently operates five hospital divisions. Jersey Shore
University Medical Center (“JSUMC”) operates a major teaching, acute care hospital, the
K. Hovnanian Children’s Hospital and regional trauma center located in Neptune, New Jersey.
Ocean Medical Center (“OMC”) operates an acute care hospital located in Brick, New Jersey and
the OMC Care Center, a satellite emergency department in Point Pleasant, New Jersey. Riverview
Medical Center (“RMC”) operates an acute care hospital and a comprehensive rehabilitation unit
located in Red Bank, New Jersey. Southern Ocean Medical Center (“SOMC”) operates an acute
care hospital located in Manahawkin, New Jersey. Bayshore Community Hospital (“BCH”)
operates an acute care hospital located in Holmdel, New Jersey. On January 1, 2016, Raritan Bay
Medical Center (“RBMC”), a not-for-profit acute care hospital with locations in Perth Amboy, New
Jersey and Old Bridge, New Jersey, became a subsidiary of MHC, with MHC as RBMC’s parent
organization and sole corporate member. Prior to the acquisition, Raritan Bay Health Services
Corporation was the sole corporate member of RBMC.
MHC and MNR (excluding RBMC) are defined as the “Obligated Group” under the terms of the
Master Trust indenture related to the various New Jersey Health Care Facilities Financing Authority
(“NJHCFFA”) revenue bond issues. These financial statements are prepared to satisfy certain
reporting requirements as described in the Master Trust Indenture, and do not include all of the
controlled affiliate organization of either MH (prior to July 1, 2016) or the Network (July 1, 2016 and
after). As such, the combining supplemental schedules to the financial statements include a
subtotal for the Obligated Group, which includes only the accounts of MHC (excluding RBMC) and
MNR.
The acquisition of RBMC on January 1, 2016 was accounted for as an acquisition in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
805, Business Combinations, and more specifically, ASC 958-805-05, Acquisition by a Not-forprofit entity. Under this guidance, the acquirer (MHC) recognized identifiable assets acquired and
liabilities assumed from the RBMC acquired entity generally at fair value. Since no consideration
7
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
was exchanged for the acquisition, MHC recorded an inherent contribution totaling $18,608 within
the combined statements of operations and changes in net assets for the year ended December
31, 2016 related to the acquisition of RBMC’s net assets.
For the year ended December 31, 2016 total operating revenue, excess revenue over expenses,
and changes in net assets of RBMC (which consolidates within these combined financial
statements) are as follows:
Total revenues
Excess of revenues over expenses
Total changes in net assets
Unrestricted net assets
Temporarily restricted net assets
Permanently restricted net assets
$
244,606
7,141
4,473
1,342
18
The following table includes the 2015 unaudited pro forma results had the Corporations acquired
RBMC on January 1, 2015. These unaudited pro forma results are not necessarily indicative of the
results of operations and changes in net assets that would have occurred if the acquisition had
been completed on January 1, 2015, nor is indicative of the future operating results of RBMC.
Total revenues
Excess of revenues over expenses
Total changes in net assets
Unrestricted net assets
Temporarily restricted net assets
Permanently restricted net assets
$
1,885,874
166,281
131,812
5,022
(141)
MNR currently operates four full service long-term care facilities located in Brick, Ocean Grove,
Holmdel and Shrewsbury, New Jersey and a sub-acute rehabilitation facility in Wall, New Jersey.
Additionally, MNR operates a 74-unit assisted living facility known as the Willows at Holmdel that
provides housing for elderly residents.
In November 2016, the Network signed a letter of intent to explore the acquisition of JFK Health
System, which includes JFK Medical Center, a 498 bed medical center located in Edison,
New Jersey.
Summary of Significant Accounting Policies
The following is a summary of the Corporations significant accounting policies:
Basis of Presentation
The combined financial statements include the accounts of the Meridian Hospitals Corporation and
its Subsidiary (RBMC) and Meridian Nursing and Rehabilitation, Inc. as of December 31, 2016 and
2015 and for the years then ended. All significant inter-affiliate accounts and transactions have
been eliminated in combination.
8
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant estimates include the reserves on accounts receivable such as allowance for
doubtful accounts and contractual allowances, valuations of alternative investments, estimated
amounts due to and from third-party payors, professional liability costs and accrued employee
benefit costs. Actual results may differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid instruments with original maturity of
three months or less. Cash and cash equivalents exclude assets limited as to use by board
designation or under trust agreements.
Assets Limited as to Use and Investments
Assets limited as to use principally consist of cash and investments held by trustees under the
various indenture agreements and funds set aside by the Network Board of Trustees over which
the Board retains control and may, at its discretion, subsequently use for other purposes. Assets
limited as to use and investments are recorded at fair value as described below.
Investment income on investments held under bond indenture agreements is included in other
operating revenue. Investment income or losses on all other investments, including realized gains
and losses on investments, interest, dividends, changes in values on trading securities, and related
investment management fees are included in nonoperating revenues (losses). Unrealized gains
and losses on investments other than trading securities are excluded from the excess of revenues
over expenses.
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy of
valuation inputs based on the extent to which the inputs are observable in the marketplace.
Observable inputs reflect market data obtained from sources independent of the reporting entity
and unobservable inputs reflect the entities own assumptions about how market participants would
value an asset or liability based on the best information available. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. The guidance describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value.
The following describes the hierarchy of inputs used to measure fair value and the primary
valuation methodologies used by the Corporations for financial instruments measured at fair value
on a recurring basis. The three levels of inputs are as follows:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities, or quoted prices in markets that are
not active.
9
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are based on one or more of three valuation
techniques. The three valuation techniques are as follows:

Market Approach – Prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities;

Cost Approach – Amount that would be required to replace the service capacity of an
asset (i.e. replacement cost); and

Income Approach – Techniques to convert future amounts to a single present amount
based on market expectations (including present value techniques, option-pricing models,
and lattice models).
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Inputs are used in applying the various
valuation techniques and broadly refer to the assumptions the market participants use to make
valuation decisions. Inputs may include price information, credit data, liquidity statistics and other
factors.
The Corporations utilized the best available information in measuring fair value.
The following is a description of methods and assumptions used to estimate fair value. There have
been no changes in valuation methods and assumption used at December 31, 2016 and 2015.

Cash Equivalents – Estimated fair values of cash equivalents are based on daily values
(closing price on primary market) that are validated with a sufficient level of observable activity
(i.e., purchases and sales).

Corporate Equity Securities – Securities listed on national stock exchanges are valued at the
last published sales price on the last business day of the year; over–the-counter securities for
which no sale was reported on the last business day of the year are valued at the latest
reported bid price from a published source.

Mutual Funds and Money Market Funds – Fair value estimates for mutual funds are based on
net asset value (NAVs) calculated by the funds’ independent administrators which are
calculated daily. Redemptions from each of the funds can be made daily on the latest
reported NAV.

U.S. Government Debt and Corporate Debt Securities – Valued on the basis of the quoted
market prices at year-end. If quoted market prices are not available for the investments, these
investments are valued based on yields currently available on comparable securities or
issuers with similar credit ratings.

Common/Collective Trust – Valued based on a net unit value. The net unit value of the trust is
derived from the value of the underlying securities as determined by the trust at year-end.
10
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
The investments of the common/collective trust consist primarily of securities with quoted
market prices.

Derivative Instruments – Consist of interest rate swap agreements. Value is determined using
a market-based interest rate yield curve adjusted specifically to take into account the
Corporations’ risk of nonperformance.

Alternative Investments - Fair value of limited partnerships are based on unobservable inputs
that cannot be corroborated by observable market data and are therefore classified as Level
3. The Corporations invest in limited partnerships, which are alternative investments issued by
nontraditional firms or “hedge funds,” which engage in a variety of investment strategies and
are managed by money managers. The investments in alternative investments are valued by
management at fair value utilizing the net asset value (NAV) provided by the respective fund
manager of the underlying investment companies unless management determines some other
valuation is more appropriate. Such fair value estimates do not reflect early redemption
penalties as the Corporations do not intend to sell such investments before the expiration of
the early redemption periods. The fair values of the securities held by limited partnerships that
do not have readily determinable fair values are determined by the general partner and are
based on historical cost, appraisals, or other estimates that require varying degrees of
judgment. If no public market exists for the investment securities, the fair value is determined
by the general partner taking into consideration, among other things, the cost of securities,
prices of recent significant placements of securities of the same issuer, and subsequent
developments concerning the companies to which the securities relate. Generally, alternative
investments upon which redemptions may be made annually with written notice of 100 days
are recorded as current assets. Limited partnerships which do not provide for voluntary
withdrawal and are long term in nature are classified as noncurrent assets.
Inventories
Inventories, primarily supplies, are included in other current assets and are stated at the lower of
cost or market.
Other Assets
Included in other assets are various investments in health-related ventures. Investments are
accounted for on the cost or equity method depending upon the ownership interest and the degree
of control exercised.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The Corporations
determine depreciation using the straight-line method, over the estimated useful life of each class
of depreciable asset. Estimated lives range from 3 to 15 years for equipment and up to 40 years
for buildings.
Capitalized leases are recorded at their present value at the inception of the lease. Equipment
under capital leases is amortized on the straight-line method over the shorter period of the lease
term or the estimated useful life of the equipment. Such amortization is included in depreciation
and amortization in the combined statements of operations. Gains and losses resulting from the
retirement of property and equipment are included in the results of current operations.
11
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Gifts of long-lived assets such as property and equipment are determined at their fair value at the
date of the gift and reported as an increase to unrestricted net assets unless explicit donor
stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit
restrictions that specify how the assets are to be used and gifts of cash or other assets that must
be used to acquire long-lived assets are reported as restricted support. Absent explicit donor
stipulations about how long those long-lived assets must be maintained, expirations of donor
restrictions are reported when the donated or acquired long-lived assets are placed in service.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or change in circumstances
indicate that the carrying amount may not be recoverable. If the sum for the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset. There were no impairment
losses recorded for the years ended December 31, 2016 and 2015.
Deferred Financing Costs
Deferred financing costs include legal, financing, and placement fees associated with the issuance
of long-term debt and are presented net of the related long-term debt issuances, in accordance
with FASB Accounting Standards Update (ASU) 2015-03. These costs are amortized using the
interest method over the period the related obligations are outstanding.
Financial Instruments
The Corporations have entered into interest rate swap agreements to manage its exposure to
fluctuations in interest rates (interest rate risk) and lower cost of capital. These swap agreements
involve the exchange of fixed and variable rate interest payments between the Corporations and
counterparties based on common notional principal amounts and maturity dates that correspond to
the Corporations’ outstanding long-term debt.
The Corporations recognize all derivatives (interest rate swap agreements) at fair value within other
liabilities on the combined balance sheets. Changes in fair value of these instruments are reported
in the combined statements of operations as discussed in Note 6.
Professional and Worker’s Compensation Liability Insurance
The Corporations’ policy is to accrue an estimate of the ultimate cost of malpractice and workers
compensation claims under insurance policies. This accrued liability is included in other liabilities
in the accompanying combined balance sheets. The Corporations also record an estimate for
insurance recoveries associated with these claims. This amount is included in other assets.
Other Liabilities
Included in other liabilities are professional, general and workers compensation liability insurance,
third party payor obligations, derivative instruments, employee benefit liabilities (other than accrued
pension) and other miscellaneous liabilities.
Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets are those funds whose use has been limited by donors to a
specified time period and/or purpose. Temporarily restricted net assets are available for the
funding of healthcare services and capital acquisitions. Temporarily restricted net assets available
for capital acquisitions is $3,731 and available for operating activities is $52,989. Permanently
12
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
restricted net assets have been restricted by donors to be held in perpetuity and the income from
permanently restricted net assets is expendable to support various health care services.
Resources arising from the results of operations or assets set aside by the Board of Trustees are
not considered to be donor restricted.
Unconditional promises to give cash and other assets are reported at fair value at the date the
promise is received, which is then treated as the cost basis. The gifts are reported as either
temporarily or permanently restricted support if they are received with donor stipulations that limit
the use of the donated assets. When a donor restriction expires, that is, when a stipulated time
restriction ends or purpose restriction is accomplished, temporarily restricted net assets are
reclassified as unrestricted net assets and reported in the combined statement of operations as net
assets released from restrictions. Donor-restricted contributions whose restrictions are met within
the same year as received are reflected as unrestricted contributions in the accompanying financial
statements.
Net Patient Service Revenue and Patient Accounts Receivable
Net patient service revenue is accounted for on the accrual basis in the period in which the service
is provided. These amounts are net of appropriate allowances to give recognition to differences
between the Corporations’ charges and reimbursement rates from third party payors.
The Corporations are reimbursed from third party payors under various methodologies based on
the level of care provided. Certain net revenues received are subject to audit and retroactive
adjustment for which amounts are accrued on an estimated basis in the period the related services
are rendered and adjusted in future periods as final settlements are determined. The Corporations
have recorded net liabilities for estimated third party payor settlements totaling $121,916 and
$103,535 which is included in other liabilities (current and non-current) on the combined balance
sheet at December 31, 2016 and 2015, respectively. In 2016 and 2015, the Corporations recorded
$20,917 and $5,988, respectively, in net patient service revenue related to changes in prior year
estimates.
The process for estimating the ultimate collection of receivables involves significant assumptions
and judgments. The Corporations have implemented a monthly standardized approach to estimate
and review the collectibility of receivables based on the payor classification and the period from
which the receivables have been outstanding. Account balances are written off against the
allowance when management feels it is probable the receivable will not be recovered. Historical
collection and payor reimbursement experience is an integral part of the estimation process related
to reserves for doubtful accounts. In addition, the Corporations assess the current state of billing
functions in order to identify any known collection or reimbursement issues and assess the impact,
if any, on reserve estimates. The Corporations believe that the collectibility of receivables is
directly linked to the quality of its billing processes, most notably those related to obtaining the
correct information in order to bill effectively for the services provided. Revisions in reserve for
doubtful accounts estimates are recorded as an adjustment to bad debt expense.
A summary of the payment arrangements with major third party payors is as follows:

Medicare - inpatient acute care services and most outpatient services rendered to Medicare
program beneficiaries are paid at prospectively determined rates per discharge. These rates
vary according to a patient classification system that is based on clinical, diagnostic and other
factors. Certain outpatient services and medical education costs related to Medicare
13
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
beneficiaries are paid based on a cost reimbursement methodology, the Corporations are
reimbursed for cost reimbursable items at a tentative rate with final settlement determined
after submission of annual cost reports and audits thereof by the Medicare fiscal intermediary.
The classification of patients under the Medicare program and the appropriateness of their
admission are subject to an independent review by a peer review organization under contract
with the Corporations. MHC’s Medicare cost reports have been audited and finalized by the
Medicare fiscal intermediary through December 31, 2013, except for 2011 for OMC, 2010 and
2011 for RMC, and 2010 for RBMC which has not been finalized by the fiscal intermediary.

Medicaid - inpatient acute care services rendered to Medicaid program beneficiaries are
reimbursed under a prospective methodology which is based on the former Chapter 83
reimbursement system. Outpatient services are paid based upon a cost reimbursement
methodology and certain services are paid based on a Medicaid fee schedule. MHC’s
Medicaid cost reports have been audited and finalized by the Medicaid fiscal intermediary for
RMC and SOMC through December 31, 2014 and for JSUMC, OMC, BCH, and RBMC
through December 31, 2013.

The Corporations have also entered into payment agreements with certain commercial
insurance carriers, health maintenance organizations and preferred provider organizations.
The basis for payment under these agreements includes prospectively determined rates per
patient day or procedure and discounts from established charges.
The Corporations record gross patient service revenue on an accrual basis at established rates,
with contractual and other allowances added to or deducted from such amounts to determine net
patient service revenue. The Corporations maintain policies and records to identify and monitor
these contractual allowances and the level of charity care. These records include the amount of
deductions from gross revenue due to qualified services provided under the State’s charity care
guidelines.
The components of net patient service revenue are as follows:
Gross charges
Contractual and other allowances
Provision for bad debts
Change in estimate of prior years’ net patient service revenue
Charity care subsidy
Hospital relief subsidy
December 31,
2016
2015
$ 10,005,958
$
8,344,912
(8,027,780)
(6,699,301)
(66,746)
(59,543)
20,917
5,988
16,062
9,602
11,467
3,234
$
14
1,959,878
$
1,604,892
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
The mix of patient service revenue, net of contractual allowances from patients and third party
payers for the years ended December 31, 2016 and 2015 are as follows:
2016
Medicare
Medicaid
New Jersey Blue Cross
Other managed care and commercial
Uninsured
2015
37 %
3
19
40
1
37 %
3
21
38
1
100 %
100 %
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to
interpretation for which action for noncompliance includes fines, penalties and exclusion from the
Medicare and Medicaid programs. The Corporations believe that they are currently in compliance
with all applicable laws and regulations. The Corporations have established a Corporate
Compliance Program to monitor compliance with various regulations.
Performance Indicator
The combined statements of operations include excess of revenues over expenses as the
performance indicator. Changes in unrestricted net assets which are excluded from excess of
revenues over expenses, consistent with industry practice, include changes in net unrealized gains
and losses on other than trading securities, net assets released from restriction for capital
acquisitions, equity transfers of assets to and from affiliates, pension-related adjustments and other
changes in unrestricted net assets.
The Corporations differentiate core operating activities through the use of excess of revenues over
expenses before other operating adjustments as an intermediate measure of operations. For the
purposes of display, investment income and certain other transactions, which management does
not consider being components of the Corporations’ core operating activities, are reported as other
operating adjustments in the combined statements of operations.
Income Taxes
The Corporations are not-for-profit corporations as described in Section 501(c) (3) of the Internal
Revenue Code and are exempt from federal income taxes on related income. The Corporations
are also exempt from state income taxes. Per the requirement to assess for tax uncertainty,
management has determined that it does not have any material uncertain tax positions required to
be accrued or reported.
Reclassifications
Certain amounts in the 2015 combined financial statements have been reclassified to conform to
the current year’s presentation.
New Authoritative Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This
standard implements a single framework for recognition of all revenue earned from customers.
This framework ensures that entities appropriately reflect the consideration to which they expect to
15
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
be entitled in exchange for goods and services by allocating transaction price to identified
performance obligations and recognizing revenue as performance obligations are satisfied.
Qualitative and quantitative disclosures are required to enable users of financial statements to
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The standard is effective for fiscal years beginning after December 15,
2017. The Corporations are currently assessing the impact the adoption of this standard will have
on their combined financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest, aims to simplify the
presentation of debt issuance costs. This standard requires all costs incurred to issue debt to be
presented in the balance sheet as a direct deduction from the carrying value of the associated debt
liability. The standard is effective for fiscal years beginning after December 15, 2015. The
Corporations are adopted this standard, and the updated presentation is reflected in the combined
balance sheets as of December 31, 2016 and 2015.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement and Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This
guidance requires entities to present investments that use net asset value (NAV) as a practical
expedient for valuation purposes separately from other investments categorized in the fair value
hierarchy described in the Fair Value Measurements section of this note. The standard is effective
for fiscal years beginning after December 15, 2016. The Corporations are currently assessing the
impact the adoption of this standard will have on their combined financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
This guidance primarily affects the accounting for equity investments, financial liabilities under the
fair value option, and the presentation and disclosure requirements for financial instruments.
Certain financial institutions and companies with large equity investment portfolios that are not
currently being measured at fair value through the income statement are most affected by the new
standard. The new standard also allows entities that are not public business entities and do not
carry financial instruments at fair value in the statement of financial position to no longer be
required to disclose the fair value and significant assumptions used to estimate the fair value of
such financial instruments. The standard is effective for fiscal years beginning after December 15,
2018 for non-public business entities. The Corporations early adopted the portion of the standard
that eliminates the disclosure requirement for financial instruments that are not recorded at fair
value. As such, the Corporations have removed the disclosures of fair value of debt as of
December 31, 2016 and 2015.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance,
lessees will be required to recognize the following for all leases (with the exception of leases with a
term of twelve months or less) at the commencement date: (a) a lease liability, which is a lessee‘s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. Under the new guidance, lessor accounting is largely
unchanged. The guidance requires a modified retrospective transition approach for leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for
leases that expire before the earliest comparative period presented. A full retrospective transition
16
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
approach is not permitted. This guidance will be effective for the Corporations beginning in fiscal
year 2019. Early application is permitted. The Corporations is currently assessing the impact the
adoption of this standard will have on their combined financial statements.
In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements for Not-forProfit Entities. This standard marks the completion of the first phase of a larger project aimed at
improving not-for-profit financial reporting. Under the new guidance, the existing three categories
of net assets will be replaced with a simplified model that combines temporarily restricted and
permanently restricted net assets into a single category called “net assets with donor restrictions”
and renames unrestricted net assets as “net assets without donor restrictions.” There will be new
reporting requirements for expenses and additional disclosures to describe an organization’s
liquidity.
The standard is effective for fiscal years beginning after December 15, 2017.
The Corporations are currently assessing the impact this standard will have on their 2018
combined financial statements.
2.
Charity Care and Uncompensated Care
The Corporations provide care to patients who meet certain criteria defined by the New Jersey
Department of Health and Senior Services without charge or at amounts less than its established
rates. The Corporations maintain records to identify and monitor the level of charity care it
provides. These records include the amount of charges foregone for services and supplies
furnished. The Corporations receive partial reimbursement for the uncompensated care provided
(Note 1). Of the Corporations’ total combined operating expenses reported for 2016 and 2015,
estimated costs of $36,223 and $20,095 for 2016 and 2015, respectively, are attributable to
providing services to charity patients. The estimated costs of providing charity care services are
based on a calculation which applies a ratio of cost to charges to the gross uncompensated
charges associated with providing care to charity patients. The ratio of cost to charges is
calculated based on the Corporations’ total operating expenses, excluding bad debt expense,
divided by gross patient service revenue.
17
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
3.
Assets Limited as to Use and Investments
The following tables provides a summary of the Corporations’ assets limited as to use and
investments that are measured at fair value on a recurring basis.
Quoted Prices
Significant
in Active Markets
Other
for Identical
Observable
Balances at
Assets
Inputs
December 31,
(Level 1)
(Level 2)
2016
Under bond indenture agreements held by Trustee
Cash and cash equivalents
Total under bond indenture agreements
held by trustee
$
11,086
$
-
$
11,086
$
11,086
$
-
$
11,086
$
12,401
$
2,280
$
Under Board of Trustees designation and
investments - other than trading securities
Cash and cash equivalents
Mutual funds
14,681
37,592
349,672
387,264
Corporate debt securities
-
15,857
15,857
Corporate equity securities
-
3,595
3,595
Municipal debt securities
-
6,685
6,685
318,612
53,218
371,830
431,307
799,912
U.S. government obligations
$
368,605
$
Alternative investments
8,341
Certificates of deposits
15,772
Accrued interest
1,334
Total under Board of Trustee designation
and investments - other than trading securities
$
825,359
Under Board of Trustees designation and
investments - trading securities
Cash and cash equivalents
$
U.S. government obligations
Corporate debt securities
Corporate equity securities
$
-
$
3,401
$
3,401
27,577
26,711
54,288
-
91,762
91,762
35,216
4,116
39,332
125,990
188,783
62,793
$
Accrued interest
869
Total under Board of Trustee designation
and investments - trading securities
189,652
Restricted cash
78
Total assets limited as to use and investments
1,026,175
Less: Current portion
412,769
Assets limited as to use and
investments noncurrent portion
$
18
613,406
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Quoted Prices
Significant
in Active Markets
Other
for Identical
Observable
Balances at
Assets
Inputs
December 31,
(Level 1)
(Level 2)
2015
Under bond indenture agreements held by Trustee
Cash and cash equivalents
Total under bond indenture agreements
held by trustee
$
17,372
$
-
$
17,372
$
17,372
$
-
$
17,372
$
11,402
$
1,172
$
Under Board of Trustees designation and
investments - other than trading securities
Cash and cash equivalents
Mutual funds
12,574
20,310
293,671
313,981
Corporate debt securities
-
13,713
13,713
Municipal debt securities
-
7,921
7,921
272,914
66,734
339,648
383,211
687,837
U.S. government obligations
$
304,626
$
Alternative investments
8,870
Certificates of deposits
14,398
Accrued interest
1,036
Total under Board of Trustee designation
and investments - other than trading securities
$
712,141
Under Board of Trustees designation and
investments - trading securities
Cash and cash equivalents
$
U.S. government obligations
Corporate debt securities
Corporate equity securities
$
-
$
3,772
$
3,772
17,635
9,560
27,195
-
116,021
116,021
28,036
2,897
30,933
132,250
177,921
45,671
$
Accrued interest
806
Total under Board of Trustee designation
and investments - trading securities
178,727
Restricted cash
24
Total assets limited as to use and investments
908,264
Less: Current portion
379,882
Assets limited as to use and
investments noncurrent portion
$
528,382
There were no investments in 2016 or 2015 with unobservable inputs that cannot be corroborated
by observable market data and therefore, classified as Level 3.
At December 31, 2016 and 2015, the Corporations’ remaining outstanding funding commitments to
alternative investments were $2,192.
19
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Assets under bond indenture agreements held by trustees are maintained in the following
accounts:
December 31,
2016
2015
Debt service fund, principal
Debt service fund, interest
Construction fund
Total assets under bond indenture agreements
$
7,155
3,931
-
$
7,529
4,224
5,619
$
11,086
$
17,372
Investment income consists of the following:
December 31,
2015
2016
Interest income
Realized gains and losses
Net change in unrealized gains (losses)
Investment management fees
Other gains and losses
4.
$
13,921
6,633
4,248
(1,761)
303
$
9,524
4,652
(4,245)
(1,501)
104
$
23,344
$
8,534
Property and Equipment
Property and equipment, including assets held under capital lease obligations consist of the
following:
December 31,
2016
2015
Land
Land improvements
Buildings and fixed equipment
Major movable equipment
$
52,099
15,142
1,215,018
627,328
$
1,909,587
Accumulated depreciation and amortization
Construction-in-progress
1,751,324
(1,053,672)
174,239
Property and equipment, net
$
20
1,030,154
40,168
13,702
1,126,041
571,413
(986,960)
63,811
$
828,175
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
5.
Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consist of the following:
December 31,
2016
2015
$129,603 New Jersey Health Care Facilities Financing
Authority ("NJHCFFA") Meridian Health System Obligated
Group Issue, Series 2016 A Revenue Bonds, maturing
on July 1, 2038. The interest on the bonds is
payable monthly and the interest rate is determined monthly based
upon market rates. Principal is payable monthly beginning
in 2016. The bonds were directly placed. As of December 31,
2016, the interest rate on the bonds was 1.01%
$
128,965
$
-
$130,000 NJHCFFA Meridian Health System Obligated
Group Issue, Series 2015 A Revenue Bonds, maturing
on November 1, 2045. The interest on the bonds is
payable monthly at an annual rate of 2.5% through
November 1, 2030. Principal is payable monthly
beginning December 2015. The bonds were directly placed.
125,306
129,639
24,260
24,900
-
38,505
-
46,130
-
46,130
$29,525 NJHCFFA Meridian Health System Obligated Group
Issue Series 2013A Refunding Bonds, in varying maturities
through July 1, 2032 at annual interest rates varying between
2.0% and 5.0%. Interest is payable each January 1 and July 1
and principal is payable each July 1 beginning in 2013. The bonds
collateralized by a lien and a security interested on the gross receipts
of the Obligated Group.
$40,005 NJHCFFA Meridian Health System Obligated Group Issue,
Series 2012A maturing on July 1, 2033. The interest on the bonds
is payable monthly based upon market rates. Principal is payable
each July 1 beginning in 2013. The bonds were directly placed,
and were refinanced in March 2016
$47,705 NJHCFFA Meridian Health System Obligated Group Issue,
Series 2012B maturing on July 1, 2038. The interest on the bonds
is payable monthly based upon market rates. Principal is payable
each July 1 beginning in 2013. The bonds were directly placed,
and were refinanced in March 2016
$47,705 NJHCFFA Meridian Health System Obligated Group Issue,
Series 2012C maturing on July 1, 2038. The interest on the bonds
is payable monthly based upon market rates. Principal is payable
each July 1 beginning in 2013. The bonds were directly placed,
and were refinanced in March 2016
21
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
December 31,
2016
2015
$200,595 NJHCFFA Meridian Health System Obligated Group Issue,
Series 2011 Refunding Bonds, in varying maturities through July 1, 2027
at annual interest rates varying between 2.0% and 5.0%. Interest is
payable each January 1 and July 1 and principal is payable each July 1
beginning in 2012. The bonds are collateralized by a lien and a security
interest on the gross receipts of the Obligated Group.
$
140,735
$
152,920
$145,125 NJHCFFA Meridian Health System Obligated Group Issue,
Series 2007 Revenue Bonds, maturing on July 1, 2038 at an
annual interest rate of 5.0%. Interest is payable each January 1
and July 1 and principal is payable each July 1 beginning in 2010.
The Series 2007 bonds are insured by Assured Guaranty.
The bonds are collateralized by a pledge on all forms of
gross receipts.
136,200
137,825
15,385
15,745
3,500
3,500
3,173
3,841
10,735
11,155
$18,390 NJHCFFA Southern Ocean County Hospital issue,
Series 2006 Revenue Bonds, maturing on July 1, 2036. The interest
on the bonds is payable monthly and the interest rate is determined
weekly based upon market rates with a 12% per annum maximum.
The principal payments are due each July 1. The bonds are backed
by a letter of credit expiring in June 2019. As of December 31, 2016,
the interest rate on the bonds was 0.69%.
$5,100 NJHCFFA variable rate composite revenue bonds Series
2006 A-3 maturing on July 1, 2031. The interest on the bonds is
payable monthly and the interest rate is determined weekly based on
market rates with a 12% per annum maximum. The bonds are
collateralized by a letter of credit expiring in November 2019. As of
December 31, 2016, the interest rate on the bonds was 0.83%.
$7,000 NJHCFFA Capital Asset Loan on behalf of Meridian Nursing
and Rehabilitation at Ocean Grove, Inc. maturing on November 1,
2017. Principal and interest are paid monthly. The loan
is collateralized by a pledge of gross revenues and a negative pledge
on the real property of the Obligated Group under the Master Indenture,
including but not limited to the real property comprising Manor by the Sea.
As of December 31, 2016, the interest rate on the bonds was 3.56%
$14,725 NJHCFFA variable rate composite revenue bonds Series
2004 A-3 maturing on July 1, 2035. The interest on the bonds is
payable monthly and the interest rate is determined weekly based
on market rates with a 12% per annum maximum. The bonds are
collateralized by a letter of credit expiring in June 2019. As of
December 31, 2016, the interest rate on the bonds was 0.71%.
22
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
December 31,
2016
2015
$60,000 NJHCFFA Meridian Health System Obligated Group Issue,
Series 2003 Revenue Bonds, maturing on July 1, 2033. The interest
on the bonds is payable monthly and the interest rate is determined
weekly based on market rates with a 12% per annum maximum.
The bonds are collateralized by a letter of credit expiring in
November 2019. As of December 31, 2016, the interest
rate on the bonds was 0.72%.
$
60,000
$
60,000
$17,255 New Jersey Economic Development Authority ("NJEDA")
Series 1998A Variable Rate Demand Senior Care Revenue Bonds
in varying maturities through July 2028. Interest is payable monthly and is
determined weekly based on market rates with a 12% per annum maximum.
Principal is payable each July 1. The bonds are secured by an interest in
BHCC's gross receipts, a first mortgage lien on BHCC's property,
plant and equipment and a letter of credit, expiring November 2019.
9,270
9,870
119
-
As of December 31, 2016 the interest rate on the bonds was 0.71%.
Commercial mortgage, collateralized by the building and land purchased
under the mortgage, maturing in October 2017 with an interest rate of
7% principal and interest are payable monthly.
Capital lease obligations and other obligations with interest rates ranging
from 1.74% to 12.3% collateralized by equipment financed through the leases.
4,906
1,474
662,554
681,634
Original issue premium
10,911
12,565
Deferred financing costs, net of accumulated amortization
(3,990)
(4,447)
(25,723)
(22,637)
Total long-term debt and capital lease obligations
Current portion
Long-term debt and capital lease obligations,
net of current portion
$
643,752
$
667,115
MHC and MNR are defined as the “Obligated Group” under the terms of the Master Trust Indenture
related to the NJHCFFA Revenue Bonds. The agreements contain provisions whereby certain
financial ratios are to be maintained by the Obligated Group and permit additional borrowings
subject to the maintenance of specific financial ratios. The Corporations' most restrictive covenants
are meeting minimum requirements for debt service coverage ratio, days cash on hand and a
cushion ratio. At December 31, 2016 and 2015, the Corporations were in compliance with all
financial ratio covenants.
In March 2016, the Obligated Group completed a direct placement transaction in which it
performed an advance refunding of $129,603 of bonds related to the Series 2012A, Series 2012B
and 2012C. Obligated Group incurred a loss on the extinguishment of debt of $185 associated
with this transaction.
23
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
In April 2016, MHC utilized cash on hand to legally defease RBMC’s Series 1994 bonds (issued
through the NJHCFFA). In return RBMC entered into an intercompany loan with MHC, which had
an outstanding balance of $26,738 at December 31, 2016 (which has been eliminated in the
combination of RBMC into MHC). RBMC incurred a loss on the extinguishment of debt of $501
associated with this transaction.
In November 2015, the Corporations completed a direct placement transaction of new debt in the
amount of $130,000. These funds reimbursed the Corporations for construction costs related to
certain renovation and expansion projects and the purchase of new equipment.
The future principal payments on long-term debt and payments on capital lease obligations at
December 31, 2016 are as follows:
As of December 31, 2016
2017
2018
2019
2020
2021
Thereafter
24,036
23,838
118,898
21,441
22,665
446,770
Amounts representing interest on
capital lease obligations
Original issue premium
Deferred financing costs, net
Current portion
Long-term portion
6.
Capital
Lease
Obligations
Long-Term
Debt
$
$
2,209
1,597
1,053
470
-
Total
$
26,245
25,435
119,951
21,911
22,665
446,770
657,648
5,329
662,977
10,911
(3,990)
(24,036)
(423)
(1,687)
(423)
10,911
(3,990)
(25,723)
640,533
$
3,219
$
643,752
Interest Rate Swap Agreements
The Corporations currently have five forward starting pay fixed interest swap agreements which
were entered into to mitigate variable rate exposure and take advantage of low interest rates.
Under the terms of these agreements, the Corporations are paying fixed interest rates ranging from
3.33% to 3.88% in exchange for variable rate payments equal to either 67% or 68% of the one
month LIBOR rate. The notional amount on these swap agreements are also tied to the
outstanding principal on the underlying bond series.
At December 31, 2016 and 2015, the fair value of the Corporations’ derivative instruments were in
a liability position of $61,982 and $70,132, respectively and included in other liabilities on the
combined balance sheets. The fair values of the Corporations’ derivative instruments are classified
as Level 2 financial instruments and reflect a risk of nonperformance adjustment of approximately
$5,500 and $7,600, respectively. The total gain recognized on these derivatives for the years
24
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
ended December 31, 2016 and 2015 was $8,150 and 3,523, respectively, which were included
within other operating adjustments in the combined statements of operations.
7.
Pension Plans, Postretirement Health Care and Postemployment Benefits
The Corporations have multiple noncontributory defined benefit retirement plans covering most
employees. The Corporations funding policy is to contribute annually an amount no less than the
minimum amount required by the Employee Retirement Income Security Act of 1974, plus
additional amounts, which may be approved by the Corporation from time to time. The following
describes the various noncontributory defined benefit retirement plans:
MHC Defined Benefit Cash Balance Pension Plan
The defined benefit cash balance plan (the “MHC Plan”) was created on January 1, 1998 through
the conversion and merger of predecessor defined benefit plans. Benefits calculated based upon
the predecessor plans were frozen as of December 31, 1997. Beginning January 1, 1998 benefits
are based upon contributions to participants’ accounts at a percentage of the employee’s salary.
On December 31, 2009, the MHC Plan was effectively frozen. Any employee eligible to participate
in MHC Plan on December 31, 2009 will continue to accrue benefits under this plan until
retirement. All new employees joining MHC after this date will be eligible to participate in a new
403(b) savings plan.
BCH Defined Benefit Pension Plan
BCH was the sponsor of a noncontributory defined benefit pension plan (the “BCH Plan”) covering
substantially all of BCH’s employees. Benefits are based on salary and years of service. In 1999,
BCH froze the BCH Plan to new participants and no benefits will accrue for future services.
RBMC Pension Plans
The Employees’ Retirement Plan of Raritan Bay Health Services Corporation (the “RB Plan”) is a
noncontributory defined benefit retirement plan. The RB Plan was frozen on December 31, 2004.
Prior to December 31, 2004, the RB Plan covered all employees who had completed one year of
service.
25
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
The following table sets forth the funded status of the pension plans as of December 31, 2016 and
2015:
2016
2015
Change in benefit obligation
Benefit obligation at beginning of year
Acquisition of Raritan Bay Medical Center
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Settlements
$
439,689
184,486
18,080
26,573
3,084
(41,426)
(566)
$
453,121
18,162
17,792
(20,778)
(23,719)
(4,889)
Benefit obligation at end of year
629,920
439,689
Change in plan assets
Fair value of plan assets at beginning of year
Acquisition of Raritan Bay Medical Center
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
374,090
137,867
44,126
21,431
(41,426)
(612)
397,055
(10,102)
15,333
(23,719)
(4,477)
Fair value of plan assets at end of year
535,476
374,090
Funded status at end of year
$
Accumulated benefit obligation, end of year
Amounts recognized in unrestricted net assets not yet
captured within net periodic benefit cost consist of
Net loss
Prior service cost
Amounts in unrestricted net assets expected to be
recognized in 2017 net periodic benefit cost
Net loss
Prior service cost
$
(65,599)
$
600,351
$
404,164
$
(89,100)
-
$
(97,745)
(428)
$
(89,100)
$
(98,173)
$
4,599
4,599
$
26
(94,444)
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
December 31,
2016
2015
Weighted-average assumptions used to determine
benefit obligations at December 31
Discount rate
Rate of compensation increase
4.01 - 4.49%
3.50%
4.34 - 4.58%
4.50%
Weighted average assumptions used to determine net
periodic benefit cost for years ended December 31
Discount rate
Expected return on plan assets
Rate of compensation increase
4.34 - 4.58%
7.00 - 7.25%
4.50%
3.97 - 4.22%
7.00 - 7.25%
4.50%
The net periodic pension cost included the following components:
December 31,
2016
2015
Service cost
Interest cost
Expected return on assets
Settlement loss
Amortization of
Prior service cost
Actuarial loss
$
18,080
26,573
(35,103)
111
$
428
6,085
18,162
17,792
(27,059)
577
465
4,178
Net periodic benefit cost
$
16,174
$
14,116
Other changes in benefits and plan assets
(unrestricted net assets)
Current year actuarial (gain) loss
Amortization of actuarial loss
Amortization of prior service cost
$
(6,001)
(6,085)
$
15,393
(4,178)
Total pension-related adjustments
$
(12,514)
$
10,751
Total net periodic benefit cost and pensionrelated adjustments
$
3,660
$
24,867
(428)
(465)
Plan Assets and Investment Policy
Upon completion of the merger on July 1, 2016, the Board of Trustees of the Network established
an Investment Committee whose responsibilities include oversight and management of each of the
pension plan investment portfolios. As such, the investment policy and strategy with respect to all
defined benefit plan portfolios is to provide for growth of capital with a moderate level of volatility by
investing in assets based on the respective plans’ target allocations. The expected long-term rate
27
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
of return assumptions are based on forward-looking return forecasts for the modeled asset classes
provided by the Corporations’ investment management consultations. The long-term forecasts are
based on their analysis of long-cycle historical data as well as their longer-term global views. The
target allocations have been set to achieve a long-term rate of return as follows for each plan:
Rate of Return
Plan
MHC Plan
BCH Plan
RB Plan
7.00 %
7.00 %
7.25 %
The assets of the pension plans are invested as follows:
MH Plan
Investment categories
Equities (domestic and foreign)
Fixed Income
Alternative Investments
Cash equivalents
Target Asset Allocation
BCH Plan
RB Plan
53%
40%
7%
-
56%
41%
3%
-
60%
35%
5%
100%
100%
100%
Fair Value Measurements
The following table sets forth by level, within the fair value hierarchy, the Plans’ investments at fair
value as of December 31, 2016 and 2015:
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Corporate equity securities
Mutual funds-equity
Mutual funds-fixed income
Common/collective trust
Alternative investments
Short term fixed income fund
Total assets at fair value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Inputs
Unobservable
(Level 3)
Balances at
December 31,
2016
$
35,576
-
$
90,303
145,304
101,931
150,983
2,444
$
8,935
-
$
125,879
145,304
101,931
150,983
8,935
2,444
$
35,576
$
490,965
$
8,935
$
535,476
28
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Corporate equity securities
Mutual funds-equity
Mutual funds-fixed income
Common/collective trust
Alternative investments
Short term fixed income fund
Total assets at fair value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Inputs
Unobservable
(Level 3)
Balances at
December 31,
2015
$
30,860
-
$
3,094
123,719
46,542
157,307
2,991
$
9,577
-
$
33,954
123,719
46,542
157,307
9,577
2,991
$
30,860
$
333,653
$
9,577
$
374,090
There were no transfers between Level 1 and Level 2 during 2016 and 2015.
At December 31, 2016 and 2015, MHC’s remaining outstanding funding commitments to alternative
investments were $2,924.
The activity of purchases, sales and realized/unrealized gains and losses on Level 3 investments in
plan assets were not material in either 2015 or 2016.
Contributions
The Corporations expect to contribute $22,945 to its pension plans in 2017.
Estimated Future Benefit Payments
The following benefit payments which reflect future service as appropriate are expected to be paid:
2017
2018
2019
2020
2021
2022–2026
$
29
39,440
40,126
40,611
43,842
44,230
235,584
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
Other Benefit Plans
MHC sponsors two 403(b) savings plans. The Meridian 403(b) Savings Plan for Cash Balance
Participants was adopted January 1, 1998. An employee is eligible for participation in this plan if
the employee was hired prior to January 1, 2010, after attaining the age of 21 and completion of
one year of eligible service. Matching contributions are received after 15 months of eligible service.
The second 403(b) plan is the Meridian 403(b) Savings Plan. An employee is eligible to participate
in this plan if the employee was hired on or after January 1, 2010. All employees who are
scheduled to work 20 hours or more per week are eligible to make elective deferrals beginning on
the date of hire. Employer matching contributions will begin after attaining the age of 21 and
completion of one year of service. Employees are eligible to receive employer nonelective
contributions equal to 3% of compensation immediately. Total employer contributions for 2016 and
2015 for both plans were $15,359 and $13,806, respectively.
In addition, MHC provides certain postretirement and postemployment benefits.
The
postretirement and postemployment benefit plans provide health care benefits and life insurance
coverage to a limited group of employees. Current employees are not eligible for participation in
these plans. As of December 31, 2016 and 2015, liabilities totaling $1,285 were included in other
liabilities related to estimated benefits payable under the postretirement and postemployment
plans. Benefits under the postretirement and postemployment benefit plans are paid as incurred.
MNR sponsors several 401(k) plans (“401(k)”) and a money purchase plan. Once an employee
has worked 1,000 hours in a calendar year, Meridian matches 100 percent up to 3 percent and 50
percent up to 2 percent of a team member’s contribution for Brick, Shrewsbury (non-union); and
Ocean Grove; and matches 100 percent up to 6 percent of pay at Wall. The Shrewsbury Union
plan is 100 percent employee funded with no matching contribution. The Shrewsbury Union Money
Purchase Plan is an employer funded plan and the employee receives $0.48 per hour worked.
Total contributions to the plans were $1,356 and $1,337 during 2016 and 2015, respectively.
Effective January 1, 2005, RBMC adopted a defined contribution pension plan (the “RB Retirement
Plan”). The RB Retirement Plan provides for employer and employee contributions. All employees
scheduled to work at least 20 hours per week are eligible for RBMC’s 50% match on the first 4% of
the employee contribution. Under the RB Retirement Plan, a base contribution was made on
behalf of each eligible employee towards this program. The amount was based upon each
employee’s accumulated points (age and years of service). Effective May 2, 2009 the base
contribution was suspended, and effective August 22, 2010, the matching contribution was
suspended. Effective July 7, 2013, the RB Retirement Plan was amended to provide a 50% match
by RBMC on the first 2% of the employee’s contribution and employer matching contributions were
reinstated. RBMC contributed approximately $603 during 2016.
30
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
8.
Operating Leases
MHC rents certain office space and equipment under various noncancelable operating leases.
Future payments relating to these leases, by year, at December 31, 2016, are as follows:
2017
2018
2019
2020
2021
Thereafter
$
8,700
7,178
6,568
5,631
5,539
48,912
$
82,528
MHC leases various buildings from Meridian Health Realty Corporation, a subsidiary of MH, under
leases that are renewable annually. Rent expense under these leases was $13,676 and $10,803
for 2016 and 2015, respectively. The Corporations utilize various types of equipment and space
under separate operating leases. The related expenses for the years ended December 31, 2016
and 2015 were approximately $4,857 and $4,786, respectively.
9.
Functional Expenses
The Corporations provide general health care services and programs. Expenses related to
providing these services for the years ended December 31, 2016 and 2015, are as follows:
2016
Health care services
General and administrative
10.
2015
$
1,497,764
344,662
$
1,202,895
295,874
$
1,842,426
$
1,498,769
Commitments and Contingencies
Line of Credit
As of December 31, 2016, the Corporations had available lines of credit for $15,000 with a maturity
date of December 31, 2017. These included letters of credit totaling $11,950 to be used as
collateral for certain insurance policies and $3,050 available for cash demands. The line is
evidenced by a promissory note payable to the order of one of the Corporations’ primary banks.
Additionally, BCH has letters of credit totaling $1,450 outstanding as collateral for certain high
deductible insurance policies.
Litigation
Various suits, investigations and claims arising in the normal course of operations are pending or
are on appeal against the Corporations. Such suits and claims are either specifically covered by
insurance or are not material. While the outcome of these suits cannot be determined with certainty
at this time, management believes that any loss which may arise from those suits and claims will
31
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
not have a material adverse effect on the financial position or results of operations of the
Corporations.
11.
Professional, General and Worker’s Compensation Liability Insurance
MH maintains a risk financing program (the “Program”) for its facilities via a wholly owned Bermuda
corporation, Coastal Medical Insurance Ltd. (“Coastal”) that was formed in 1998. The Program
provides funding for various risks including Hospital Professional Liability (“HPL”), General Liability
(“GL”), Directors and Officers, Property and Workers’ Compensation (“WC”). For 2016 and 2015,
the Program provided funding for HPL risks of $1,000 per occurrence subject to an overall
aggregate exposure of $3,000 each entity and GL risks of $1,000 per occurrence and in the
aggregate for each entity. Both policies are written on a claims-made basis. The WC policy is
written on an occurrence basis, and provides funding for the deductible portion of MH’s WC
exposure, or $750 per occurrence. The Corporations have recorded an estimated insurance
receivable of $58,856 and $59,988 included in other assets in the combined balance sheet as of
December 31, 2016 and 2015, respectively. The Corporations have recorded undiscounted HPL,
GL and WC loss reserves totaling $60,944 and $62,228 and an undiscounted professional liability
tail reserve of $13,729 and $12,910 included in other liabilities in the combined balance sheets as
of December 31, 2016 and 2015, respectively.
12.
Concentration of Credit Risk
The Corporations grant credit without collateral to its patients, most of whom are local residents
and are insured under third party payor agreements. The mix of net accounts receivable from third
party payors and patients (excluding accounts with collective agencies) at December 31, 2016 and
2015, is as follows:
2016
Medicare and medicaid
Managed care/HMO
Other third party payors
Self-pay patients
13.
2015
42 %
19
31
8
32 %
57
11
0
100 %
100 %
Transactions with Affiliated Organizations
The Corporations record transactions with affiliated organizations in the normal course of its
operations. The affiliated organizations with significant balances include the following entities:

Meridian Health Realty Corporation and Subsidiaries (“Realty”) was organized to acquire,
construct, finance, operate and own or lease property for the benefit of MH and its affiliated
organizations.

Meridian Practice Institute, Inc. serves as the management organization for the faculty
practice and other physician practice development strategies.
32
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)

Meridian Accountable Care Organization is a partnership among the Corporation’s hospitals,
partner companies, and over 800 physicians, whose mission includes the promotion of
evidence-based medicine, the advocacy of patient engagement, and the development of an
infrastructure for network providers to internally report on quality and cost metrics.

Raritan Bay Surgical Partners is a limited liability company whose purpose is to own, manage
and operate an ambulatory surgical facility.

Meridian Health Foundation, Inc. is the sole member of the local foundations listed in the table
below, which have been established to solicit and invest funds for the benefit of the
Corporations and any other not-for-profit organization as directed by MH.

Meridian Health Management, Inc. (“MHM”) is a for profit company whose primary purposes
include providing physician practice management services; development and operation of
ambulatory surgery centers; recruitment of physicians; and other support services.

Meridian Health Ventures, Inc. is a for-profit company providing support services to MH and is
the sole member of MHM.

SOCH Properties 1, LLC owns and operates property for the benefit of SOMC and its affiliated
organizations.
Amounts due from (to) affiliated organizations consist of the following:
2016
Current (liabilities) receivable
Meridian Health Realty Corporation and Subsidiaries
Meridian Practice Institute, Inc.
Meridian Accountable Care Organization
Raritan Bay Surgical Partners, LLC
Other affiliates
Current receivables, net
Interest in restricted net asset balances of
Meridian Health Foundation, Inc.
Jersey Shore University Medical Center Foundation, Inc.
Riverview Medical Center Foundation, Inc.
Ocean Medical Center Foundation, Inc.
Southern Ocean Medical Center Foundation, Inc.
Bayshore Community Hospital Foundation, Inc.
Raritan Bay Healthcare Foundation, Inc.
Interest in restricted net assets balance of foundations
33
2015
$
(2,560)
(2,337)
5,542
2,881
(862)
$
(3,852)
1,071
3,021
(7)
$
2,664
$
233
$
5,744
27,898
28,551
10,617
1,019
2,582
4,005
$
4,970
26,655
26,800
11,085
1,208
2,303
-
$
80,416
$
73,021
Meridian Hospitals Corporation and Meridian Nursing and
Rehabilitation, Inc.
Combined Notes to Financial Statements
December 31, 2016 and 2015
(in thousands)
2016
Due from affiliates
Meridian Health Management, Inc.
Meridian Health Ventures, Inc.
SOCH Properties 1, LLC
Long term receivable
2015
$
6,623
1,414
586
$
6,622
1,304
665
$
8,623
$
8,591
The current receivable due from Meridian Accountable Care Organization is fully reserved with this
reserve being included in other liabilities in the combined balance sheets.
During 2016, MHC made a $4,457 equity transfer to MH and a $3,813 to Meridian Health Ventures.
In addition, MHC received a $1,144 equity transfer from Meridian Health Foundation. RBMC made
a $1,050 equity transfer to Raritan Bay Healthcare Foundation. Net equity transfers to affiliates
were comprised of $1,356 cash contributions and $6,820 contributions of non-cash items such as
property and equipment.
During 2015, MHC made a $38,704 equity transfer to MH. In addition, MHC received a
$116 equity transfer from Meridian Health Foundation and a $2,095 equity transfer from Realty.
14.
Subsequent Events
The Corporations performed an evaluation of subsequent events through March 28, 2017 which is
the date the combined financial statements were issued. The Corporations have determined that
all events or transactions, including estimates, required to be recognized in accordance with
generally accepted accounting principles, are included in the combined financial statements.
34
Combining Supplemental Schedules
Meridian Hospitals Corporation and Meridian Nursing and Rehabilitation, Inc.
Combining Balance Sheet
December 31, 2016
Meridian
Hospitals
Corporation
(in thousands)
Assets
Current assets
Cash and cash equivalents
Assets whose use is limited and short-term
investments
Patient accounts receivable, net
Due from affiliates
Other current assets
$
Total current assets
Assets whose use is limited and investments,
noncurrent portion
Property and equipment, net
Other assets
Interest in net asset balance of foundations
Due from affiliates, net
Total assets
Liabilities and Net Assets
Current liabilities
Current maturities of long-term debt and
capital lease obligations
Accounts payable and accrued expenses
Due to affiliates
Other current liabilities
257,112
Eliminating
and
Combining
Entries
Meridian
Nursing &
Rehabilitation, Inc.
$
7,897
$
Meridian
Obligated
Group
-
$
265,009
Eliminating
and
Combining
Entries
Raritan Bay
Medical
Center
$
7,193
$
Total
-
$
272,202
408,041
152,987
9,815
53,495
375
9,747
24
609
(2)
-
408,416
162,734
9,837
54,104
4,353
22,460
3,048
7,947
(3,895)
-
412,769
185,194
8,990
62,051
881,450
18,652
(2)
900,100
45,001
(3,895)
941,206
579,766
895,554
81,757
76,411
32,834
16,380
55,193
7,498
-
-
596,146
950,747
89,255
76,411
32,834
17,316
79,407
2,448
4,005
-
(56)
(18,608)
(24,211)
613,406
1,030,154
73,095
80,416
8,623
$
2,547,772
$
97,723
$
(2)
$
2,645,493
$
148,177
$
(46,770)
$
2,746,900
$
19,163
183,111
5,103
106,845
$
4,722
11,434
8
4,203
$
(2)
-
$
23,885
194,545
5,109
111,048
$
4,365
27,044
2,585
12,276
$
(2,527)
(56)
(1,368)
-
$
25,723
221,533
6,326
123,324
Total current liabilities
314,222
20,367
(2)
334,587
46,270
(3,951)
376,906
Long-term debt and capital lease
obligations, less current maturities
Accrued pension liability
Other liabilities
602,254
48,199
252,482
39,530
272
-
641,784
48,199
252,754
26,179
46,245
5,042
(24,211)
-
643,752
94,444
257,796
1,217,157
60,169
(2)
1,277,324
123,736
(28,162)
1,372,898
1,251,506
55,378
23,731
37,554
-
-
1,289,060
55,378
23,731
20,410
2,080
1,951
(15,937)
(738)
(1,933)
1,293,533
56,720
23,749
1,330,615
37,554
-
1,368,169
24,441
(18,608)
1,374,002
Total liabilities
Net assets
Unrestricted
Temporary restricted
Permanently restricted
Total net assets
Total liabilities and
net assets
$
2,547,772
$
97,723
$
(2)
$
2,645,493
$
148,177
The accompanying notes are an integral part of these combining financial statements.
35
$
(46,770)
3
$
2,746,900
Meridian Hospitals Corporation and Meridian Nursing and Rehabilitation, Inc.
Combining Statement of Operations
Year Ended December 31, 2016
Meridian
Hospitals
Corporation
(in thousands)
Revenues
Patient service revenue, net of contractual
allowances and discounts
Provision for bad debts
$
Net patient service revenue, less
provision for bad debts
Other revenue
Net assets released from restrictions - operating
activities
Total revenues
Expenses
Salaries and contracted labor
Employee benefits
Supplies and other expenses
Depreciation and amortization
Interest
Provision for bad debts
Total expenses
Income (loss) from operations
$
107,852
-
1,612,717
107,852
51,963
4,923
Excess (deficiency) of revenues over expenses
Change in net unrealized gains on other than trading
securities
Net assets released from restrictions - capital
acquisitions
Equity transfers to affiliates, net
Pension related
adjustments
Other changes in unrestricted net assets
$
$
Meridian
Obligated
Group
-
$
(315)
-
1,766,975
46,406
Eliminating
and
Combining
Entries
Raritan Bay
Medical
Center
$
259,649
20,340
$
Total
-
$
2,026,624
66,746
1,720,569
239,309
-
1,959,878
56,571
5,297
-
61,868
2,655
-
2,655
-
-
2,655
1,667,335
112,775
(315)
1,779,795
244,606
-
2,024,401
641,129
142,481
615,510
63,641
30,964
-
56,787
13,601
35,583
2,958
732
3,545
(315)
-
697,916
156,082
650,778
66,599
31,696
3,545
121,114
21,447
85,177
6,936
1,625
-
(489)
-
819,030
177,529
735,955
73,535
32,832
3,545
1,493,725
113,206
(315)
1,606,616
236,299
(489)
1,842,426
173,179
8,307
489
(489)
-
173,610
Other operating adjustments
Investment income
Unrealized gain on derivative instruments
Loss on extinguishment of debt
Contribution income - acquisition of Raritan Bay
Medical Center
Other gains (losses), net
Increase in unrestricted net assets
1,659,123
46,406
Eliminating
and
Combining
Entries
Meridian
Nursing &
Rehabilitation, Inc.
(431)
-
22,046
8,150
(184)
(33)
(1)
-
22,013
8,150
(185)
1,820
(501)
15,937
-
21
-
15,937
21
(2,485)
-
219,559
(444)
-
219,115
7,141
-
226,256
13,696
753
-
14,449
788
-
15,237
5,327
-
-
5,327
-
-
5,327
(7,126)
-
-
(7,126)
(1,050)
-
(8,176)
13,118
-
-
-
13,118
-
(604)
(1,802)
-
12,514
(1,802)
244,574
$
309
$
-
$
244,883
$
4,473
The accompanying notes are an integral part of these combining financial statements.
36
$
-
181,975
23,344
8,150
(686)
15,937
(2,464)
$
249,356
Meridian Hospitals Corporation and Meridian Nursing and Rehabilitation, Inc.
Note to Combining Supplemental Schedules
December 31, 2016
1.
Basis of Presentation – Combining Supplemental Information
The combining supplemental schedules (“combining information”) presented on pages 35-36 was derived from and relates directly to the
underlying accounting and other records used to prepare the combined financial statements. The combined information is presented for
purposes of additional analysis of the combined financial statements rather than to present the financial position, results of operations,
changes in net assets and cash flows of the individual companies within the Corporations and is not a required part of the combined
financial statements. The individual companies within the Corporations as presented within the combining information are disclosed within
Note 1 to the combined financial statements.
37
APPENDIX B-4
HackensackUMC Palisades and Affiliates (Successor) and Palisades Healthcare System, Inc.
(Predecessor) Financial Statements and Supplemental Schedules, Period March 1, 2016 to December 31,
2016 (Successor) and January 1, 2016 to February 29, 2016 (Predecessor)
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
HackensackUMC Palisades and
Affiliates (Successor) and
Palisades Healthcare System,
Inc. (Predecessor)
Financial Statements and Supplemental Schedules
Period March 1, 2016 to December 31, 2016
(Successor) and January 1, 2016 to February 29,
2016 (Predecessor)
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Index
Page(s)
Report of Independent Auditors on HackensackUMC Palisades (Successor) and Report of
Independent Auditors on Palisades Healthcare System, Inc. (Predecessor) .................................. 1–4
Financial Statements
Combined Balance Sheet
December 31, 2016 (Successor) ................................................................................................................. 5
Statements of Operations
Combined Statement of Operations for the Period from March 1, 2016 to December 31, 2016 (Successor)
and Consolidated Statement of Operations for the Period from January 1, 2016 to February 29, 2016
(Predecessor) ............................................................................................................................................... 6
Statements of Changes in Net (Deficit) Assets
Combined Statement of Changes in Net (Deficit) Assets for the Period from March 1, 2016 to December
31, 2016 (Successor) and Consolidated Statement of Changes in Net (Deficit) Assets for the Period from
January 1, 2016 to February 29, 2016 (Predecessor) ................................................................................. 7
Statements of Cash Flows
Combined Statement of Cash Flows for the Period from March 1, 2016 to December 31, 2016
(Successor) and Consolidated Statement of Cash Flows for the Period from January 1, 2016 to February
29, 2016 (Predecessor)................................................................................................................................ 8
Notes to Financial Statements ............................................................................................................... 9–28
Supplemental Schedules
Combining Balance Sheet
December 31, 2016 (Successor) ............................................................................................................... 29
Combining Statement of Operations
Period from March 1, 2016 to December 31, 2016 (Successor) ............................................................... 30
Consolidating Statement of Operations
Period January 1, 2016 to February 29, 2016 (Predecessor).................................................................... 31
Note to Supplemental Schedules ............................................................................................................... 32
Report of Independent Auditors
To the Board of Trustees of
Hackensack Meridian Health, Inc.
We have audited the accompanying combined financial statements of HackensackUMC Palisades and its
affiliates (Successor), which comprise the combined balance sheet as of December 31, 2016, and the
related combined statements of operations, of changes in net assets and of cash flows for the period from
March 1, 2016 to December 31, 2016.
Management's Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of combined financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the combined financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the combined financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s
preparation and fair presentation of the combined financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the
combined financial statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects,
the financial position of HackensackUMC Palisades and its affiliates (Successor) as of December 31,
2016 and the results of their operations, changes in their net assets and their cash flows for the period
from March 1, 2016 to December 31, 2016 in accordance with accounting principles generally accepted in
the United States of America.
PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, New York 10017
T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us
Other Matter
Our audit was conducted for the purpose of forming an opinion on the combined financial statements
taken as a whole. The combining balance sheet as of December 31, 2016 and the combining statement
of operations for the period from March 1, 2016 to December 31, 2016 (the “combining information”) is the
responsibility of management and was derived from and relates directly to the underlying accounting and
other records used to prepare the combined financial statements. The combining information has been
subjected to the auditing procedures applied in the audit of the combined financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the combined financial statements or to the combined
financial statements themselves and other additional procedures, in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the combining information is fairly
stated, in all material respects, in relation to the combined financial statements taken as a whole. The
combining information is presented for purposes of additional analysis of the combined financial
statements rather than to present the financial position, results of operations, changes in net assets and
cash flows of the individual companies and is not a required part of the combined financial statements.
Accordingly, we do not express an opinion on the financial position, results of operations, changes in net
assets and cash flows of the individual companies.
March 28, 2017
New York, New York
2
Report of Independent Auditors
To the Board of Governors of
Palisades Healthcare System, Inc.
We have audited the accompanying consolidated financial statements of Palisades Healthcare System,
Inc. and its subsidiaries (Predecessor), which comprise the consolidated statements of operations, of
changes in net (deficit) assets and of cash flows for the period from January 1, 2016 to February 29, 2016.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the results of their operations, changes in their net (deficit) assets and their cash flows of
Palisades Healthcare System, Inc. for the period from January 1, 2016 to February 29, 2016 in
accordance with accounting principles generally accepted in the United States of America.
PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, New York 10017
T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us
Other Matter
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements
taken as a whole. The consolidating statement of operations for the period from January 1, 2016 to
February 29, 2016 (the “consolidating information”) is the responsibility of management and was derived
from and relates directly to the underlying accounting and other records used to prepare the consolidated
financial statements. The consolidating information has been subjected to the auditing procedures
applied in the audit of the consolidated financial statements and certain additional procedures, including
comparing and reconciling such information directly to the underlying accounting and other records used
to prepare the consolidated financial statements or to the consolidated financial statements themselves
and other additional procedures, in accordance with auditing standards generally accepted in the United
States of America. In our opinion, the consolidating information is fairly stated, in all material respects, in
relation to the consolidated financial statements taken as a whole. The consolidating information is
presented for purposes of additional analysis of the consolidated financial statements rather than to
present the results of operations, changes in net (deficit) assets and cash flows of the individual
companies and is not a required part of the consolidated financial statements. Accordingly, we do not
express an opinion on the results of operations, changes in net (deficit) assets and cash flows of the
individual companies.
March 28, 2017
New York, New York
4
HackensackUMC Palisades and Affiliates (Successor)
Combined Balance Sheet
December 31, 2016
(in thousands of dollars)
Successor
2016
Assets
Current assets
Cash and cash equivalents
Current portion of assets whose use is limited
Accounts receivable
Patient accounts receivable (less allowance for doubtful accounts of $18,071)
Other
Inventories
Prepaid expenses
Due from related parties
$
18,587
2,064
23,923
3,303
2,412
1,627
6
Total current assets
51,922
Assets whose use is limited, less current portion
Board designated
Deferred employee benefit plans
Trustee assets held under bond indenture
Patient trust
Total assets whose use is limited, less current portion
40,578
11,898
3,151
192
55,819
Property and equipment, net
Other assets
74,577
24,051
Total assets
Liabilities and Net Assets
Current liabilities
Accounts payable and accrued expenses
Accrued interest payable
Current portion of long-term debt
Other current liabilities
Due to related parties
$
206,369
$
24,984
926
1,692
8,564
14,803
Total current liabilities
50,969
Long-term debt, less current portion
Accrued pension benefits
Other liabilities
35,290
54,659
15,004
Total liabilities
155,922
Net assets
Unrestricted
Temporarily restricted
Permanently restricted
49,692
661
94
Total net assets
50,447
Total liabilities and net assets
$
The accompanying notes are an integral part of these financial statements.
5
206,369
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Statements of Operations
Combined for the Period from March 1, 2016 to December 31, 2016 (Successor)
and Consolidated for the Period from January 1, 2016 to February 29, 2016
(Predecessor)
(in thousands of dollars)
Revenue
Net patient service revenue before provision for bad debts
Provision for bad debts
Successor
Period From
March 1, 2016 to
December 31, 2016
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
$
Net patient service revenue after provision for bad debts
Other revenue
Total revenue
Expenses
Salaries and wages
Employee benefits
Supplies and other
Depreciation and amortization
Interest expense
Total expenses
Excess of revenues over expenses before other adjustments
Other operating adjustments
Investment income (loss) - net
Loss on extinguishment of debt
Excess (deficiency) of revenue over expenses
Other adjustments in unrestricted net assets
Pension-related adjustments
Equity transfer from affiliate
Increase (decrease) in unrestricted net assets
$
175,251
(16,248)
159,003
10,324
30,260
2,384
169,327
32,644
89,008
19,319
50,736
7,346
1,913
16,658
4,956
9,244
1,321
405
168,322
32,584
1,005
60
3,057
(1,390)
(775)
-
2,672
(715)
5,823
3,000
(6,517)
-
11,495
The accompanying notes are an integral part of these financial statements.
6
33,366
(3,106)
$
(7,232)
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Statements of Changes in Net (Deficit) Assets
Combined for the Period from March 1, 2016 to December 31, 2016 (Successor)
and Consolidated for the Period from January 1, 2016 to February 29, 2016
(Predecessor)
(in thousands of dollars)
Temporarily
Restricted
Unrestricted
Predecessor
Net (deficit) assets at December 31, 2015
$
(2,587)
Deficiency of revenues over expenses
Pension-related adjustments
Equity transfer from affiliate
Restricted gifts, bequests and similar items
Change in net (deficit) assets
Net (deficit) assets at February 29, 2016
Successor
Net assets at March 1, 2016
$
94
-
(7,180)
(9,819)
474
94
(9,251)
$
474
-
(2,071)
52
49,692
$
187
661
(715)
(6,517)
52
$
-
187
$
94
94
38,765
2,672
5,823
3,000
187
$
The accompanying notes are an integral part of these financial statements.
7
$
(7,232)
11,495
$
$
52
2,672
5,823
3,000
-
Change in net assets
Net assets at December 31, 2016
422
Total
(715)
(6,517)
-
38,197
Excess of revenues over expenses
Pension-related adjustments
Equity transfer from affiliate
Restricted gifts, bequests and similar items
$
Permanently
Restricted
11,682
$
50,447
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Statements of Cash Flows
Combined for the Period from March 1, 2016 to December 31, 2016 (Successor)
and Consolidated for the Period from January 1, 2016 to February 29, 2016
(Predecessor)
(in thousands of dollars)
Successor
Period From
March 1, 2016 to
December 31, 2016
Cash flows from operating activities
Change in net assets
Adjustments to reconcile change in net (deficit) assets to net cash
provided by (used in) operating activities
Provision for bad debts
Depreciation and amortization
Amortization of bond discount and deferred financing fees
Loss on advance refunding of debt
Change in value of investments accounted for on the equity
basis of accounting
Net change in unrealized gains and losses on investments
Pension-related adjustments
Equity transfer from affiliate
Changes in operating assets and liabilities
Patient accounts receivable, net
Inventories and other assets
Accounts payable and accrued expenses
Accrued pension benefits
Other current liabilities
Accrued interest payable
Other liabilities
Due to related parties, net
Net cash provided by (used in) operating activities
$
Cash flows from investing activities
Purchases of property and equipment
Increase in trading securities - net
Net cash used in investing activities
Cash flows from financing activities
Equity transfer from affiliate
Repayments of long-term debt and capital lease obligations
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents
Beginning of period
End of period
$
Supplemental information
Cash paid for interest
Non-cash partial defeasance of long-term debt
Change in noncash acquisitions of property and equipment
$
11,682
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
16,573
7,346
29
103
3,164
1,321
168
-
24
(1,899)
(5,823)
(3,000)
16
837
6,517
-
(13,196)
(53)
(5,353)
(1,387)
(4,430)
550
(3,751)
5,813
3,228
(4,742)
(871)
733
(143)
100
(735)
(672)
(1,487)
(4,228)
3,035
(1,193)
(1,360)
321
(1,039)
3,000
(431)
2,569
4,604
(85)
(85)
(2,611)
13,983
18,587
1,364
8,990
1,543
$
$
The accompanying notes are an integral part of these financial statements.
8
(7,180)
16,594
13,983
1,140
-
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
1.
Organization and Summary of Significant Accounting Policies
Palisades Healthcare System, Inc. (“PHS”), located in North Bergen, New Jersey, is a not-for-profit
holding corporation. Effective March 1, 2016, Hackensack University Health Network
(“HackensackUHN”) formally acquired PHS, and became the parent or controlling company to the
entities listed below. On July 1, 2016, HackensackUHN and Meridian Health System, Inc. (“MHS”),
completed a merger, with MHS as the surviving parent entity, which was renamed Hackensack
Meridian Health, Inc. (“HMH” or the “Network”).
The accompanying financial statements include the accounts of the following HackensackUMC
Palisades entities:
HackensackUMC Palisades, formerly Palisades Medical Center (the “Medical Center”), located in
North Bergen, New Jersey, is a 202-bed acute care hospital providing a full range of health care
services primarily to residents of northeast New Jersey. The Medical Center was established and
operates for the promotion of health and to serve the public rather than private interests. To further
this purpose, the Medical Center provides various programs to improve the health of the
community. Subsequent to March 1, 2016, the Medical Center has retained its existing operating
license and separate tax identification number.
Palisades General Care, Inc. (“PGC”) operates a 247-bed skilled nursing facility known as “The
Harborage” which is adjacent to the Medical Center in North Bergen, New Jersey. PGC also
operates a building containing certain facilities shared by The Harborage and the Medical Center.
Subsequent to March 1, 2016, PGC has retained its existing operating license and separate tax
identification number.
Palisades Medical Associates, LLC (“PMA”) is a multi-specialty medical group that provides health
services primarily to residents of northeast New Jersey.
Palisades Medical Center Foundation, Inc. (the “Foundation”) was established for the purpose of
soliciting and investing funds for the benefit of the Medical Center and other not-for-profit entities of
Palisades.
Palisades Management Enterprises, Inc. (“PME”) was established to provide various health care
and related services to the community. PME owns medical office space and operates a child day
care center as the sole shareholder of Palisades Child Care Center, Inc.
The Medical Center, PGC and PMA are defined as the “Obligated Group” in the New Jersey Health
Care Facilities Financing Authority Revenue Bonds-Palisades Medical Center Obligated Group
Issue, Series 2013 loan agreements. The reporting entity resulting from the combination of the
Medical Center, PGC, PMA, the Foundation and PME is referred to collectively hereafter as
“Palisades.”
Acquisition by Hackensack University Health Network
The transaction between the HackensackUHN and PHS on March 1, 2016 was accounted for as
an acquisition in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 805, Business Combinations, and more specifically, ASC 958-80505, Acquisition by a Not-For-Profit Entity. Under this guidance, the acquirer (HackensackUHN)
9
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
would recognize identifiable assets acquired and liabilities assumed from the Palisades acquired
entities generally at fair value. No consideration was exchanged for the acquisition.
As a result of the change in control, Palisades elected to adopt pushdown accounting to the assets
and liabilities of the Palisades entities included in these financial statements. Accordingly, the
assets and liabilities of the Palisades entities are remeasured to fair value as of March 1, 2016.
The impact is an increase in the unrestricted net assets of the Palisades entities at the acquisition
date as summarized in the table below:
February 29,
2016
Total assets
$
Liabilities
Net (deficit) assets
159,808
Pushdown
Accounting
Adjustments
$
169,059
(9,251)
Total liabilities and net assets
$
Property and equipment (Note 4)
Goodwill (included in other assets)
Deferred financing costs (Note 5)
Total pushdown accounting adjustments
159,808
48,016
March 1, 2016
$
48,016
$
48,016
207,824
169,059
38,765
$
207,824
$
26,231
22,766
(981)
$
48,016
The goodwill created by the acquisition is a long-lived asset that represents the difference between
the net deficit of the Palisades entities at February 29, 2016 and the fair value determined at the
March 1, 2016 acquisition date. ASC 350, Intangibles – Goodwill and Other, requires that tangible
and indefinite-lived assets, including goodwill, be reviewed for impairment. Palisades has
determined that the recorded goodwill was not impaired at December 31, 2016.
As a result of the acquisition, these financial statements of the previously defined PHS entities
represents the combined financial statements of the successor HackensackUMC Palisades entities
(“Successor”) for the period March 1, 2016 to December 31, 2016, and the consolidated financial
statements of the predecessor PHS entities (“Predecessor”) for the period January 1, 2016 to
February 29, 2016 and prior. Due to the change in the basis of accounting resulting from the
application of the push-down accounting, the Predecessor’s consolidated financial statements and
the Successor’s combined financial statements are not necessarily comparable.
A summary of significant accounting policies follows:
Basis of Accounting
The financial statements are prepared on the accrual basis of accounting in conformity with
accounting principles generally accepted in the United States of America.
10
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the reserves on patient
accounts receivable such as allowance for doubtful accounts and contractual allowances,
estimated amounts due to and from third-party payers, and accrued employee benefit costs. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Palisades considers all highly-liquid investments with an original maturity of three months or less
when purchased to be cash equivalents, except for amounts included within assets limited as to
use.
Assets Whose Use is Limited
Assets whose use is limited is reported in the balance sheet at fair value and include assets set
aside by the Network Board of Trustees over which the Board retains control, assets related to
deferred compensation and other plans, assets held by trustees under indenture agreements, and
Foundation donor-related assets.
Assets limited as to use consist of cash and money market funds, marketable securities,
nonmarketable mutual funds, and accrued interest income. Investments in equity securities with
readily determinable fair values and all investments in debt securities are reported at fair value in
the balance sheet based on reference to quoted market prices.
Investments in nonmarketable mutual funds, which represent assets held under deferred
compensation plans, are stated at fair value as estimated by the deferred compensation plan
custodians based on similarly structured marketable funds. Donated investments are recorded at
the fair value at the date of receipt. Investment income and realized and unrealized gains or losses
on marketable investments are included in the excess of revenue over expenses, unless the
income or loss is restricted by donor or law. All investments are classified as trading securities.
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy of
valuation inputs based on the extent to which the inputs are observable in the marketplace.
Observable inputs reflect market data obtained from sources independent of the reporting entity
and unobservable inputs reflect the entities own assumptions about how market participants would
value an asset or liability based on the best information available. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. The guidance describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value.
11
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
The following describes the hierarchy of inputs used to measure fair value and the primary
valuation methodologies used by the Medical Center for financial instruments measured at fair
value on a recurring basis. The three levels of inputs are as follows
 Level 1 - Quoted prices in active markets for identical assets or liabilities.
 Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such
as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active.
 Level 3 - Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are based on one or more of three valuation
techniques. The three valuation techniques are as follows:
 Market Approach (M) - Prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities;
 Cost Approach (C) - Amount that would be required to replace the service capacity of an
asset (i.e. replacement cost); and
 Income Approach (I) - Techniques to convert future amounts to a single present amount
based on market expectations (including present value techniques, option-pricing
models, and lattice models).
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Inputs are used in applying the various
valuation techniques and broadly refer to the assumptions the market participants use to make
valuation decisions. Inputs may include price information, credit data, liquidity statistics and other
factors.
Palisades utilizes the best available information in measuring fair value.
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments held by the Palisades:
Cash Equivalents and Mutual Funds
Estimated fair values of cash equivalents (money market funds) and mutual funds are based
on daily values (closing price on primary market) that are validated with a sufficient level of
observable activity (i.e., purchases and sales) and are therefore classified as Level 1.
Marketable Equity Securities
Fair value estimates for publicly traded common stock, exchange funds, and master limited
partnerships are based on quoted market prices are classified as Level 1. For investments
in asset and mortgage backed securities, fair value is based on the average of the last
reported bid or ask prices, therefore these investments are rendered Level 2 unless external
price data is not observable in which case they are rendered Level 3.
12
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
Hedge Funds and Annuity Contracts
Fair value of hedge funds (held in pension plan assets) and annuity contracts (included in
assets whose use is limited) are based on unobservable inputs that cannot be corroborated
by observable market data and are therefore classified as Level 3.
Hedge funds are valued by management at fair value by utilizing net asset value (NAV) as a
practical expedient, as permitted by generally accepted accounting principles, rather than
using another valuation method to independently estimate fair value.
Financial information used by Palisades to evaluate the pension plan’s alternative
investment holdings of hedge funds is provided by the investment manager or general
partner and includes fair value valuations (quoted market prices and values determined
through other means) of underlying securities and other financial instruments held by the
investee, and estimates that require varying degrees of judgment. The financial statements
of the investee companies are audited annually by independent auditors, although the timing
for reporting the results of such audits does not coincide with the Palisades’ annual financial
statement reporting. The pension plan’s holdings of alternative investment interests may
indirectly expose the pension plan to securities lending, short sales of securities, and trading
in futures and forward contracts, options and other derivative products. The pension plan’s
risk with respect to such transactions is limited to its capital balance in each investment.
Patient Accounts Receivable and Allowance for Doubtful Accounts
Patient accounts receivable result from the health care services provided by Palisades and are
stated at the estimated net amounts receivable from patients and third-party payers. The amount
of the allowance for doubtful accounts is based upon management’s assessment of historical and
expected net collections, business and economic conditions, trends in health care coverage, and
other collection indicators. Additions to the allowance for doubtful accounts result from the
provision for bad debts. Accounts written off as uncollectible are deducted from the allowance for
doubtful accounts.
Inventories
Inventories are stated at the lower of cost (determined on an average cost basis) or market.
Property and Equipment
Property and equipment are recorded at cost, except donated assets which are recorded at fair
value at the date of donation. Depreciation expense is calculated on the straight-line method over
the estimated useful life of the asset (ranging from 3 to 40 years). Assets acquired through
capitalized leases are recorded at the present value of the lease payments at the inception of the
lease, and are amortized on the straight-line method over the shorter period of the lease term or
the estimated useful life of the equipment. Such amortization is included in depreciation and
amortization in the accompanying financial statements. The carrying amount of assets and the
related accumulated depreciation and amortization are removed from the accounts when such
assets are disposed of, and any resulting gain or loss is included in operations. Estimated lives of
property, plant and equipment by class are as follows:
5–40 years
3–20 years
Buildings and improvements
Fixed and movable equipment
13
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
Medical Malpractice Insurance
The Medical Center maintains its primary malpractice coverage on a claims-made basis. As of
December 31, 2003, the Medical Center acquired commercial tail coverage for its excess coverage
exposure as of that date. An estimate for malpractice claims incurred but not reported (including
legal costs) as of December 31, 2016 is included in other liabilities and totaled approximately $700.
The Medical Center separately records estimated losses related to its professional malpractice
claims and expected insurance recoveries. At December 31, 2016 the Medical Center has
recognized long-term medical malpractice claims liabilities and insurance receivables of
approximately $100. PGC has purchased a commercial professional liability occurrence basis
insurance policy. Management is aware of no professional liability claims whose expected
settlement, if any, would be in excess of insurance coverage.
Other Liabilities
Other liabilities in the balance sheet consists primarily of deferred employee benefit plan liabilities
(see Note 6), and unearned revenue on a land lease agreement (see Note 8).
Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets are those whose use has been limited by donors to a specific
time period or purpose. When a donor restriction expires, that is, when a stipulated time restriction
ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to
unrestricted net assets and reported as net assets released from restriction. Permanently
restricted net assets have been restricted by donors to be maintained by the Foundation in
perpetuity.
Net Patient Service Revenue
Palisades recognizes accounts receivable and patient service revenue associated with services
provided to patients who have third-party payer coverage on the basis of contractual rates for the
services rendered (see description of third-party payer payment programs below). For uninsured
patients that do not qualify for charity care, Palisades recognizes revenue on the basis of
discounted rates under its self-pay patient policy. Under the policy for self-pay patients, a patient
who has no insurance and is ineligible for any government assistance program has his or her bill
reduced to the amount which would be billed to a commercially insured patient. The impact of this
policy on the financial statements is lower net patient service revenue, as the discount is
considered a revenue allowance, and a lower provision for bad debts.
Deductibles and copayments under third-party payment programs within the third-party payer
amounts above are the patients’ responsibility and Palisades considers these amounts in its
determination of the provision for bad debts based on collection experience.
Accounts receivable are also reduced by an allowance for doubtful accounts. In evaluating the
collectability of accounts receivable, Palisades analyzes its past history and identifies trends for
each of its major payer sources of revenue to estimate the appropriate allowance for doubtful
accounts and provision for bad debts. Management regularly reviews data about these major
payer sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts.
For receivables associated with services provided to patients who have third-party coverage,
Palisades analyzes contractually due amounts and provides an allowance for doubtful accounts
and a provision for bad debts, if necessary (for example, for payers who are known to be having
14
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
financial difficulties that make the realization of amounts due unlikely). For receivables associated
with self-pay patients, Palisades records a significant provision for bad debts in the period of
service on the basis of its past experience, which indicates that many patients are unable or
unwilling to pay the portion of their bill for which they are financially responsible. The difference
between discounted rates and the amounts actually collected after all reasonable collection efforts
have been exhausted is charged off against the allowance for doubtful accounts.
Palisades’ allowance for doubtful accounts totaled approximately $18,071 at December 31, 2016.
The total of self-pay discounts and write-offs has not changed significantly between the periods
from March 1, 2016 to December 31, 2016 and January 1, 2016 to February 29, 2016. Palisades
has not experienced significant changes in write-off trends and did not change its charity care
policy during 2016.
Palisades is reimbursed from third party payers under various methodologies based on the level of
care provided. Certain net revenues received are subject to audit and retroactive adjustment for
which amounts are accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined. Palisades has recorded net
liabilities for estimated third party payer settlements totaling $6,871 which is included in other
current liabilities on the balance sheet at December 31, 2016. The net negative adjustments
included within the statement of operations relating to prior year estimates was approximately
$1,700 for the period from March 1, 2016 to December 31, 2016. Adjustments to patient revenues
related to changes in estimates were not significant for the period from January 1, 2016 to
February 29, 2016.
A summary of the payment arrangements with major third-party payers is as follows:

Medicare - Palisades is paid for most Medicare inpatient and outpatient services under the
national prospective payment and other methodologies of the Medicare program for certain
other services. Federal regulations provide for certain adjustments to current and prior years’
payment rates, based on industry-wide and hospital-specific data. Palisades’ Medicare cost
reports have been audited and finalized by the Medicare fiscal intermediary through
December 31, 2014.

Medicaid - Inpatient acute care services rendered to Medicaid program beneficiaries are paid
at prospectively determined rates per discharge. Outpatient services rendered to Medicaid
program beneficiaries are reimbursed under cost-based and fee schedule methodologies.
Palisades is reimbursed for outpatient services at a tentative rate with final settlement
determined after submission of annual cost reports and audits thereof by the Medicaid fiscal
intermediary. Medicaid cost reports of Palisades for years through 2013 have been audited
and final settled.

Other Third-Party Payers - Palisades also has entered into payment agreements with certain
commercial insurance carriers and health maintenance organizations. The basis for payment
to Palisades under these agreements includes prospectively determined rates per discharge
or days of hospitalization and discounts from established charges.
15
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
The following table summarizes the components of the Medical Center and PGC's net patient
service revenue for the periods from March 1, 2016 to December 31, 2016 and January 1, 2016 to
February 29, 2016:
Gross charges
Allowances
Successor
Period From
March 1, 2016 to
December 31, 2016
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
$
Patient service revenue, net of contractual allowances
Bad debt provision
Total net patient service revenue
$
825,415
(650,164)
157,855
(124,489)
175,251
33,366
(16,248)
(3,106)
159,003
$
30,260
The mix of patient revenues, net of contractual allowances from patients and third-party payers for
the period from March 1, 2016 to December 31, 2016 and January 1, 2016 to February 29, 2016
are as follows:
Successor
Period From
March 1, 2016 to
December 31, 2016
38 %
25
10
26
1
100 %
Medicare
Medicaid
New Jersey Blue Cross
Other managed care and commercial
Uninsured
Predecessor
Period From
January 1, 2016 to
February 29, 2016
40 %
22
10
27
1
100 %
The current Medicare and Medicaid programs are based upon complex laws and regulations.
Noncompliance with such laws and regulations could result in fines, penalties and exclusion from
such programs. Palisades is not aware of any pending or threatened investigations involving
allegations of potential wrongdoing or of any noncompliance with applicable laws and regulations
that could have a material adverse effect on the financial statements.
Performance Indicator
The statements of operations include excess of revenue over expenses as the performance
indicator. Changes in unrestricted net assets which are excluded from the performance indicator
include pension-related adjustments and equity transfers from affiliates.
Income Taxes
The Medical Center, PMA, PGC and the Foundation qualify as not-for-profit organizations as
described in Section 501(c)(3) of the Internal Revenue Code (the Code) and are exempt from
federal income taxes on related income pursuant to Section 501(a) of the Code. These not-forprofit organizations are also exempt from state and local taxes. PME is a for-profit entity.
New Authoritative Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from
Contracts with Customers. This standard implements a single framework for recognition of all
16
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
revenue earned from customers. This framework ensures that entities appropriately reflect the
consideration to which they expect to be entitled in exchange for goods and services by allocating
transaction price to identified performance obligations and recognizing revenue as performance
obligations are satisfied. Qualitative and quantitative disclosures are required to enable users of
financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. The standard is effective for fiscal years beginning
after December 15, 2017. Palisades is currently assessing the impact the adoption of this standard
will have on their financial statements.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement and Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This
guidance requires entities to present investments that use net asset value (NAV) as a practical
expedient for valuation purposes separately from other investments categorized in the fair value
hierarchy. The standard is effective for fiscal years beginning after December 15, 2016. Palisades
is currently assessing the impact the adoption of this standard will have on their financial
statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 82510): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance
primarily affects the accounting for equity investments, financial liabilities under the fair value
option, and the presentation and disclosure requirements for financial instruments. Certain
financial institutions and companies with large equity investment portfolios that are not currently
being measured at fair value through the income statement are most affected by the new standard.
The new standard also allows entities that are not public business entities and do not carry
financial instruments at fair value in the balance sheet to no longer be required to disclose the fair
value and significant assumptions used to estimate the fair value of such financial instruments.
The standard is effective for fiscal years beginning after December 15, 2018 for non-public
business entities. Palisades early adopted the portion of the standard that eliminates the
disclosure requirement for financial instruments that are not recorded at fair value. As such,
Palisades has removed the disclosures of fair value of debt as of December 31, 2016.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance,
lessees will be required to recognize the following for all leases (with the exception of leases with a
term of twelve months or less) at the commencement date: (a) a lease liability, which is a lessee‘s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. Under the new guidance, lessor accounting is largely
unchanged. The guidance requires a modified retrospective transition approach for leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for
leases that expire before the earliest comparative period presented. A full retrospective transition
approach is not permitted. This guidance will be effective for Palisades beginning in fiscal year
2019. Early application is permitted. Palisades is currently assessing the impact the adoption of
this standard will have on their financial statements.
In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements for Not-forProfit Entities. This standard marks the completion of the first phase of a larger project aimed at
improving not-for-profit financial reporting. Under the new guidance, the existing three categories of
net assets will be replaced with a simplified model that combines temporarily restricted and
17
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
permanently restricted net assets into a single category called “net assets with donor restrictions”
and renames unrestricted net assets as “net assets without donor restrictions.” There will be new
reporting requirements for expenses and additional disclosures to describe an organization’s
liquidity. The standard is effective for fiscal years beginning after December 15, 2017. Palisades is
currently assessing the impact this standard will have on their 2018 financial statements.
2.
Charity and Uncompensated Care
Palisades provides care to patients who meet certain criteria defined by the New Jersey
Department of Health (DOH) without charge or at amounts less than established rates. Because
Palisades does not pursue collection of amounts determined to qualify as charity care, they are not
reported as revenue. Palisades’ records identify and monitor the level of charity care it provides
and include the amount of charges forgone for services and supplies furnished. The DOH allows
retroactive application for charity care up to two years from the date of service.
In accordance with its mission, Palisades commits substantial resources to sponsor a broad range
of services to both the indigent as well as the broader community. Community benefits provided to
the indigent include the cost of providing services to persons who cannot afford health care due to
inadequate resources and/or who are uninsured or underinsured. This type of community benefit
includes the costs of: traditional charity care; unpaid costs of care provided to beneficiaries of
Medicaid and other indigent public programs; services such as free clinics and meal programs for
which a patient is not billed or for which a nominal fee has been assessed; and cash and in-kind
donations of equipment, supplies or staff time volunteered on behalf of the community.
Community benefits provided to the broader community include the costs of providing services to
other populations who may not qualify as indigent but may need special services and support. This
type of community benefit includes the costs of: services such as health promotion and education
and screenings, all of which are not billed or can be operated only on a deficit basis.
Total forgone charges for charity care totaled $55,759 and $9,631 for the period March 1, 2016 to
December 31, 2016 and January 1, 2016 to February 29, 2016, respectively.
Estimated expenses related to providing services to charity care patients totaled $9,353 and
$1,664 for the period from March 1, 2016 to December 31, 2016 and the period from January 1,
2016 to February 29, 2016, respectively. The estimated costs of providing charity services are
based on a calculation which applies a ratio of costs to charges to the gross uncompensated
charges associated with providing care to charity patients. The ratio of cost to charges is
calculated based on Palisades total expenses divided by gross patient service revenue.
Palisades receives payments from the New Jersey Health Care Subsidy Funds for charity care and
such amounts totaled approximately $3,052 and $1,074 for the period March 1, 2016 to
December 31, 2016 and January 1, 2016 to February 29, 2016, respectively.
18
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
3.
Assets whose use is limited
Assets whose use is limited consists of the following:
2016
Board designated
Cash and money market funds
Mutual funds - fixed income
Mutual finds - equities
Accrued interest and other
$
1,962
23,371
15,237
8
40,578
Deferred employee benefit plan assets
Mutual funds (including $11,361 of nonmarketable funds)
11,898
Trustee-held assets under bond indenture
Cash and money market funds
5,215
Less current portion of assets whose use is limited
(2,064)
3,151
Donor-restricted assets
Cash and money market funds
192
Assets whose use is limited, less current portion
$
55,819
Investment income (loss) – net is reported in the statements of operations consists of the following:
Successor
Period From
March 1, 2016 to
December 31, 2016
Interest income
Realized losses, net
Net change in unrealized gains (losses)
on investments
$
1,165
(7)
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
1,899
Investment income (loss) - net
$
19
3,057
62
(837)
$
(775)
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
4.
Property and Equipment
A summary of property and equipment is as follows at December 31, 2016:
2016
Land
Land improvements
Buildings
Fixed equipment
Movable equipment
$
Total property and equipment
81,724
Less: Accumulated depreciation and amortization
Add: Construction in progress
Property and equipment, net
5.
15,665
635
34,275
9,567
21,582
(7,346)
199
$
74,577
Long-Term Debt
A summary of long-term debt is as follows at December 31, 2016:
2016
Bonds payable - Series 2013 (a)
PME mortgage (b)
Capital lease obligations (c)
$
Less:
Unamortized original issue discount
Current portion
(425)
(1,692)
Long-term debt, less current portion
a.
35,935
481
991
37,407
$
35,290
In 2013, the New Jersey Health Care Facilities Financing Authority (the Authority) issued
approximately $47,600 of Revenue and Refunding Bonds, Palisades Medical Center
Obligated Group Issue, Series 2013 (Series 2013 Bonds) in the name of the Medical Center,
PGC, and PMA as the Obligated Group with an original issue discount of approximately $700.
Through the issuance of the Series 2013 Bonds, the Obligated Group refunded all of its
outstanding Revenue Bonds (the Series 1999 and 2002 Bonds) issued through the Authority.
The remaining Series 2013 bond proceeds are to be used to finance certain capital projects at
the Medical Center, fund a debt service reserve fund and pay costs of issuance of the Series
2013 Bonds. At December 31, 2016, the Series 2013 Bonds consist of outstanding serial
bonds maturing at varying dates between 2023 and 2043, with interest rates ranging from
3.15% to 5.50%. The Series 2013 Bonds are collateralized by a security interest in and a first
lien on the gross receipts of the Obligated Group and first mortgages on and equipment liens
with respect to certain property of the Obligated Group.
20
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
In December 2016, Hackensack University Medical Center (“HUMC”), an affiliate of Palisades,
entered into a line of credit with a bank for the purpose of defeasing a portion of its bonds and
a portion of the Series 2013 bonds. The Series 2013 Bonds that were defeased had a call
date of July 1, 2023 and had a par amount of $7,780 plus interest escrowed to the call date of
$2,510. Prorated monthly payments of interest only are due on the line of credit which has a
maturity date of June 30, 2017. Palisades has included $7,780 in due to affiliates in the
balance sheet as of December 31, 2016 related to this transaction (See Note 13).
b.
In 2003, PME executed a 20 year mortgage loan with a bank to acquire real property. The
mortgage loan bore interest at a fixed rate of 6% through April 2013. The principal balance
thereafter bears interest at a fixed rate of 3.92%. The mortgage is secured by the underlying
real property acquired by PME and is guaranteed by the Medical Center.
c.
The Medical Center has entered into various capital lease agreements related to the
acquisition of medical equipment. The obligations under such agreements bear interest at
rates ranging from 3.00% to 7.00%.
Required principal payments (including capitalized lease payments) for the next five years and
thereafter at December 31, 2016, are as follows:
2017
2018
2019
2020
2021
Thereafter
$
1,692
1,356
1,337
1,391
1,335
30,296
Total
$
37,407
Interest expense was $1,913 and $405 for the periods March 1, 2016 to December 31, 2016 and
January 1, 2016 to February 29, 2016, respectively.
The Obligated Group’s most restrictive debt covenants are meeting minimum requirements for debt
service coverage ratio and days cash on hand. Management is not aware of any noncompliance
with any required covenants related to the outstanding debt at December 31, 2016.
21
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
6.
Employee Benefit Plans
Defined Benefit Plan
The Medical Center is the sponsor of a noncontributory defined benefit pension plan covering
certain of its employees. The benefits are based on years of service and the employees’ last ten
years of average earnings. During 2006, the Medical Center amended the pension plan such that
employees hired after June 1, 2006, do not participate in the plan. A defined contribution plan was
established for such employees as described herein. Certain other changes were made which
became effective January 1, 2007, and relate to employees subject to a collective bargaining
agreement and the manner that future benefits will accrue for such employees.
Certain amendments to the retirement benefits formula were adopted in 2009, effective
January 1, 2010. The amendments include revisions to the percentage of compensation used for
the determination of certain benefits and to the definition of compensation used in the computation.
The amendments also included a temporary eighteen month freezing of benefit accruals effective
January 1, 2010.
Palisades recognizes in the accompanying balance sheet an asset, for the defined benefit pension
plan’s overfunded status, or a liability, for the plan’s underfunded status; measures the defined
benefit pension plan’s assets and obligations that determine funded status as of the end of the
Palisades’ fiscal year; and recognizes the periodic change in the funded status of the defined
benefit pension plan as a component of changes in unrestricted net assets in the year in which the
change occurs. Amounts that are recognized as a component of unrestricted net assets will be
subsequently recognized as net periodic pension cost in future periods.
The reconciliation of the beginning and ending balances of the benefit obligation and the fair value
of the plan’s assets from January 1, 2016 to December 31, 2016 is as follows:
2016
Change in benefit obligation
Benefit obligation at beginning of period
Service cost
Interest cost
Actuarial loss
Benefits paid
$
Benefit obligation at end of period
141,378
3,753
5,721
3,025
(4,232)
149,645
Change in plan assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Benefits paid
86,253
7,765
5,200
(4,232)
Fair value of plan assets at end of period
Funded status at end of period
94,986
$
54,659
At December 31, 2016, the funded status of the pension plan is reported in the balance sheet as a
noncurrent liability. The accumulated benefit obligation for the Medical Center’s pension plan
totaled $139,802 at December 31, 2016.
22
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
Weighted-average assumptions used in determining the pension benefit obligation as of
December 31, 2016:
Discount rate
Rate of compensation increase
3.99 %
3.00 %
Components of net periodic pension cost and other changes recognized in unrestricted net assets
for the periods from March 1, 2016 to December 31, 2016, and January 1, 2016 to February 29,
2016 are as follows:
Successor
Period From
March 1, 2016 to
December 31, 2016
Components of net periodic benefit cost
Service cost
Interest cost
Expected return of plan assets
Recognized actuarial loss
Total net periodic benefit cost
Other changes recognized in unrestricted net assets
Actuarial net (gain) loss arising during period
Prior service cost arising during the period
Amortization of prior service cost
Amortization of actuarial loss
Total pension-related adjustments
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
3,157
4,746
(5,229)
-
$
596
976
(1,058)
643
$
2,674
$
1,157
$
(8,116)
2,293
-
$
7,160
125
(768)
$
(5,823)
$
6,517
As a result of HackensackUHN’s acquisition of Palisades on March 1, 2016, there was a plan
remeasurement which resulted in all unamortized actuarial net losses being reset to zero at the
acquisition date. There are no amounts expected to be recognized in net periodic pension cost
during fiscal year 2017.
Weighted-average assumptions used in determining the net periodic pension cost were as follows:
Successor
Period From
March 1, 2016 to
December 31, 2016
Discount rate
Expected long-term return on assets
Rate of compensation increase
3.97%
7.50%
3.00%
Predecessor
Period From
January 1, 2016 to
February 29, 2016
4.18%
7.50%
3.00%
To develop the expected long-term rate of return on plan assets, the Medical Center considered
the historical returns and the future expectations for returns for each asset class, as well as the
23
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
target asset allocation of the pension portfolio. This approach resulted in the selection of the 7.5%
long-term rate of return on plan assets assumption.
The measurement date used to determine the pension plan measurements is December 31.
The investment policy for the defined benefit plan includes the following asset allocation guidelines:
Policy Target
Asset category
Investment grade fixed income
U.S. equity securities – large capitalization – growth
U.S. equity securities – large capitalization – value
U.S. equity securities – small to medium capitalization
International equity securities
Alternative investments
30%
20
20
10
10
10
The asset allocation policy was developed in consideration of the long-term financial objectives of
the plan which include ensuring that there is an adequate level of assets to support benefit
obligations and maintaining liquidity sufficient to cover current benefit obligations.
In addition to the broad asset allocation described above, the following policies apply to individual
asset classes:

Cash equivalents are invested in high quality instruments.

Fixed income investments are oriented toward risk adverse, investment grade securities with
an average quality of “A” or higher. With the exception of U.S. government securities, fixed
income investments are diversified among individual securities and sectors.

Equity investments are diversified among industries and economic sectors. International
equity holdings are also diversified by country. Limitations are placed on the overall allocation
to any individual security.
Ordinary cash flows will be used to maintain the allocation of plan assets as close as practical to
the indicated allocation. If cash flows are insufficient to maintain the allocation within the
permissible ranges as of any calendar quarter end, the trustee shall transfer balances as
necessary between the asset classes to obtain the target allocation. Refer to Note 9 for the
Medical Center’s defined benefit plan investments composition (by asset class within the fair value
hierarchy described in Note 1) as of December 31, 2016.
The Medical Center’s funding policy is to contribute an amount not less than the Employee
Retirement Income Security Act of 1974 minimum funding requirements or more than the maximum
that would be deductible for a taxable corporation. The Medical Center expects to contribute
approximately $5,200 to its pension plan for 2017.
24
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
The Medical Center expects to pay the following benefit payments, which reflect expected future
service, as appropriate:
Year ending December 31,
2017
2018
2019
2020
2021
2022-2026
$
4,793
5,215
5,725
6,282
6,750
41,427
Defined Contribution Plans
The entities comprising Palisades sponsor several defined contribution plans covering certain
employees as described in each respective plan document. Total expense under these plans was
approximately $1,100 and $200 for the periods from March 1, 2016 to December 31, 2016 and
January 1, 2016 to February 29, 2016, respectively.
Deferred Compensation Plans
Certain Obligated Group employees participate in deferred compensation plans established
pursuant to Section 457 of the Code. In connection with these plans, the Obligated Group deposits
amounts with trustees on behalf of the participating employees. Under the terms of the plans, the
Obligated Group is not responsible for investment gains or losses incurred. The assets set aside
under the plans are designated for payments under the plans, but may revert to the Obligated
Group under certain specified circumstances. Amounts on deposit with the trustees (at fair value)
totaled $11,898 (see Note 3), which was equal to the liability recorded within other liabilities on the
balance sheet at December 31, 2016. Additionally, investment return related to such assets and
the associated employee benefits expense for these plans totaled approximately $500 and $100 for
the periods from March 1, 2016 to December 31, 2016 and January 1, 2016 to February 29, 2016,
respectively.
7.
Other Revenue
Other revenue consists of the following:
Successor
Period From
March 1, 2016 to
December 31, 2016
Grants
Electronic health record incentive payments
Physician fee revenues
Other
25
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
415
4,805
5,104
$
80
574
843
887
$
10,324
$
2,384
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
8.
Leases
Palisades leases certain office space and equipment under operating leases. Operating lease
expense for the periods from March 1, 2016 to December 31, 2016 and January 1, 2016 to
February 29, 2016, was approximately $2,266 and $434, respectively. The following is a schedule
of future minimum lease payments under noncancellable operating leases as of December 31,
2016:
2017
2018
2019
2020
2021
Thereafter
$
697
705
710
717
735
6,678
Palisades entered into lease agreements for certain space within a medical office building that was
constructed on its campus and completed in January 2015. Palisades entered into a ground-lease
agreement to lease the land the medical office building was constructed on to a third-party. Under
the terms of the agreement, Palisades accepted ownership of the subsurface parking facility
constructed on the land in exchange for the third-party’s usage of the land through 2093.
Palisades will recognize the revenue related to the lease on a straight-line basis over the term of
the lease. As a result, the Medical Center recorded approximately $3,300 of unearned revenue
within other liabilities in the balance sheet as of December 31, 2016.
9.
Fair Value Measurements
Financial instruments carried at fair value in the accompanying balance sheet at December 31,
2016, excluding assets invested in the Medical Center’s defined benefit pension plan, are classified
in the tables below in one of the three categories described in Note 1:
Prices
in Active
Markets
(Level 1)
Cash equivalents
Mutual Funds
Equity
Fixed Income
Annuity contract
$
6,116
Other
Observable
Inputs
(Level 2)
$
23,990
23,378
$
53,484
-
Unobservable
Inputs
(Level 3)
$
$
-
-
Fair Value
$
3,146
$
3,146
$
Valuation
Technique
(1)
6,116
M
23,990
23,378
3,146
M
M
M
56,630
At December 31, 2016 included in investments is approximately $707 and $546 of cash and
certificates of deposit, respectively, which are not considered recurring fair value measures.
The gross activity of purchases, sales and realized/unrealized gains and losses on Level 3 financial
instruments during the period were not material.
26
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
Assets invested in the Medical Center’s defined benefit pension plan (see Note 6), at fair value, are
classified in the table below in one of the three categories described in Note 1:
Prices
in Active
Markets
(Level 1)
Cash equivalents
Mutual Funds
Equity
Fixed Income
Hedge Funds
$
Other
Observable
Inputs
(Level 2)
5
$
48,306
29,814
$
-
Unobservable
Inputs
(Level 3)
$
16,861
78,125
$
16,861
-
Fair Value
$
$
-
Valuation
Technique
(1)
$
5
M
48,306
29,814
16,861
M
M
M
94,986
(1) See Note 1.
10.
Commitments and Contingencies
The Medical Center maintains a line of credit in the amount of $2,000 with a bank which expires
December 31, 2017. As of December 31, 2016 there was no amount drawn against the line.
Various investigations, lawsuits and claims arising in the normal course of operations are pending
or on appeal against Palisades. While the ultimate effect of such actions cannot be determined at
this time, it is the opinion of management that liabilities which may arise from such actions would
not materially affect the accompanying financial statements of Palisades.
At December 31, 2016, approximately 70% of Palisades’ employees are covered by collective
bargaining agreements. Palisades’ collective bargaining agreements expire in May 2017 and
June 2018.
11.
Concentrations of Credit Risk
Palisades maintains cash on deposit with major banks and invests in money market securities with
high credit quality financial institutions and limits the credit exposure to any one financial institution;
however, such deposits exceed federally insured limits. Palisades grants credit without collateral to
its patients, most of whom are local residents and are insured under third-party payer agreements.
The mix of net accounts receivable form third-party payers and patients at December 31, 2016 is
as follows:
2016
Medicare (including Medicare managed care)
Medicaid (including Medicaid managed care)
New Jersey Blue Cross
Other managed care and commercial
34 %
17
14
35
100 %
27
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Notes to Financial Statements
December 31, 2016
(in thousands of dollars)
12.
Functional Expenses
Palisades provides health care services to residents within its geographic region. Expenses
related to providing these services were as follows:
Successor
Period From
March 1, 2016 to
December 31, 2016
Health care related services
General and administrative
13.
Predecessor
Period From
January 1, 2016 to
February 29, 2016
$
127,568
40,754
$
25,075
7,509
$
168,322
$
32,584
Related Party Transactions
The Palisades entities enter into various transactions with unconsolidated related parties (see Note
1). At December 31, 2016, the amounts due to or from related parties are as follows:
2016
14.
Foundation due from HUMC
$
6
Medical Center due to HUMC
Due to other HMH entities
Total
$
14,429
374
14,803
$
Subsequent Events
Subsequent events have been evaluated through March 28, 2017, which is the date the financial
statements were issued.
Effective January 1, 2017, PME was renamed Hackensack Meridian Health Management, Inc
("HMHM"). Additionally, at that date, Meridian Health Management, Inc, a wholly owned subsidiary
of Hackensack Meridian Health Ventures, Inc, was merged into the newly renamed HMHM.
28
Supplemental Schedules
HackensackUMC Palisades and Affiliates (Successor)
Combining Balance Sheet
December 31, 2016
(in thousands of dollars)
Obligated Group
Palisades
General
Care, Inc.
Assets
Current assets
Cash and cash equivalents
Current portion of assets whose use is limited
Accounts receivable
Patient accounts receivable less allowance for doubtful
accounts of $18,701
Other
Inventories
Prepaid expenses
Due from related parties
$
Total current assets
5,567
377
Palisades
Medical
Associates
$
Palisades
Medical
Center, Inc.
218
-
$
11,998
1,687
Obligated
Group
Combined
Total
Eliminations
$
-
$
17,783
2,064
Palisades
Medical
Center
Foundation
$
405
-
Palisades
Management
Enterprises
$
399
-
Combined
Total
Eliminations
$
-
$
18,587
2,064
3,847
668
-
1,261
68
-
20,076
1,899
2,409
810
20,829
(19,619)
23,923
3,160
2,409
1,546
1,210
120
3
79
6
23
2
-
(1,210)
23,923
3,303
2,412
1,627
6
(19,619)
52,095
613
424
(1,210)
51,922
10,459
1,547
59,708
Assets whose use is limited, less current portion
Board designated
Deferred employee benefit plans
Trustee Assets held under bond indenture
Patient Trust
Total assets whose use is limited, less current portion
26,219
277
574
192
27,262
-
13,701
11,621
2,577
27,899
-
39,920
11,898
3,151
192
55,161
658
658
-
-
40,578
11,898
3,151
192
55,819
Property and equipment, net
Other assets
12,481
631
1,652
-
58,897
23,310
-
73,030
23,941
-
1,547
110
-
74,577
24,051
Total assets
Liabilities and Net Assets
Current liabilities
Accounts payable and accrued expenses
Accrued interest payable
Current portion of long-term debt
Other current liabilities
Due to related parties
$
50,833
$
3,199
$
169,814
$
(19,619) $
204,227
$
1,271
$
2,081
$
3,208
164
212
140
448
$
1,500
19,545
$
20,083
762
1,414
8,424
14,429
$
- $
(19,619)
24,791
926
1,626
8,564
14,803
$
25
701
$
(19,619)
50,710
34,941
54,659
15,004
21,045
45,112
Long-term debt, less current portion
Accrued pension benefits
Other liabilities
Total current liabilities
4,172
7,679
-
-
27,262
54,659
15,004
Total liabilities
11,851
21,045
142,037
Net assets
Unrestricted
Temporarily restricted
Permanently restricted
38,982
-
Total net assets
Total liabilities and net assets
(17,846)
-
38,982
$
50,833
3,199
(19,619)
27,683
94
(17,846)
$
-
-
27,777
$
169,814
$
(19,619) $
(1,210)
$
206,369
168
66
509
(1,210)
$
24,984
926
1,692
8,564
14,803
726
743
(1,210)
-
349
-
155,314
726
1,092
48,819
94
(116)
661
-
48,913
204,227
1,271
The accompanying notes are an integral part of these combining financial statements.
29
2,081
35,290
54,659
15,004
(1,210)
155,922
49,692
661
94
-
989
$
50,969
-
989
-
545
$
$
$
(1,210)
50,447
$
206,369
HackensackUMC Palisades and Affiliates (Successor)
Combining Statement of Operations
Period from March 1, 2016 to December 31, 2016
(in thousands of dollars)
Obligated Group
Palisades
General
Care, Inc.
Revenue
Net patient service revenue before provision for bad debts
Provision for bad debts
$
Net patient service revenue after provision for bad debts
Other revenue
Total revenue
Expenses
Salaries and wages
Employee benefits
Supplies and other
Depreciation and amortization
Interest expense
Total expenses
Excess (deficiency) of revenues over expenses before other adjustments
Other operating adjustments
Investment income- net
Gain (loss) on extinguishment of debt
Excess (deficiency) of revenues over expenses
Other adjustments in unrestricted net assets
Pension-related adjustments
Equity transfer to affiliate
Palisades
Medical
Associates
21,902
-
$
$
-
$
Obligated
Group
Combined
Total
Eliminations
153,349 $
(16,248)
-
$
175,251 $
(16,248)
-
Palisades
Management
Enterprises
$
-
Combined
Total
Eliminations
$
-
$
-
137,101
159,003
-
-
5,323
3,282
(210)
8,422
542
1,896
(536)
10,324
21,929
5,323
140,383
(210)
167,425
542
1,896
(536)
169,327
10,484
3,041
8,730
494
335
6,367
810
2,285
317
-
70,769
15,178
39,659
6,445
1,561
(210)
-
87,620
19,029
50,464
7,256
1,896
349
105
329
-
1,039
185
479
90
17
(536)
-
89,008
19,319
50,736
7,346
1,913
23,084
9,779
133,612
(210)
166,265
783
1,810
(536)
168,322
(1,155)
(4,456)
6,771
-
1,160
(241)
86
-
1,005
2,193
16
1,054
(4,456)
779
(1,406)
6,144
-
2,972
(1,390)
2,742
48
(193)
37
123
-
3,057
(1,390)
2,672
5,823
3,000
-
5,823
3,000
-
-
5,823
3,000
1,054
$
(4,456) $
14,967
$
-
$
11,565
$
(193) $
The accompanying notes are an integral part of these combining financial statements.
30
123
-
175,251
(16,248)
27
-
-
Palisades
Medical
Center
Foundation
21,902
-
Increase (decrease) in unrestricted net assets
Palisades
Medical
Center, Inc.
$
-
159,003
$
11,495
Palisades Healthcare System, Inc. (Predecessor)
Consolidating Statement of Operations
Period from January 1, 2016 to February 29, 2016
(in thousands of dollars)
Obligated Group
Palisades
General
Care, Inc.
Revenue
Net patient service revenue before provision for bad debts
Provision for bad debts
$
Net patient service revenue after provision for bad debts
Other revenue
Total revenue
Expenses
Salaries and wages
Employee benefits
Supplies and other
Depreciation and amortization
Interest expense
Total expenses
Excess (deficiency) of revenues over expenses before other adjustments
Other operating adjustments
Investment loss- net
(Deficiency) excess of revenues over expenses
Other adjustments in unrestricted net assets
Pension-related adjustments
(Decrease) increase in unrestricted net assets
$
Palisades
Medical
Associates
4,295
-
$
Palisades
Medical
Center, Inc.
-
$
Obligated
Group
Combined
Total
Eliminations
29,071 $
(3,106)
-
$
-
33,366 $
(3,106)
Palisades
Medical
Center
Foundation
-
Palisades
Management
Enterprises
$
-
Consolidated
Total
Eliminations
$
-
$
-
33,366
(3,106)
4,295
-
25,965
30,260
-
-
30
894
1,221
(42)
2,103
13
364
(96)
30,260
2,384
4,325
894
27,186
(42)
32,363
13
364
(96)
32,644
1,886
601
1,511
71
72
1,154
177
407
58
-
13,353
4,120
7,335
1,167
329
(42)
-
16,393
4,898
9,211
1,296
401
67
21
33
-
198
37
96
25
4
(96)
-
16,658
4,956
9,244
1,321
405
4,141
1,796
26,304
(42)
32,199
121
360
(96)
32,584
184
(902)
882
-
164
(108)
4
-
60
(591)
(407)
(902)
(171)
711
-
(762)
(598)
(13)
(121)
4
-
(775)
(715)
(6,517)
-
(5,806) $
-
-
-
(407) $
(902) $
(6,517)
$
(7,115) $
-
-
(121) $
4
The accompanying notes are an integral part of these consolidating financial statements.
31
$
-
(6,517)
$
(7,232)
HackensackUMC Palisades and Affiliates (Successor) and Palisades
Healthcare System, Inc. (Predecessor)
Note to Supplemental Schedules
Period from March 1, 2016 to December 31, 2016 (Successor) and from January 1,
2016 to February 29, 2016 (Predecessor)
(in thousands of dollars)
1.
Basis of Presentation – Supplemental Schedules
The combining supplemental schedules as of December 31, 2016 and for the period from March 1,
2016 to December 31, 2016 and the consolidating supplemental schedule for the period from
January 1, 2016 to February 29, 2016 (the "supplemental schedules") presented on pages 29-31
were derived from and relate directly to the underlying accounting and other records used to
prepare the financial statements. The combining financial statements as of December 31, 2016
and for the period from March 1, 2016 to December 31, 2016 are presented on a combined basis
as a result of common ownership (under HackensackUHN through June 30, 2016 and HMH from
July 1, 2016 to December 31, 2016) and management of the aforementioned entities. The
consolidating financial statement for the period from January 1, 2016 to February 29, 2016 is
presented on a consolidated basis and includes the accounts of PHS and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in
combination in the “eliminations” column.
The supplemental schedules are prepared on the accrual basis of accounting in conformity
with accounting principles generally accepted in the United States of America, as further
described in Note 1 to the financial statements.
The supplemental schedules are presented for purposes of additional analysis of the financial
statements rather than to present the financial position, results of operations, changes in net assets
and cash flows of the individual companies within Palisades and is not a required part of the
financial statements. The individual companies within Palisades as presented within the
supplemental schedules are disclosed within Note 1 to the financial statements.
32
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
APPENDIX C
Forms of the Trust Indenture
and the Master Indenture
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
HMH - SERIES 2017 (Taxable)
HACKENSACK MERIDIAN HEALTH, INC.
and
THE BANK OF NEW YORK MELLON,
as Trustee
TRUST INDENTURE
Dated as of April 1, 2017
$____________
HACKENSACK MERIDIAN HEALTH
Taxable Bonds, Series 2017
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1.
SECTION 1.2.
SECTION 1.3.
DEFINITIONS..........................................................................................3
INDENTURE, ANY SUPPLEMENTAL INDENTURE AND
BONDS CONSTITUTE A CONTRACT ...............................................13
SECURITY FOR BONDS......................................................................14
ARTICLE II
AUTHORIZATION AND DETAILS OF BONDS
SECTION 2.1.
SECTION 2.2.
SECTION 2.3.
SECTION 2.4.
SECTION 2.5.
SECTION 2.6.
SECTION 2.7.
SECTION 2.8.
INSTITUTION COVENANTS AND REPRESENTATIONS ..............14
BONDS AUTHORIZED ........................................................................16
DATE, MATURITY AND INTEREST RATE OF BONDS .................16
DENOMINATION, NUMBERS AND LETTERS ................................17
OPTIONAL REDEMPTION OF BONDS .............................................17
SINKING FUND REDEMPTION OF BONDS .....................................18
DEPOSITORY TRUST COMPANY REGISTRATION OF
BONDS ...................................................................................................18
FORM OF BONDS AND TRUSTEE’S AUTHENTICATION
CERTIFICATE .......................................................................................21
ARTICLE III
PARTICULARS FOR ALL BONDS
SECTION 3.1.
SECTION 3.2.
SECTION 3.3.
SECTION 3.4.
SECTION 3.5.
MEDIUM OF PAYMENT OF BONDS .................................................21
LEGENDS ..............................................................................................21
EXECUTION AND AUTHENTICATION............................................21
REGISTRATION AND TRANSFER OF BONDS................................22
BONDS MUTILATED, DESTROYED, LOST OR STOLEN ..............23
ARTICLE IV
REDEMPTION OF BONDS
SECTION 4.1.
SECTION 4.2.
SECTION 4.3.
AUTHORIZATION OF REDEMPTION ...............................................24
NOTICE OF REDEMPTION .................................................................24
PAYMENT OF REDEEMED BONDS ..................................................24
i
Table of Contents
(continued)
Page
ARTICLE V
BOND PROCEEDS, FUNDS, ACCOUNTS, REVENUES AND
APPLICATION AND DISBURSEMENT THEREOF
SECTION 5.1.
SECTION 5.2.
SECTION 5.3.
SECTION 5.4.
SECTION 5.5.
SECTION 5.6.
SECTION 5.7.
ESTABLISHMENT OF FUNDS AND ACCOUNTS ...........................25
APPLICATION OF BOND PROCEEDS AND ALLOCATION
THEREOF...............................................................................................25
APPLICATION OF MONEYS IN CERTAIN FUNDS FOR
RETIREMENT OF BONDS...................................................................26
DEPOSIT OF REVENUES AND ALLOCATION THEREOF .............26
APPLICATION OF MONEYS IN THE DEBT SERVICE
FUND......................................................................................................28
APPLICATION OF MONEYS IN THE REDEMPTION FUND..........29
INVESTMENT OF MONEYS ...............................................................29
ARTICLE VI
PARTICULAR COVENANTS
SECTION 6.1.
SECTION 6.2.
SECTION 6.3.
PAYMENT OF PRINCIPAL AND INTEREST ....................................30
REVENUES............................................................................................30
ACCOUNTS ...........................................................................................30
ARTICLE VII
CONCERNING THE TRUSTEE
SECTION 7.1.
SECTION 7.2.
SECTION 7.3.
SECTION 7.4.
SECTION 7.5.
SECTION 7.6.
SECTION 7.7.
SECTION 7.8.
SECTION 7.9.
SECTION 7.10.
SECTION 7.11.
SECTION 7.12.
SECTION 7.13.
CONCERNING THE TRUSTEE; ACCEPTANCE OF
TRUSTEE ...............................................................................................31
OBLIGATION OF TRUSTEE ...............................................................31
RESPONSIBILITIES OF TRUSTEE .....................................................31
PROPERTY HELD IN TRUST..............................................................33
EVIDENCE ON WHICH TRUSTEE MAY ACT .................................33
COMPENSATION AND INDEMNIFICATION...................................33
PERMITTED ACTS ...............................................................................34
RESIGNATION OF TRUSTEE .............................................................34
REMOVAL OF TRUSTEE ....................................................................34
SUCCESSOR TRUSTEE .......................................................................34
TRANSFER OF RIGHTS AND PROPERTY TO SUCCESSOR
TRUSTEE ...............................................................................................35
MERGER OR CONSOLIDATION OF THE TRUSTEE ......................35
SEVERAL CAPACITIES ......................................................................36
ii
Table of Contents
(continued)
Page
SECTION 7.14.
SECTION 7.15.
SECTION 7.16.
SECTION 7.17.
CO-TRUSTEES ......................................................................................36
TRUSTEE MAY FIX RECORD DATE ................................................36
WHEN BONDS DISREGARDED .........................................................36
INDEMNIFICATION.............................................................................37
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1.
SECTION 8.2.
SECTION 8.3.
SECTION 8.4.
SECTION 8.5.
SECTION 8.6.
SECTION 8.7.
SECTION 8.8.
SECTION 8.9.
SECTION 8.10.
SECTION 8.11.
EVENTS OF DEFAULT ........................................................................38
ACCELERATION OF MATURITY ......................................................38
ENFORCEMENT OF REMEDIES ........................................................39
PRIORITY OF PAYMENTS AFTER DEFAULT.................................40
EFFECT OF DISCONTINUANCE OF PROCEEDINGS .....................41
CONTROL OF PROCEEDINGS ...........................................................41
RESTRICTIONS UPON ACTION BY INDIVIDUAL
BONDOWNERS ....................................................................................41
ACTIONS BY TRUSTEE ......................................................................42
REMEDIES NOT EXCLUSIVE ............................................................42
WAIVER AND NON-WAIVER ............................................................42
NOTICE OF DEFAULT.........................................................................42
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1.
SECTION 9.2.
SECTION 9.3.
SECTION 9.4.
ADOPTION AND FILING ....................................................................43
GENERAL PROVISIONS RELATING TO SUPPLEMENTAL
INDENTURES .......................................................................................43
ADOPTION AND FILING OF SUPPLEMENTAL
INDENTURES .......................................................................................43
NOTATION ON BONDS ......................................................................43
ARTICLE X
CONSENTS TO SUPPLEMENTAL INDENTURES
SECTION 10.1.
SECTION 10.2.
SECTION 10.3.
SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
BONDOWNERS ....................................................................................44
SUPPLEMENTAL INDENTURES WITH CONSENT OF
BONDOWNERS ....................................................................................44
SUPPLEMENTAL INDENTURES BY UNANIMOUS
ACTION .................................................................................................45
iii
Table of Contents
(continued)
Page
ARTICLE XI
PROCEDURES FOR BONDOWNER CONSENTS
SECTION 11.1.
SECTION 11.2.
SECTION 11.3.
MAILING ...............................................................................................45
CONSENT OF BONDOWNERS ...........................................................45
EXCLUSION OF BONDS .....................................................................46
ARTICLE XII
DEFEASANCE
SECTION 12.1.
DEFEASANCE.......................................................................................46
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1.
SECTION 13.2.
SECTION 13.3.
SECTION 13.4.
SECTION 13.5.
SECTION 13.6.
SECTION 13.7.
SECTION 13.8.
SECTION 13.9.
SECTION 13.10.
SECTION 13.11.
SECTION 13.12.
SECTION 13.13.
SECTION 13.14.
SECTION 13.15.
SECTION 13.16.
SECTION 13.17.
SECTION 13.18.
MISCELLANEOUS POWERS AS TO BONDS AND PLEDGE .........48
FURTHER ASSURANCE .....................................................................49
NO RIGHTS CONFERRED ON OTHERS ...........................................49
EVIDENCE OF SIGNATURES OF BONDOWNERS AND
OWNERSHIP OF BONDS ....................................................................49
REMEDIES.............................................................................................50
PRESERVATION AND INSPECTION OF DOCUMENTS.................50
MONEYS AND FUNDS HELD FOR PARTICULAR BONDS ...........50
CANCELLATION OF BONDS .............................................................50
NO RECOURSE ON THE BONDS .......................................................50
SEVERABILITY OF INVALID PROVISION ......................................50
NOTICES................................................................................................51
SECONDARY MARKET DISCLOSURE.............................................51
HOLIDAYS ............................................................................................52
SUCCESSORS AND ASSIGNS ............................................................52
ARTICLE AND SECTION HEADINGS...............................................52
EFFECTIVE DATE ................................................................................52
GOVERNING LAW...............................................................................52
COUNTERPARTS .................................................................................52
ATTACHMENT A – FORM OF SERIES 2017 BOND
ATTACHMENT B – STANDING INVESTMENT INSTRUCTIONS
iv
TRUST INDENTURE
This TRUST INDENTURE, dated as of April 1, 2017, between
HACKENSACK MERIDIAN HEALTH, INC., a nonprofit corporation (the “Institution”), and
THE BANK OF NEW YORK MELLON, a banking corporation organized and existing under
the laws of the State of New York with fiduciary and trust powers in the State of New Jersey (the
“State”), as trustee, bond registrar and paying agent, with a corporate trust office in Woodland
Park, New Jersey (the “Trustee”).
W I T N E S S E T H:
WHEREAS, the Institution is a nonprofit corporation duly organized and existing
under the laws of the State; and
WHEREAS, the Institution is authorized, among other things, to finance the costs
of activities in furtherance of the “exempt purposes” as defined in Section 501(c)(3) of the Code
(as defined herein) as designated by the Institution (the “Identified Purposes”) and the other
Members of the Obligated Group, to issue bonds for such purpose, and to enter into a trust
indenture providing for the issuance of such bonds and for their payment and security; and
WHEREAS, the Institution has agreed to secure the payment obligations of the
Institution under this Indenture and the Bonds of the Institution described below by the issuance
of the Institution’s Series 2017 Note No. _ (the “Note”), which Note is a joint and several
obligation of the Institution and the other Members of the Obligated Group (as defined herein),
and will be issued to the Trustee pursuant to the Master Indenture and the Supplemental Master
Indenture (as such terms are defined herein) as security for such Bonds; and
WHEREAS, the Institution has determined to issue $________________
aggregate principal amount of its Taxable Bonds, Series 2017 (the “Bonds”) pursuant to this
Indenture; and
WHEREAS, all things necessary to make the Bonds, when authenticated by the
Trustee and issued as in this Indenture provided, the valid, binding and legal general obligations
of the Institution according to the import thereof, and to constitute this Indenture a valid
assignment and pledge of the Revenues derived under the Note have been done and performed,
and the creation, execution and delivery of this Indenture, and the creation, execution and
issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized:
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Institution in consideration of the premises and of the purchase of the
Bonds and of other good and lawful consideration, the receipt of which is hereby acknowledged,
and to secure the payment of the principal of, premium, if any, and interest on the Bonds and the
performance and observance of all of the covenants and conditions herein or therein contained,
has executed and delivered this Indenture and the Note and has conveyed, granted, assigned,
transferred, pledged, set over and confirmed and granted a security interest in and by these
presents does hereby convey, grant, assign, transfer, pledge, set over and confirm and grant a
security interest in, unto the Trustee, its successor or successors and its or their assigns forever,
with power of sale, all and singular the property, real and personal, hereinafter described (such
property being herein sometimes referred to as the “trust estate”) to wit:
GRANTING CLAUSES
CLAUSE I
All right, title and interest of the Institution in and to the Note and the Revenues
(as defined herein) payable to the Trustee for the account of the Institution and to the moneys
and securities deposited and held from time to time by the Institution or by the Trustee in the
Funds and Accounts created hereunder subject to the provisions of this Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth in this Indenture;
and
CLAUSE II
Any and all other property of every kind and nature from time to time hereafter,
by delivery or by writing of any kind, conveyed, pledged, assigned or transferred as and for
additional security hereunder by the Institution or by anyone on its behalf to the Trustee,
including without limitation funds of the Institution held by the Trustee as security for the Bonds.
TO HAVE AND TO HOLD, all and singular, the properties and the rights and
privileges hereby conveyed, assigned and pledged by the Institution or intended so to be, unto
the Trustee and its successors and assigns forever, in trust, nevertheless, with power of sale and
for the equal and pro rata benefit and security of each and every Owner of the Bonds issued and
to be issued hereunder, without preference, priority or distinction as to participation in the lien,
benefit and protection hereof of one Bond over or from the others, by reason of priority in the
issue or negotiation or maturity thereof, or for any other reason whatsoever, except as herein
otherwise expressly provided, so that each and all of such Bonds shall have the same right, lien
and privilege under this Indenture and shall be equally secured hereby with the same effect as if
the same had all been made, issued and negotiated simultaneously with the delivery hereof and
were expressed to mature on one and the same date;
PROVIDED, NEVERTHELESS, and these presents are upon the express
condition, that if the Institution or its successors or assigns shall well and truly pay or cause to be
paid the principal of such Bonds with interest, according to the provisions set forth in the Bonds
and each of them or shall provide for the payment or redemption of such Bonds by depositing or
causing to be deposited with the Trustee the entire amount of funds or securities requisite for
payment or redemption thereof when and as authorized by the provisions hereof, and shall also
pay or cause to be paid all other sums payable hereunder by the Institution, then these presents
and the estate and rights hereby granted shall cease, be discharged and become void, and
thereupon the Trustee, on payment of its lawful charges and disbursements then unpaid, on
demand of the Institution and upon the payment of the cost and expenses thereof, shall duly
execute, acknowledge and deliver to the Institution such instruments of satisfaction or release as
may be necessary or proper to discharge this Indenture, including, if appropriate, any required
discharge of record, and, if necessary, shall grant, reassign and deliver to the Institution, its
successors or assigns, all and singular the property, rights, privileges and interests by it hereby
2
granted, conveyed and assigned, and all substitutes therefor, or any part thereof, not previously
disposed of or released as herein provided; otherwise this Indenture shall be and remain in full
force.
PROVIDED, FURTHER, that the pledge of the right, title and interest of the
Institution in and to the Note and the Revenues is given with recognition by the Trustee of the
ability of the Institution to issue other bonds, and the ability of the Institution to incur additional
Indebtedness, secured on a parity basis by the liens, security interests and pledges set forth in the
Master Indenture.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED by and
between the parties hereto that all Bonds are to be issued, authenticated and delivered, and that
all of the trust estate is to be held and applied, subject to the further covenants, conditions,
releases, uses and trusts hereinafter set forth, and the Institution, for itself and its successors,
does hereby covenant and agree to and with the Trustee and its respective successors in said
trust, for the benefit of those who shall own the Bonds or any of them as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. Unless the context requires otherwise, terms
used herein shall have the meaning ascribed thereto below. In addition, the terms used herein
and not otherwise defined shall have the meaning ascribed thereto in the Master Indenture.
Words importing persons include firms, associations and corporations, and words
importing the singular number include the plural number and vice versa. All times refer to local
time in the City of New York, New York.
“Account” or “Accounts” means, as the case may be, each or all of the accounts
established in Section 5.1 of this Indenture.
“Authorized Denomination” means $1,000 or any integral multiple thereof.
“Authorized Officer” means: (i) in the case of the Institution, the chairman, vice
chairman, president, vice president for finance, treasurer, chief executive officer, chief financial
officer, or chief operating officer of the Institution and any other person or persons authorized by
resolution of the Institution to perform any act or execute any document; and (ii) in the case of
the Trustee, means any officer in its corporate trust department, and when used with reference to
any act or document also means any other person authorized to perform any act or sign any
document by or pursuant to a resolution of the governing body of the Trustee.
“Bondowner” or “Owner” or “Holder” or any similar term, when used with
reference to a Bond or Bonds, means any person who shall be the registered owner of any Bond.
“Bonds” or “Series 2017 Bonds” means the Institution’s $__________ Taxable
Bonds, Series 2017, authorized, issued and secured pursuant to this Indenture.
3
“Bond Year” means a period of twelve (12) consecutive months beginning on
July 2 in any calendar year and ending on July 1 of the succeeding calendar year.
“Business Day” means any day other than (i) a Saturday or a Sunday; (ii) a day
on which the New York Stock Exchange is closed; or (iii) a day on which banking institutions
are authorized or required by law or executive order to be closed for commercial banking
purposes in New York or New Jersey or such other state where the Corporate Trust Office of the
Trustee is located.
“Code” means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
“Comparable Treasury Issue” means the United States Treasury security or
securities selected by a Designated Investment Banker as having an actual or interpolated
maturity comparable to the remaining term of the Bonds to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of a comparable maturity to the remaining term of such Bonds.
“Comparable Treasury Price” means, with respect to any redemption date, the
average of the Reference Treasury Dealer Quotations for such redemption date or, if the
Designated Investment Banker obtains only one Reference Treasury Dealer Quotation, such
Reference Treasury Dealer Quotation.
“Corporate Trust Office” shall mean the designated office of the Bond Trustee
at which its corporate trust business is conducted, which at the date hereof is located at 385 Rifle
Camp Road, 3rd Floor, Woodland Park, New Jersey 07424, Attention: Corporate Trust
Department, except that with respect to presentation of Bonds for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the Bond Trustee at which, at
any particular time, its corporate trust agency business shall be conducted.
“Cost of Issuance” means all costs and expenses of the Institution incurred in
connection with the authorization, issuance, sale and delivery of the Bonds including, but not
limited to, legal fees and expenses, financial advisory fees, trustee’s acceptance fees and
expenses under the Indenture and initial (including first annual) fees, fiscal or escrow agent fees,
printing fees and travel expenses.
“Cost of Issuance Account” means the account for the Bonds so designated,
created and established pursuant to Section 5.1 of this Indenture.
“Debt Service Fund” means the fund so designated, created and established
pursuant to Section 5.1 of this Indenture.
“Defeasance Obligations” means: (i) non-callable direct obligations of, or
obligations the timely payment of principal of and interest on which are unconditionally
guaranteed by, the United States of America; and (ii) any bonds or other obligations of any state
of the United States of America or of any agency, instrumentality or local government unit of
any such state (a) which are not callable prior to maturity or as to which irrevocable instructions
have been given to the trustee of such bonds or other obligations by the obligor to give due
4
notice of redemption and to call such bonds for redemption on the date or dates specified in such
instructions, (b) which are secured as to principal and interest and redemption premium by a fund
consisting only of cash or bonds or other obligations of the character described in clause
(i) hereof which fund may be applied only to the payment of such principal of and interest and
redemption premium, if any, on such bonds or other obligations on the maturity date or dates
thereof or the redemption date or dates specified in the irrevocable instructions referred to in
subclause (a) of this clause (ii), as appropriate, (c) as to which the principal of and interest on the
bonds and obligations of the character described in clause (i) hereof which have been deposited
in such fund along with any cash on deposit in such fund are sufficient to pay principal of and
interest and redemption premium, if any, on the bonds or other obligations described in this
clause (ii) on the maturity date or dates thereof or on the redemption date or dates specified in the
irrevocable instructions referred to in subclause (a) of this clause (ii) as appropriate, and
(d) which are rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s, or “AAA” by Fitch.
“Designated Investment Banker” means one of the Reference Treasury Dealers
appointed by the Institution.
“DTC” means The Depository Trust Company, New York, New York, a New
York State limited purpose trust company, subject to regulation by the Securities and Exchange
Commission, the Board of Governors of the Federal Reserve System and the New York State
Banking Department, or its successors appointed under this Indenture.
“Electronic Means” means telecopy, telegraph, facsimile transmission, e-mail, or
other similar electronic means of communication, including a telephonic communication
confirmed in writing or written transmission.
“Event of Default” means any of the events of default set forth in Section 8.1 of
this Indenture.
“Fiscal Year” means the fiscal year of the Institution, currently ending the last
day of the calendar year.
“Fitch” means Fitch, Inc., a corporation organized and existing under the laws of
the State of New York, its successors and assigns, and, if such corporation shall be dissolved or
liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be
deemed to refer to any other nationally recognized securities rating agency designated by the
Institution, by notice to the Trustee.
“Fund” or “Funds” means, as the case may be, each or all of the funds
established in Section 5.1 of this Indenture.
“Indenture” means this Trust Indenture, by and between the Institution and the
Trustee, dated as of April 1, 2017, as the same may from time to time be amended or
supplemented by a Supplemental Indenture or Indentures.
“Institution” means Hackensack Meridian Health, Inc., a nonprofit corporation
duly organized and existing under the laws of the State and the principal place of business of
which is presently located in Edison, New Jersey, and its successor or successors entities.
5
“Institution Documents” means, collectively, this Indenture, the Letter of
Representation, the Purchase Contract, the Note and the Master Indenture including all
supplements thereto.
“Interest Account” means the account so designated, created and established in
the Debt Service Fund pursuant to Section 5.1 of this Indenture.
“Interest Payment Date” means January 1 and July 1 of each year, commencing
January 1, 2018.
“Investment Agreement” means an agreement for the investment of moneys
held by the Trustee pursuant to this Indenture with a Qualified Financial Institution (which may
include the entity acting as Trustee).
“Letter of Representation” means the Letter of Representation of the Institution
to the underwriters of the Bonds, dated the date of the sale of the Bonds.
“Make-Whole Redemption Price” means the greater of:
(1)
100% of the principal amount of any Bonds being redeemed; and
(2)
the sum of the present values of the remaining scheduled payments of
principal and interest on any Bonds being redeemed (exclusive of interest accrued to the date of
redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus [____] basis points.
“Master Indenture” means the Master Trust Indenture, dated as of April 1,
2017, by and among the current members of the Obligated Group, any other future Members of
the Obligated Group, and the Master Trustee, and when amended or supplemented, such Master
Indenture, as amended or supplemented.
“Master Trustee” means The Bank of New York Mellon and its successor or
successors and any other entity which may at any time be substituted in its place pursuant to the
Master Indenture.
“Maturity Date” means July 1, ____.
“Members of the Obligated Group” or “Obligated Group” means the
Institution and any future Members of the Obligated Group under the Master Indenture.
“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and
existing under the laws of the State of Delaware, its successors and assigns, and, if such
corporation shall be dissolved or liquidated or shall no longer perform the functions of a
securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized
securities rating agency designated by the Institution, by notice to the Trustee.
“Note” means the Hackensack Meridian Health Series 2017 Note No. _ of the
Institution and the other Members of the Obligated Group, dated as of April 1, 2017, given to the
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Trustee pursuant to this Indenture in order to secure the Bonds, in a principal amount equal to the
principal amount of the Bonds, to evidence the obligations of the Institution with respect to the
Bonds, in substantially the form attached to the Supplemental Indenture as Exhibit A thereto.
“Obligated Group Agent” means Hackensack Meridian Health, Inc., or such
other Member of the Obligated Group as the then incumbent Obligated Group Agent shall
designate as a successor by an Officer’s Certificate delivered to the Trustee and the Master
Trustee.
“Officer’s Certificate” means a certificate signed by an Authorized Officer of
the Institution.
“Offering Memorandum” means the Offering Memorandum of the Institution
relating to the Bonds, containing information, data and statistics concerning the Institution, the
Bonds and other information, and the appendices thereto, including a letter from the Institution.
“Opinion of Counsel” means an opinion in writing signed by legal counsel
acceptable to the Trustee and who may be an employee of or counsel to the Institution.
“Outstanding” when used in reference to Bonds, means as of a particular date,
all Bonds authenticated and delivered under this Indenture except: (i) any Bond canceled by the
Trustee at or before such date; (ii) any Bond or portion thereof paid or deemed paid in
accordance with Section 12.1 of this Indenture; (iii) any Bond in lieu of or in substitution for
which another Bond shall have been authenticated and delivered pursuant to this Indenture; and
(iv) any unsurrendered Bond deemed to have been purchased as provided in this Indenture.
“Person” means an individual, a corporation, a partnership, an association, a joint
stock company, a joint venture, a trust, any unincorporated organization, a limited liability
company, a governmental body or a political subdivision, a municipality, a municipal authority
or any other group or organization of individuals.
“Preliminary Offering Memorandum” means the Preliminary Offering
Memorandum relating to the Bonds, containing information, data and statistics concerning the
Institution and other information, and the appendices thereto, including a letter from the
Institution, but without pricing, yield, redemption or maturity information on the Bonds.
“Principal Account” means the account so designated, created and established in
the Debt Service Fund pursuant to Section 5.1 of this Indenture.
“Proceeds Account” means the account for the Bonds so designated, created and
established in the Proceeds Fund pursuant to Section 5.1 of this Indenture.
“Proceeds Fund” means the fund for the Bonds so designated, created and
established pursuant to Section 5.1 of this Indenture.
“Project” means the corporate purposes as designated by the Institution to which
proceeds of the Bonds are to be applied.
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“Purchase Contract” means the Purchase Contract with respect to the Bonds by
and between the Institution and the underwriters of the Bonds.
“Qualified Financial Institution” means a financial institution that is a domestic
corporation, a bank, a trust company, a national banking association, a corporation subject to
registration with the Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956 or any successor provisions of law, a federal branch pursuant to the
International Banking Act of 1978 or any successor provisions of law, a foreign bank acting
through a domestic branch or agency which branch or agency is duly licensed or authorized to do
business under the laws of any state or territory of the United States of America, a savings bank,
a savings and loan association, or an insurance company or association chartered or organized
under the laws of any state of the United States of America; provided that for each such entity its
unsecured or uncollateralized long-term debt obligations, or obligations secured or supported by
a letter of credit, contract, guarantee, agreement or surety bond issued by any such organization,
directly or by virtue of a guarantee of a corporate parent thereof have been assigned a long-term
credit rating by any two Rating Agencies which is not lower than the two highest ratings (with
respect to a foreign bank, the highest rating category) then assigned (i.e., at the time an
Investment Agreement or Repurchase Agreement is entered into) by such rating service without
qualification by symbols “+” or “-“ or a numerical notation.
“Qualified Investments” means the obligations described below:
A.
Direct obligations of the United States of America (including obligations
issued or held in book-entry form on the books of the Department of the
Treasury) or obligations the timely payment of principal of and interest on
which are unconditionally guaranteed by the United States of America.
B.
Bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following federal agencies, provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped
by the agency itself; mortgage pass-through securities, mortgage-backed
securities pools, collateralized mortgage obligations and all mortgage
derivative securities trusts shall not constitute Qualified Investments):
(1)
Direct obligations of or fully guaranteed certificates of beneficial
ownership of the Export Import Bank of the United States;
(2)
Federal Financing Bank;
(3)
Participation certificates of the General Services Administration;
(4)
Guaranteed mortgage-backed bonds and guaranteed pass-through
obligations of the Government National Mortgage Association;
and
(5)
Project Notes, Local Housing Authority Bonds, New Communities
Debentures and U.S. public housing notes and bonds fully
8
guaranteed by the U.S. Department of Housing and Urban
Development.
C.
Bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following non-full faith and credit U.S.
government agencies, provided such agency is rated “AAA” at the time of
purchase by at least two Rating Agencies (stripped securities are only
permitted if they have been stripped by the agency itself):
(1)
Federal Home Loan Bank System senior debt obligations;
(2)
Participation Certificates and senior debt obligations of the Federal
Home Loan Mortgage Corporation;
(3)
Mortgage-backed securities and senior debt obligations of the
Federal National Mortgage Association; and
(4)
Consolidated system wide bonds and notes of the Farm Credit
System Corporation.
D.
Money market funds registered under the Federal Investment Company Act
of 1940, whose shares are registered under the Federal Securities Act of
1933, and having a rating of “AAAm” or equivalent by at least two Rating
Agencies.
E.
Certificates of deposit secured at all times by collateral described in
(A) and/or (B) above, issued by commercial banks, savings and loan
associations or mutual savings banks where the collateral is held by a third
party and the Trustee has a perfected first security interest in the collateral.
F.
Certificates of deposit, savings accounts, deposit accounts or money market
deposits which are fully insured by the FDIC.
G.
Unsecured Investment Agreements; any Investment Agreement with a term
greater than three (3) years must be with an issuer rated “AA” by at least
two Rating Agencies unless a lower rating is consented to by the
Institution.
In the event the counterparty is downgraded below either AA- or Aa3 by
Standard & Poor’s or Moody’s, respectively, or equivalent by a Rating
Agency:
i.
The agreement will be transferred to an acceptable institution that
meets the ratings requirement described above, or
ii.
Collateral consisting of securities outlined in (A) or (B) above shall
be posted that has a value equal to at least 104% of the principal
plus accrued interest, or collateral consisting of securities outlined
9
in (C) above shall be posted that has a value equal to at least 105%
of the principal plus accrued interest, or
iii.
The agreement must be converted into a Repurchase Agreement
(See clause (L) below), or
iv.
The agreement shall terminate at par plus accrued interest within
ten (10) business days should (i), (ii) or (iii) above not be
accomplished.
H.
Collateralized Investment Agreements with providers rated at least “A-”
and “A3” by Standard & Poor’s and Moody’s, respectively, or equivalent
by at least two Rating Agencies, provided that (i) the same collateral
requirements as outlined in (G)(ii) are followed and (ii) if the provider is
downgraded below “A-” and “A3”, or equivalent by at least two Rating
Agencies, the agreement shall terminate at par plus accrued interest.
I.
Commercial paper rated “Prime-1” by Moody’s and “A-1+” by Standard &
Poor’s, or equivalent by at least two Rating Agencies, and which matures
no more than 270 days from the date of purchase and subject to the
following limitations:
a.
Only United States issuers of corporate (issued to provide working
capital funding) commercial paper including United States issuers
with a foreign parent; and
b.
Limited-purpose trusts, structured investment vehicles, assetbacked commercial paper conduits, and any other type of specialty
finance company, whose purpose is generally limited to acquiring
and funding a defined pool of assets that are used to repay
obligations, shall not constitute Qualified Investments.
J.
Bonds or notes issued by any state or municipality which are rated by any
two Rating Agencies in one of the two highest long-term rating categories
assigned by such agencies (without qualification by symbols “+” or “-” or a
numerical notation).
K.
Federal funds or bankers’ acceptances, with a maximum term of one year
of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of “Prime-1” by Moody’s and “A-1” by Standard &
Poor’s, or equivalent by at least two Rating Agencies.
L.
Repurchase Agreements.
M.
Forward delivery agreements with providers rated at least “A-” and “A3”
by Standard & Poor’s and Moody’s, respectively, or equivalent by at least
two Rating Agencies, provided that (i) permitted deliverables are limited to
securities described in (A), (B) and (C) above and (ii) if the provider is
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downgraded below “A-” or “A3”, or equivalent by an RATING AGENCY,
the agreement shall terminate at par plus accrued interest.
“Rating Agency” means Standard & Poor’s, Moody’s, Fitch or any other similar
nationally-recognized securities rating agency acceptable to the Institution and maintaining a
credit rating with respect to the Bonds. Except as otherwise provided herein, if more than one
Rating Agency maintains a credit rating with respect to the Bonds, then any action, approval or
consent by or notice to a Rating Agency shall be effective only if such action, approval, consent
or notice is given by or to all such Rating Agencies.
“Rating Category” means one of the generic rating categories of a Rating
Agency, without regard to any refinement or gradation of such rating category by a numerical
modifier, plus or minus sign, or otherwise.
“Record Date” means the fifteenth day of each June and December.
“Redemption Fund” means the fund for the Bonds so designated, created and
established pursuant to Section 5.1 of this Indenture.
“Redemption Price” when used with respect to a Bond, means the principal
amount of the Bonds to be redeemed pursuant to this Indenture, plus the applicable premium, if
any, payable upon redemption, or the Make-Whole Redemption Price payable upon optional
redemption of the Bonds pursuant to this Indenture, as applicable.
“Reference Treasury Dealer” means each of four firms, as designated by the
Institution, and their respective successors; provided, however, that if any of them ceases to be a
primary U.S. Government securities dealer in the City of New York (a “Primary Treasury
Dealer”), the Institution will substitute therefore another Primary Treasury Dealer.
“Reference Treasury Dealer Quotations” means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by the
Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in writing to the
Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m. (New York City
time) on the third Business Day preceding such redemption date.
“Repurchase Agreement” means a written repurchase agreement entered into
with a Qualified Financial Institution, a bank acting as a securities dealer or a securities dealer
which is listed by the Federal Reserve The Bank of New York as a “Primary Dealer” and rated
“AA” or “Aa2” or better by at least Rating Agencies, under which securities are transferred from
a dealer bank or securities firm for cash with an agreement that the dealer bank or securities firm
will repay the cash plus a yield in exchange for the securities on a specified date and under which
(i) the Institution is the real party in interest and has the right to proceed against the obligor on
the underlying obligations which must be obligations of, or guaranteed by, the United States of
America; (ii) the term of which shall not exceed one hundred eighty (180) days, unless the
Institution shall consent to a longer period; (iii) the collateral must be delivered to the Institution,
the Trustee (if the Trustee is not supplying the collateral) or a third party acting as agent for the
Trustee (if the Trustee is supplying the collateral) prior to or simultaneous with investment of
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moneys therein; (iv) such collateral is held free and clear of any lien by the Trustee or an
independent third party acceptable by the Institution, acting solely as agent for the Trustee; and
(v) the collateral shall be valued weekly, marked to market at current market prices plus accrued
interest; provided that at all times the value of the collateral must at least equal the required
percentage of the amount invested in the Repurchase Agreement. If the value of such collateral
is less than the amount specified, the Qualified Financial Institution or Primary Dealer must
invest additional cash or securities such that the collateral value of the amount invested thereafter
at least equals as follows: (a) if collateralized by securities described in clause (A) or (B) of the
definition of Qualified Investments, at least 104%, or (b) if collateralized by securities described
in clause (C) of the definition of Qualified Investments, at least 105%.
“Revenues” means all amounts paid or payable to the Trustee for the account of
the Institution (excluding fees and expenses payable to the Trustee and the rights to
indemnification of the Trustee) under and pursuant to this Indenture and the Note, and as may be
further described in a Supplemental Indenture.
“Securities Depository” means the securities depository designated as such in
Section 2.7 of this Indenture and any successor thereto.
“Securities Exchange Act” means the Securities Exchange Act of 1934, as
amended.
“Series 2017 Bonds” means the Institution’s Taxable Bonds, Series 2017, dated
April __, 2017.
“Sinking Fund Account” means the account so designated, created and
established in the Debt Service Fund pursuant to Section 5.1 of this Indenture.
“Sinking Fund Installment” means the amount of money sufficient to redeem
Bonds at the principal amount thereof in the amounts, at the times and in the manner set forth in
this Indenture.
“Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of
McGraw Hill, Inc., a corporation organized and existing under the laws of the State of New
York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall
no longer perform the functions of a securities rating agency, “Standard & Poor’s” shall be
deemed to refer to any other nationally recognized securities rating agency designated by the
Institution, by notice to the Trustee.
“State” means the State of New Jersey.
“Supplemental Indenture” means any indenture of the Institution modifying,
altering, amending, supplementing or confirming this Indenture for any purpose, in accordance
with the terms thereof.
“Supplemental Master Indenture” means the Supplemental Master Trust
Indenture No. _ to the Master Indenture, dated as of April 1, 2017, by and among the Institution,
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the other Members of the Obligated Group, and the Master Trustee, and when amended or
supplemented, such Supplemental Master Indenture, as amended or supplemented.
“Treasury Rate” means, with respect to any redemption date, the rate per annum
equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue with
respect thereto, computed as of the second Business Day immediately preceding that redemption
date, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price with respect thereto for that
redemption date.
“Trustee” means The Bank of New York Mellon and its successor or successors
and any other entity which may at any time be substituted in its place pursuant to this Indenture.
SECTION 1.2. INDENTURE, ANY SUPPLEMENTAL INDENTURE
AND BONDS CONSTITUTE A CONTRACT. In consideration of the purchase and
acceptance of any and all of the Bonds secured and issued under this Indenture: (i) this
Indenture shall be deemed to be and shall constitute a contract among the Institution, the Trustee
and the Owners from time to time of such Bonds; (ii) the pledge made herein and the covenants
and agreements set forth to be performed by or on behalf of the Institution shall be for the equal
and ratable benefit, protection and security of the Owners from time to time of any and all of
such Bonds, all of which, regardless of the time or times of their issue or maturity, shall be of
equal rank without preference, priority or distinction of any of such Bonds over any other thereof
except as expressly provided in or permitted hereby or by the applicable Supplemental Indenture,
if any; (iii) the Institution does hereby pledge and assign to the Trustee, for the benefit of the
Owners of the Bonds, the trust estate, the Revenues and all moneys and securities from time to
time held by the Trustee and the Institution in any of the funds and accounts established under
the terms of this Indenture, and all income and receipts earned thereon, subject to the terms and
provisions of this Indenture; (iv) the pledge made hereby shall be valid and binding from the
time when the pledge is made and the Revenues and all income and receipts earned on funds
held by the Trustee and the Institution hereunder and any further pledge of property under the
applicable Supplemental Indenture, if any, shall immediately be subject to the lien of such pledge
without any physical delivery thereof or further act, and the lien of such pledge shall be valid and
binding as against all parties having claims of any kind in tort, contract or otherwise against the
Institution irrespective of whether such parties have notice thereof; and (v) the Bonds shall be
general obligations of the Institution secured by a pledge of Revenues and certain moneys and
funds as provided hereby and by the applicable Supplemental Indenture, if any.
All Bonds issued hereunder and at any time Outstanding shall in all respects be
equally and ratably secured hereby, without preference, priority, or distinction on account of the
date or dates or the actual time or times of the issuance or maturity of the Bonds, so that all
Bonds at any time issued and Outstanding hereunder shall have the same right, lien, and
preference hereunder, and shall all be equally and ratably secured hereby. The Bonds shall
constitute general obligations of the Institution. In addition, the Bonds are secured by the Note
issued by the Institution and the other Members of the Obligated Group to the Trustee.
This Indenture is a general obligation of the Institution and the obligations of the
Institution to make payments pursuant hereto and pursuant to the Bonds and to perform and
13
observe all agreements on its part contained herein shall be absolute and unconditional. Until
this Indenture is terminated or payment in full of all Bonds is made or is provided for in
accordance with this Indenture, the Institution (i) will not suspend or discontinue any payments
hereunder or neglect to perform any of its duties required hereunder; (ii) will perform and
observe all of its obligations set forth in this Indenture; and (iii) except as provided herein, will
not terminate this Indenture for any cause including, without limiting the generality of the
foregoing, any acts or circumstances that may constitute failure of consideration; commercial
frustration of purpose; or any change in the tax or other laws or administrative rulings of, or
administrative actions by or under authority of, the United States of America or of the State.
SECTION 1.3. SECURITY FOR BONDS. The Institution agrees that the
principal and Redemption Price of and the interest on the Bonds shall be payable in accordance
with this Indenture, and shall be secured by the Note.
ARTICLE II
AUTHORIZATION AND DETAILS OF BONDS
SECTION 2.1.
REPRESENTATIONS.
INSTITUTION COVENANTS AND
(a)
The Institution covenants that it will duly and punctually pay the principal
of and interest and any Redemption Price on the Bonds on the dates and in the places and manner
mentioned therein and herein. Notwithstanding any schedule of payments to be made on the
Bonds set forth therein or herein, the Institution agrees to make payments upon the Bonds and be
liable therefor at the times and in the amounts equal to the amounts to be paid as principal or
Redemption Price of or interest on the Bonds from time to time Outstanding under this Indenture
as the same shall become due whether at maturity, upon redemption, by declaration of
acceleration or otherwise. All amounts payable with respect to the Bonds or hereunder by the
Institution, except as otherwise expressly provided herein, shall be paid to the Trustee so long as
any Bonds remain Outstanding. The Institution agrees and represents that it has received fair
consideration in return for the obligations undertaken and to be undertaken by the Institution
resulting from each Bond issued or to be issued by the Institution hereunder.
(b)
The Institution represents that it is validly existing as a nonprofit
corporation under the laws of the State, it has full legal right, power and authority to enter into
this Indenture, and to carry out and consummate all transactions contemplated hereby, and it has,
by proper action, duly authorized the execution and delivery of this Indenture, the Purchase
Contract, the other Institution Documents, and the Bonds.
(c)
The Institution represents that the execution and delivery of this Indenture,
the Purchase Contract, the other Institution Documents, the Bonds, and the consummation of the
transactions herein and therein contemplated, including the application of the proceeds of the
Bonds as so contemplated, will not conflict with, or constitute a breach of, or default by it under
its charter, its by-laws, or any statute, indenture, mortgage, deed of trust, lease, note, indenture or
other agreement or instrument to which it is a party or by which it or its properties are bound,
and will not constitute a violation of any order, rule or regulation of any court or governmental
14
agency or body having jurisdiction over it or any of its activities or properties. Additionally, the
institution is not in breach, default or violation of any statute, indenture, mortgage, deed of trust,
note, indenture or other agreement or instrument which would allow the obligee or obligees
thereof to take any action which would preclude performance of this Indenture, the Purchase
Contract, the other Institution Documents, or the Bonds by the Institution.
(d)
Except as may be reflected in the Offering Memorandum of the Institution
distributed in connection with the Bonds, the Institution represents that there are no actions, suits
or proceedings of any type whatsoever pending or, to its knowledge, threatened against or
affecting it or its assets, properties or operations which, if determined adversely to it or its
interests, could have a material adverse effect upon its financial condition, assets, properties or
operations and it is not in default with respect to any order or decree of any court or any order,
regulation or decree of any federal, state, municipal or governmental agency, which default
would materially and adversely affect its financial condition, assets, properties or operations, or
the financing for the Identified Purposes.
(e)
The Institution represents that: (i) it is an organization described in
Section 501(c)(3) of the Code, or corresponding provisions of prior law and that it is not a
“private foundation” as defined in the Code; (ii) it has received a letter or letters from the
Internal Revenue Service to such effect; (iii) such letter or letters have not been modified, limited
or revoked; (iv) it is in compliance with all terms, conditions and limitations, if any, contained in
such letter; (v) the facts and circumstances which formed the basis of such letter as represented
to the Internal Revenue Service continue to substantially exist; and (vi) it is exempt from Federal
income taxes under Section 501(a) of the Code. The Institution covenants that: (i) it shall not
perform any acts nor enter into any agreements which shall cause any revocation or adverse
modification of its status as an organization exempt from Federal income taxes pursuant to
Section 501(a) of the Code; and (ii) it shall not carry on or permit to be carried on any trade or
business the conduct of which is not substantially related to the exercise or performance by the
Institution of the purposes or functions constituting the basis for its exemption under Section 501
of the Code if such use would result in the loss of the Institution’s exempt status under
Section 501 of the Code. The Institution represents and covenants that proceeds of the Bonds
will be used in furtherance of the Institution’s “exempt purpose” as defined in
Section 501(c)(3) of the Code. The Institution represents that it has not impaired its status as an
exempt organization and will not, while any of the Bonds remain Outstanding, impair its status
as an exempt organization.
(f)
The Institution represents that it is an organization organized and operated:
(i) exclusively for educational or charitable purposes; (ii) not for pecuniary profit; and (iii) no
part of the net earnings of which inures to the benefit of any person, private stockholder or
individual, all within the meaning, respectively, of the Securities Act of 1933, as amended, and
of the Securities Exchange Act of 1934, as amended.
The Institution represents that neither any information, exhibit or report
(g)
furnished to the underwriters by the Institution in connection with the negotiation of this
Indenture, the other Institution Documents, or the Purchase Contract, nor any of the foregoing
representations contains any untrue statement of a material fact, or when taken as a whole with
the Preliminary Offering Memorandum or the Offering Memorandum, as applicable, omits to
15
state a material fact necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(h)
The Institution represents that it is in compliance in all material respects
with, and covenants that it will comply in all material respects with, all federal, state and local
laws, regulations and ordinances relating to its business, including, but not limited to, the
Employee Retirement Income Security Act of 1974, as amended, and all applicable laws and
regulations relating to nondiscrimination in employment and employment opportunities, except
in each case for violations the effect of which, individually and collectively, would not have a
material adverse effect upon the financial condition, assets, properties or operations of the
Institution.
(i)
The Institution agrees that it will pay all expenses, including reasonable
attorneys’ fees and expenses, incurred by the Trustee in connection with (i) any amendment,
modification or waiver of the provisions of the Institution Documents, (ii) any merger,
consolidation or transfer of assets by the Institution, or any person related to it within the
meaning of section 147(a)(2) of the Code, or (iii) in connection with the enforcement by the
Trustee of the rights of the Trustee under any of the Institution Documents.
(j)
The Institution shall notify the Trustee promptly of any condition, event,
action or failure to take any action which constitutes or would constitute, with notice or the
passage of time, an Event of Default.
(k)
The Institution, subject to the satisfaction of the applicable provisions of
the Master Indenture, reserves the right to issue additional Indebtedness and, subject to the
satisfaction of the applicable provisions of the Master Indenture, to pledge its Gross Receipts to
secure additional Indebtedness on a parity with or subordinate to the Note or any other
Indebtedness of the Institution.
SECTION 2.2. BONDS AUTHORIZED. The Institution has heretofore
authorized the issuance of $_______________ aggregate principal amount of “Hackensack
Meridian Health Taxable Bonds, Series 2017” so as to provide moneys to finance the Identified
Purposes and to pay Costs of Issuance of the Bonds and for the general corporate purposes as
designated by the Institution to be expended solely in furtherance of the “exempt purpose” (as
defined in Section 501(c)(3) of the Code) of the Institution and the other Members of the
Obligated Group. No additional bonds may be issued pursuant to this Indenture.
Upon the execution and delivery hereof, the Institution shall execute the Bonds
and deliver them to the Trustee for authentication. At the direction of the Institution, the Trustee
shall authenticate the Bonds and deliver them to the purchasers thereof.
SECTION 2.3. DATE, MATURITY AND INTEREST RATE OF BONDS.
The Bonds shall be dated their date of issuance and delivery and shall mature on the Maturity
Date. The Bonds shall be issued in fully registered form as herein provided, and shall be payable
as to interest on each Interest Payment Date in each year during the term of the Bonds. Interest
payments on the Bonds shall be on each January 1 and July 1, commencing January 1, 2018.
Interest on the Bonds shall be calculated based on a 360-day year of twelve thirty-day months.
16
The Bonds shall be dated and bear interest from their date of delivery, except with respect to
Bonds authenticated and delivered on and after the first Interest Payment Date, which Bonds
shall bear interest (i) as of the Interest Payment Date next preceding the date of their
authentication or as of the date of their authentication if authenticated on an Interest Payment
Date, or (ii) if on the date of their authentication payment of interest thereon is in default, as of
the date to which interest has been paid. Interest on all Bonds initially delivered shall accrue
from their date of delivery. Thereafter, interest on all Bonds shall accrue from the dated date or
from the most recent Interest Payment Date to which interest has been paid.
The Bonds shall bear interest from their date at a rate of interest equal to __% per
annum as aforesaid and shall mature on their Maturity Date, being July 1, 20__.
The Bonds are not registered under the Securities Act of 1933, as amended, in
reliance upon the exemption from registration set forth in Section 3(a)(4) of the Securities Act of
1933, as amended.
SECTION 2.4. DENOMINATION, NUMBERS AND LETTERS. The
Bonds shall be issued in fully registered form in any Authorized Denomination. Unless the
Institution shall otherwise direct, the Bonds shall be numbered separately from one upward
preceded by the letter “R” prefixed to the number.
SECTION 2.5. OPTIONAL REDEMPTION OF BONDS. The Bonds are
subject to optional redemption by the Institution prior to maturity, in whole or in part, at any
time, (i) prior to ________, 20__, at a Redemption Price equal to the Make-Whole Redemption
Price, and (ii) on or after _______ , 20__, at a Redemption Price equal to the principal amount of
the Bonds to be redeemed, in either case plus accrued interest thereon to the date set for
redemption.
So long as all of the Bonds Outstanding are held in book-entry form, if less than
all of the Bonds are to be so redeemed, the portions thereof to be so redeemed shall be selected
by the DTC in such manner of selection as determined by DTC. If the Bonds Outstanding are
not held in book-entry form, whenever provision is made in this Indenture for the redemption of
less than all of the Bonds, the Trustee shall select the portions of the Bonds to be redeemed from
all Bonds subject to redemption or such given portion thereof not previously called for
redemption, on a pro-rata basis, based on the portion of the original principal amount of any such
Bonds to be redeemed.
If the Bonds are registered in book-entry form and for so long as DTC or a
successor securities depository is the sole registered owner of the Bonds, if less than all of the
Bonds are called for prior redemption, the portions thereof to be redeemed shall be selected on a
pro rata pass-through distribution of principal basis in accordance with DTC procedures,
provided that, so long as the Bonds are held in book-entry form, the selection for redemption of
such portions of the Bonds shall be made in accordance with the operational arrangements of
DTC then in effect.
It is the Institution’s intent that all partial redemption allocations made by DTC be
made on a pro rata pass-through distribution of principal basis as described above. However,
17
neither the Institution nor the Trustee can provide any assurance that DTC, DTC’s direct and
indirect participants or any other intermediary will allocate the partial redemption of Bonds on
such basis. If DTC operational arrangements do not allow for the redemption of the Bonds on a
pro rata pass-through distribution of principal basis as discussed above, then the Bonds will be
selected for redemption, in accordance with DTC procedures, by lot.
Redemption of the Bonds, in addition to the provisions set forth hereinabove,
shall be effected in accordance with Article IV of this Indenture.
The Institution may provide prior written direction to the Trustee, together with
available funds, to purchase, or cause to be purchased, Bonds for which optional redemption has
been established at prices which have been identified by the Institution and delivery of binding
purchase contracts therefor (not including brokerage and other charges) not exceeding the
Redemption Price for such Bonds when such Bonds are redeemable by application of the
applicable redemption provision, plus accrued interest to the date of purchase. Upon purchase of
such Bonds under the provisions of this subsection, such Bonds shall be canceled and no longer
considered to be Outstanding.
SECTION 2.6.
[RESERVED.]
SECTION 2.7. DEPOSITORY TRUST COMPANY REGISTRATION OF
BONDS. (a) The Bonds shall be issued initially in book-entry form. DTC shall serve, subject to
this Section, as the securities depository for the Bonds, and the ownership of one fully registered
Bond for each maturity of the Bonds shall be registered in the name of Cede & Co. (“Cede”), as
nominee of DTC.
(b)
With respect to Bonds so registered in the name of Cede, the Institution
and the Trustee shall have no responsibility or obligation to any DTC participant or to any
beneficial owner of such Bonds. Without limiting the immediately preceding sentence, the
Institution and the Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of DTC, Cede or any DTC participant with respect to any beneficial
ownership interest in the Bonds, (ii) the delivery to any DTC participant, beneficial owner or
other person, other than DTC, of any notice with respect to the Bonds, including any notice of
redemption, or (iii) the payment to any DTC participant, beneficial owner or other person, other
than DTC, of any amount with respect to the principal or Redemption Price of, or interest on, the
Bonds. The Institution and the Trustee may treat DTC as, and deem DTC to be, the absolute
owner of each Bond for all purposes whatsoever, including (but not limited to) (i) payment of the
principal or Redemption Price of, and interest on, each such Bond, (ii) giving notices of
redemption and other matters with respect to such Bonds, and (iii) registering transfers with
respect to such Bonds. The Trustee shall pay the principal or Redemption Price of, and interest
on, all Bonds only to or upon the order of DTC, and all such payments shall be valid and
effective to fully satisfy and discharge the Institution’s obligations with respect to such principal
or Redemption Price, and interest, to the extent of the sum or sums so paid. No person other than
DTC shall receive a Bond evidencing the obligation of the Institution to make payments of
principal or Redemption Price of, and interest on, the Bonds pursuant to this Indenture. Upon
delivery by DTC to the Trustee of written notice to the effect that DTC has determined to
18
substitute a new nominee in place of Cede, and subject to the transfer provisions hereof, the word
“Cede” in this Indenture shall refer to such new nominee of DTC.
(c) (1) DTC may determine to discontinue providing its services with respect to
the Bonds at any time by giving written notice to the Institution and the Trustee and discharging
its responsibilities with respect thereto under applicable law.
(2)
The Institution, in its sole discretion and without the consent of any other
person, may terminate the services of DTC with respect to the Bonds if the Institution determines
that the continuation of the system of book-entry-only transfers through DTC (or a successor
securities depository) is not in the best interests of the beneficial owners of the Bonds or is
burdensome to the Institution.
(3)
Upon the termination of the services of DTC with respect to the Bonds
pursuant to this subsection, after which no substitute securities depository willing to undertake
the functions of DTC hereunder can be found which, in the opinion of the Institution, is willing
and able to undertake such functions upon reasonable and customary terms, the Bonds shall no
longer be restricted to being registered in the registration books kept by the Trustee in the name
of Cede as nominee of DTC. In such event, the Institution shall issue and the Trustee shall
transfer and exchange Bond certificates as requested by DTC or DTC participants of like
principal amount, series, maturity and interest rate, in Authorized Denominations, without
references to DTC or other book-entry provisions, to the identifiable beneficial owners in
replacement of such beneficial owners’ beneficial interests in the Bonds.
(4)
Anything in this Indenture to the contrary notwithstanding, payment of the
Redemption Price of a Bond, or portion thereof, called for redemption prior to maturity may be
paid to DTC by check mailed to DTC or by wire transfer. Anything in this Indenture to the
contrary notwithstanding, such Redemption Price may be paid without presentation and
surrender to the Trustee of the Bond, or portion thereof, called for redemption; provided,
however, that payment of (a) the principal payable at maturity of a Bond and (b) the Redemption
Price of a Bond as to which the entire principal amount thereof has been called for redemption
shall be payable only upon presentation and surrender of such Bond to the Trustee; and provided,
further, that no such Redemption Price shall be so payable without presentation and surrender
unless such Bond shall contain or have endorsed thereon a legend to the following effect:
“AS PROVIDED IN THE INDENTURE REFERRED TO HEREIN,
UNTIL THE TERMINATION OF THE SYSTEM OF BOOK-ENTRY-ONLY
TRANSFERS THROUGH THE DEPOSITORY TRUST COMPANY
(TOGETHER WITH ANY SUCCESSOR SECURITIES DEPOSITORY
APPOINTED PURSUANT TO THE INDENTURE, “DTC”), AND
NOTWITHSTANDING ANY OTHER PROVISION OF THE INDENTURE TO
THE CONTRARY, A PORTION OF THE PRINCIPAL AMOUNT OF THIS
BOND MAY BE PAID OR REDEEMED WITHOUT SURRENDER HEREOF
TO THE TRUSTEE. DTC OR A NOMINEE, TRANSFEREE OR ASSIGNEE
OF DTC AS OWNER OF THIS BOND MAY NOT RELY UPON THE
PRINCIPAL AMOUNT INDICATED HEREON AS THE PRINCIPAL
AMOUNT HEREOF OUTSTANDING AND UNPAID. THE PRINCIPAL
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AMOUNT HEREOF OUTSTANDING AND UNPAID SHALL FOR ALL
PURPOSES BE THE AMOUNT DETERMINED IN THE MANNER
PROVIDED IN THE INDENTURE.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED
OFFICER OF DTC (A) TO THE TRUSTEE FOR REGISTRATION OF
TRANSFER OR EXCHANGE OR (B) TO THE TRUSTEE FOR PAYMENT OF
PRINCIPAL, AND ANY BOND ISSUED IN REPLACEMENT THEREOF OR
SUBSTITUTION THEREFOR IS REGISTERED IN THE NAME OF DTC OR
ITS NOMINEE CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS
MADE TO DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, DTC OR ITS NOMINEE, CEDE &
CO., HAS AN INTEREST HEREIN.”
(5)
Anything in this Indenture to the contrary notwithstanding, upon any such
payment to DTC without presentation and surrender, for all purposes of (i) the Bond as to which
such payment has been made and (ii) this Indenture, the unpaid principal amount of such Bond
Outstanding shall automatically be reduced by the principal amount so paid. In such event, the
Trustee shall note the particular Bond as to which such payment has been made, and the
principal amount of such Bond so paid, on the registration books of the Institution maintained by
it, but failure to make any such notation shall not affect the automatic reduction of the principal
amount of such Bond Outstanding as provided in this subsection.
(6)
For all purposes of this Indenture authorizing or permitting the purchase of
Bonds by, or for the account of, the Institution for cancellation, and anything in this Indenture to
the contrary notwithstanding, a portion of a Bond may be deemed to have been purchased and
cancelled without surrender thereof upon delivery to the Trustee of a certificate executed by the
Institution and a participant of DTC therefor, agreed to and accepted by DTC in writing, to the
effect that a beneficial ownership interest in such Bond, in the principal amount stated therein,
has been purchased by, or for the account of, the Institution through the participant of DTC
executing such certificate; provided, however, that any purchase for cancellation of the entire
principal amount of a Bond shall be effective for purposes of this Indenture only upon surrender
of such Bond to the Trustee; and provided, further, that no portion of a Bond may be deemed to
have been so purchased and cancelled without surrender thereof unless such Bond shall contain
or have endorsed thereon the legend referred to in subsection (c)(4) above. Anything in this
Indenture to the contrary notwithstanding, upon delivery of any such certificate to the Trustee,
for all purposes of (i) the Bond to which such certificate relates and (ii) this Indenture, the unpaid
principal amount of such Bond Outstanding shall automatically be reduced by the principal
amount so purchased. In such event, the Trustee shall note such reduction on the registration
books of the Institution maintained by it, but failure to make any such notation shall not affect
the automatic reduction of the principal amount of such Bond Outstanding as provided in this
subsection.
(7)
Anything in this Indenture to the contrary notwithstanding, DTC may
make a notation on a Bond (i) redeemed in part or (ii) purchased by, or for the account of, the
20
Institution in part for cancellation, to reflect, for informational purposes only, the date of such
redemption or purchase and the principal amount thereof redeemed or cancelled, but failure to
make any such notation shall not affect the automatic reduction of the principal amount of such
Bond Outstanding as provided in subsection (c)(4), (c)(5) or (c)(6) of this Section, as the case
may be.
(8)
The procedures described in this Section may be supplemented or
modified pursuant to a letter of representation or other agreement in writing among DTC, the
Institution and the Trustee to effect the purposes of a book-entry system of bond certificates.
SECTION 2.8. FORM
OF
BONDS
AND
TRUSTEE’S
AUTHENTICATION CERTIFICATE. Subject to the provisions of this Indenture, the form
of the Bonds and the Trustee’s certificate of authentication shall be of substantially the form of
bond in Attachment A with such changes as are required hereby.
ARTICLE III
PARTICULARS FOR ALL BONDS
SECTION 3.1. MEDIUM OF PAYMENT OF BONDS. The Bonds shall be
payable as to principal and Redemption Price, if any, and interest thereon in lawful money of the
United States of America. Payment of the interest on the Bonds shall be made to the person
appearing on the registration books of the Institution provided for herein as the Bondowner
thereof on the Record Date, by wire or by check or draft mailed by the Trustee to the Bondowner
at the address of such Bondowner as shown on such registration books of the Institution, kept by
the Trustee unless an alternate method of payment is agreed to by the Trustee and the
Bondowner, subject to the approval of the Institution, which approval shall not be unreasonably
withheld, conditioned or delayed. The principal or Redemption Price of Bonds shall be paid to
the Bondowner upon presentation and surrender of the Bonds at the Corporate Trust Office of
the Trustee or in the manner provided in any Supplemental Indenture.
SECTION 3.2. LEGENDS. The Bonds may contain, or have endorsed
thereon, such provisions, specifications and descriptive words not inconsistent with the
provisions authorizing the issuance thereof, as may be necessary or desirable and as may be
determined by the Institution prior to their authentication and delivery.
SECTION 3.3. EXECUTION AND AUTHENTICATION. The Bonds shall
be executed in the name and on behalf of the Institution by the manual or facsimile signature of
an Authorized Officer of the Institution. In case any officer whose signature appears on such
Bonds shall cease to be such officer before delivery of such Bonds, such signature shall,
nevertheless, be valid and sufficient for all purposes as if he had remained in office until such
delivery. The Bonds when so executed shall be delivered to the Trustee for manual
authentication by it, and the Trustee shall, upon written order of the Institution, signed by an
Authorized Officer thereof, authenticate and deliver such Bonds as herein provided and not
otherwise.
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No Bond shall be valid or obligatory for any purpose or shall be entitled to any
right or benefit hereunder unless there shall be endorsed on such Bond a certificate of
authentication in the form set forth in Attachment A, duly executed by the Trustee, and such
certificate of the Trustee, upon any Bond executed on behalf of the Institution, shall be
conclusive evidence and the only evidence required that the Bonds so authenticated have been
duly issued hereunder and that the owner thereof is entitled to the benefit of this Indenture. The
certificate of the Trustee may be executed by any Authorized Officer of the Trustee.
SECTION 3.4. REGISTRATION AND TRANSFER OF BONDS.
Bonds shall be registered as to both principal and interest.
The
The Institution shall cause to be prepared books for registration of the Bonds,
which registration books shall be kept by the Trustee which is hereby designated as the registrar
for the purpose of registering the Bonds. The Trustee shall also act as transfer agent for the
Bonds.
So long as any of the Bonds shall remain Outstanding, the Trustee shall maintain
and keep, at the Corporate Trust Office, books for the registration and transfer of such Bonds;
and, upon presentation thereof for such purpose at such office, the Trustee shall register or cause
to be registered, and permit to be transferred, under such reasonable regulations as the Trustee
may prescribe, any Bond entitled to registration or transfer. So long as any of the Bonds remain
Outstanding, the Trustee shall make all necessary provisions to permit the exchange of such
Bonds at the Corporate Trust Office.
Each Bond shall be transferable only upon the books of the Institution which shall
be kept for that purpose at the Corporate Trust Office of the Trustee, at the written request of the
Bondowner thereof or such Bondowner’s attorney duly authorized in writing, upon surrender
thereof at such office, together with a written instrument of transfer satisfactory to the Trustee
and such other documents as shall be reasonably required by the Trustee duly executed by the
Bondowner or his duly authorized attorney. Upon the transfer of any such Bond or Bonds, the
Trustee shall issue in the name of the transferee, in Authorized Denominations, a new Bond or
Bonds, of the same aggregate principal amount, maturity and interest rate as the surrendered
Bond or Bonds.
The Institution and the Trustee may deem and treat the Bondowner of any Bond
as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose
of receiving payment of, or on account of, the principal of and premium, if any, and interest on
such Bond and for all other purposes, and all such payments so made to any such Bondowner or
upon such Bondowner’s order shall be valid and effectual to satisfy and discharge the liability
upon such Bond to the extent of the sum or sums so paid, and neither the Institution nor the
Trustee shall be affected by any notice to the contrary.
In all cases in which the privilege of exchanging or transferring is exercised, the
Trustee shall authenticate and deliver Bonds in accordance with the provisions of this Indenture.
All Bonds surrendered in any such exchanges or transfers shall forthwith be cancelled by the
Trustee. For every such exchange or transfer of Bonds, whether temporary or definitive, the
Institution or the Trustee may make a charge sufficient to reimburse it for any tax, fee or other
22
governmental charge required to be paid with respect to such exchange or transfer, which sum or
sums shall be paid by the person requesting such exchange or transfer as a condition precedent to
the exercise of the privilege of making such exchange or transfer. The Trustee shall not be
obliged to make any such exchange or transfer of Bonds, during the period from each Record
Date to the following Interest Payment Date or, in the case of a proposed redemption of Bonds if
such Bonds are eligible to be selected or have been selected for redemption, during the forty-five
(45) days next preceding the date fixed for such redemption.
SECTION 3.5. BONDS MUTILATED, DESTROYED, LOST OR
STOLEN. In case any Bond shall become mutilated or be destroyed, lost or stolen, upon
request, the Trustee shall authenticate and deliver a new Bond in exchange for the mutilated
Bond or in lieu of and substitution for the Bond so destroyed, lost or stolen. In every case of
exchange or substitution, the applicant shall furnish to the Institution and to the Trustee such
security or indemnity as may be required by them to save each of them harmless from all risks,
however remote, and the applicant shall also furnish to the Institution and to the Trustee evidence
to their satisfaction of the mutilation, destruction, loss or theft of the applicant’s Bond and of the
ownership thereof. The Trustee may authenticate any Bond issued upon such exchange or
substitution and deliver the same upon the written request or authorization of an Authorized
Officer of the Institution. Upon the issuance of any Bond upon such exchange or substitution,
the Institution and the Trustee may require the payment of a sum sufficient to cover any tax, fee
or other governmental charge that may be imposed in relation thereto and any other expenses,
including counsel fees and expenses, of the Institution or the Trustee. In case any Bond which
has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the
Institution may, instead of issuing a Bond in exchange or substitution therefor, pay or authorize
the payment of the same (without surrender thereof except in the case of a mutilated Bond) if the
applicant for such payment shall furnish to the Institution and the Trustee such security or
indemnity as they may require to save them harmless, and evidence to the satisfaction of the
Institution and the Trustee of the mutilation, destruction, loss or theft of such Bond and of the
ownership thereof.
Every Bond issued pursuant to the provisions of this Section in exchange or
substitution for any Bond which is destroyed, lost or stolen shall constitute a contractual
obligation of the Institution, whether or not the destroyed, lost or stolen Bond shall be found at
any time, or be enforceable by anyone, and shall be entitled to all the benefits hereof equally and
proportionately with any and all other Bonds duly issued under this Indenture. All Bonds shall
be held and owned upon the express condition that the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, destroyed, lost or stolen Bonds, and shall
preclude any and all rights or remedies, notwithstanding any law or statute (to the extent
permitted under such law or statute) existing or hereafter enacted to the contrary with respect to
the replacement or payment of negotiable instruments or other securities without their surrender.
23
ARTICLE IV
REDEMPTION OF BONDS
SECTION 4.1. AUTHORIZATION OF REDEMPTION. Bonds subject to
redemption prior to maturity shall be redeemable, in accordance with this Article, at such times,
at such Redemption Prices and upon such terms as specified in Article II.
SECTION 4.2. NOTICE OF REDEMPTION. When Bonds (or portions
thereof) are to be redeemed, the Institution shall give or cause to be given notice of the
redemption of the Bonds to the Trustee no later than forty-five (45) days prior to the redemption
date. Thereafter, the Trustee shall give or cause to be given notice of the redemption of the
Bonds (or portions thereof) in the name of the Institution which notice shall specify: (i) the
Bonds to be redeemed in whole or in part; (ii) the redemption date and the Redemption Price;
(iii) the numbers and other distinguishing marks, if any, of the Bonds to be redeemed (except in
the event that all of the Outstanding Bonds are to be redeemed); and (iv) that such Bonds will be
redeemed at the Corporate Trust Office of the Trustee. Such notice shall further state that on
such date there shall become due and payable upon each Bond (or a portion thereof) to be
redeemed the Redemption Price thereof, together with interest accrued to the redemption date,
and that, from and after such date, interest thereon shall cease to accrue. Such notice shall be
given, not more than forty-five (45) nor less than thirty (30) days prior to the redemption date, by
the Trustee by mail, postage prepaid, or by Electronic Means to the Bondowners of any Bonds
which are to be redeemed, at their addresses appearing on the registration books maintained by
the Trustee. Any notice of optional redemption shall state that it is conditional and that the
redemption of such Bonds is subject to there being on deposit with the Trustee on the redemption
date funds sufficient to pay the Redemption Price of such Bonds. Notice having been given in
accordance with the foregoing, failure to receive any such notice by any of such Bondowners or
any defect therein, shall not affect the redemption or the validity of the proceedings for the
redemption of the Bonds. Upon mailing such notice to Bondowners the Trustee shall submit a
copy of the notice of such redemption to the Municipal Securities Rulemaking Board via its
Electronic Municipal Markets Access (EMMA) System and to any securities depository in the
event that the Bonds are registered in the name of a securities depository or its nominee. The
Trustee shall also indicate on such notices, the contact person or persons and telephone number
of the person or persons handling the redemption.
SECTION 4.3. PAYMENT OF REDEEMED BONDS. Notice having been
given in the manner provided in Section 4.2 hereof, and the conditions for such redemption
having been met, the Bonds (or portions thereof) so called for redemption shall become due and
payable on the redemption date so designated at the Redemption Price, plus accrued interest to
the redemption date, and upon presentation and surrender thereof at the office specified in such
notice, such Bonds (or portions thereof) shall be paid at the Redemption Price, plus accrued
interest to the redemption date; provided, however, that Bonds containing or having endorsed
thereon a legend in accordance with Section 2.7(c) of this Indenture need not be presented or
surrendered in the manner described in this Section. If, on the redemption date, moneys for the
redemption of all Bonds (or portions thereof) to be redeemed, together with interest to the
redemption date, shall be held by the Trustee so as to be available therefor on such date, and after
notice of redemption shall have been given as aforesaid, then, from and after the redemption
24
date, the Bonds (or portions thereof) so called for redemption shall cease to bear interest and
such Bonds (or portions thereof) shall no longer be considered as Outstanding hereunder. If such
moneys shall not be so available on the redemption date, such Bonds (or portions thereof) shall
continue to bear interest until paid at the same rate as they would have borne had they not been
called for redemption, and in the case of optional redemption, the Bonds shall continue to be due
on their original maturity date as if the Bonds had not been called for redemption.
ARTICLE V
BOND PROCEEDS, FUNDS, ACCOUNTS, REVENUES AND
APPLICATION AND DISBURSEMENT THEREOF
SECTION 5.1. ESTABLISHMENT OF FUNDS AND ACCOUNTS. The
following funds and separate accounts within funds are hereby established, held and maintained
by the Trustee pursuant to this Indenture:
Proceeds Fund
Proceeds Account
Cost of Issuance Account
Debt Service Fund
Interest Account
Principal Account
Redemption Fund
Each Supplemental Indenture may contain provisions with respect to Funds and
Accounts, and with respect to the Revenues and the application thereof, which are in addition to
or in lieu of the provisions of this Article.
For accounting purposes only, the Funds and Accounts above may be further
divided into subaccounts to facilitate, among other items, the disposition of Revenues.
SECTION 5.2. APPLICATION
OF
BOND
PROCEEDS
AND
ALLOCATION THEREOF. (a) All moneys received by the Institution from the sale of the
Bonds shall be simultaneously disbursed in such amounts and in such manner as directed in
writing by an Authorized Officer of the Institution as set forth in the General Certificate of the
Institution delivered on the date of issuance of the Bonds.
The proceeds of the sale of the Bonds shall be and constitute trust funds for the
purposes hereinabove provided and there is hereby created a lien upon such moneys, until so
applied, in favor of the Trustee for the benefit of the Owners of the Bonds. The Institution may
transfer funds between the Cost of Issuance Account and the Proceeds Account.
(b)
The Trustee may for administrative purposes establish a fund hereunder to
receive funds to be simultaneously transferred in accordance with this Section 5.2.
(c)
Upon the Trustee’s receipt of a certificate from the Institution in
accordance with Section 5.2(e), the Trustee shall pay from the Cost of Issuance Account to the
firms, corporations or persons entitled thereto the Cost of Issuance relating to the issuance of
25
such Bonds solely from moneys deposited in the Cost of Issuance Account. Any moneys
remaining on hand in the Cost of Issuance Account upon payment of all Costs of Issuance shall
be (i) paid to the Institution (or applied at the written direction of the Institution), or
(ii) otherwise transferred to the Interest Account and/or the Principal Account as directed in
writing by the Institution.
(d)
Except as otherwise provided in this Article V or in any Supplemental
Indenture, any moneys deposited in the Proceeds Account within the Proceeds Fund shall be
used by the Institution only to pay the costs of or relating to the Identified Purposes to which this
Indenture relates, including reimbursement to the Institution for such costs paid by the Institution
in connection with the Identified Purposes; provided, however, that to the extent an Event of
Default described in clause (a) or (b) of Section 8.1 hereof shall have occurred and be continuing
and no other moneys are available under this Indenture to cure such Event of Default, moneys on
deposit in the Proceeds Fund shall be applied in accordance with Section 8.4 hereof. Upon the
Trustee’s receipt of a certificate from the Institution in accordance with Section 5.2(e), the
Trustee shall pay from the Proceeds Account to the firms, corporations or persons entitled
thereto the amounts set forth in said certificate.
(e)
Payments pursuant to paragraph (c) of this Section shall be made in
accordance with a certificate submitted to the Trustee by the Institution signed by an Authorized
Officer of the Institution stating the names of the payees, the purpose of each payment in terms
sufficient for identification and the respective amounts of each such payment. Payments
pursuant to paragraph (d) of this Section shall be made in accordance with a certificate submitted
to the Trustee by the Institution signed by an Authorized Officer of the Institution stating the
purpose for which such moneys were used and the amount thereof. The Trustee shall keep the
certificates provided in this paragraph (e) until the Bonds are paid in full but the Trustee shall
have no duty to review or approve any such certificate.
SECTION 5.3. APPLICATION OF MONEYS IN CERTAIN FUNDS FOR
RETIREMENT OF BONDS. Notwithstanding any other provisions of this Indenture and any
Supplemental Indenture, if at any time the amounts held in the Debt Service Fund and the
Redemption Fund are sufficient to pay the principal or Redemption Price of all Outstanding
Bonds and the interest accruing on such Bonds to the next date when all such Bonds are
redeemable, the Institution may request the Trustee to redeem all such Outstanding Bonds. The
Trustee shall, upon receipt of such request in writing by the Institution, proceed to redeem all
such Outstanding Bonds in the manner provided for redemption of such Bonds by this Indenture
and any Supplemental Indenture, and in such event all provisions of Section 12.1 hereof shall be
operative.
SECTION 5.4. DEPOSIT OF REVENUES AND ALLOCATION
THEREOF. The Institution shall pay to the Trustee the amounts required at all times for the
payment of the principal of, and premium if any, and interest on the Bonds when due, whether at
maturity, upon redemption, by acceleration or otherwise. The Revenues received from the
Institution or from any other Members of the Obligated Group and any other moneys required by
any of the provisions of this Indenture to be paid or transferred to the Trustee shall be promptly
paid or transferred to the Trustee.
26
The Institution shall repay the principal of the Bonds in annual installments on the
twentieth (20th) day of each June of each Bond Year in an amount equal to all of the principal, as
the case may be, of the Bonds becoming due on the July 1 immediately succeeding the expiration
of such Bond Year (provided, however, in all events, the payment made on June 20 of each Bond
Year shall provide for sufficient funds necessary to make payment in full of the principal
becoming due on the July 1 immediately succeeding the expiration of such Bond Year) after
crediting to such amount becoming due any amount in the Principal Account, prior to such July 1
available for the payment of such principal.
The Institution shall pay the interest on the Bonds in semiannual installments on
the twentieth (20th) day of each December and June of each Bond Year (or if such date is not a
Business Day, the next succeeding Business Day) in an amount equal to all of the interest
coming due on the Bonds on the next succeeding Interest Payment Date after crediting to such
amount becoming due any amount in the Interest Account available for the payment of such
interest (provided, however, in all events, the payment due immediately prior to each Interest
Payment Date shall provide for sufficient funds necessary to make payment in full of the interest
becoming due on the Bonds on such next succeeding Interest Payment Date).
The Institution agrees to provide, at all times required under this Indenture, such
additional amounts as are required to fund or make up any deficiency in the Debt Service Fund
on any date on which principal of or interest on the Bonds is due. In the event of any such
deficiency in the Debt Service Fund, the Trustee shall notify the Institution of such deficiency
and the Institution shall pay the amount of any such deficiency to the Trustee by no later than
11:00 a.m. on the date on which principal of, or interest on, the Bonds is due.
Notwithstanding any other provisions of this Indenture, moneys received by the
Trustee as an optional prepayment shall be deposited in the Redemption Fund if the Bonds are
then subject to redemption, or otherwise in the Debt Service Fund for payment of the next due
principal of or interest on the Bonds.
Subject to the prior paragraph of this Section, moneys paid or transferred to the
Trustee shall on or before the next Business Day after receipt thereof be applied as follows and
in the following order of priority:
FIRST: To the Interest Account, the amount equal to all of the interest
becoming due on the Outstanding Bonds on the next Interest Payment Date of
such Bonds; and
SECOND: To the Principal Account, the amount equal to all of the
principal amount becoming due on the Bonds on the next succeeding principal
payment date, after taking into account any amounts on deposit therein available
for the payment thereof.
After making the payments required by paragraphs FIRST, SECOND and THIRD
above, any balance remaining shall be paid, as the Institution may direct in writing, to the Debt
Service Fund and credited against the next due payment of debt service from the Institution
(provided the amount in the Debt Service Fund may not exceed the amount of debt service due
27
on the Bonds during the next twelve months) or to the Redemption Fund and applied by the
Trustee to the purchase or redemption of Bonds.
In lieu of redeeming Bonds through Sinking Fund Installments as provided in
clause THIRD of the second paragraph of this Section 5.4 and Section 2.6 hereof, the Institution
may elect to do either of the following:
(A)
The Institution may direct the Trustee in writing or by Electronic Means to
apply moneys from time to time on deposit in the Sinking Fund Account to the purchase
of an equal principal amount of Bonds (of the maturity and in amounts then subject to
redemption through Sinking Fund Installments) at prices not higher than the principal
amount to be redeemed plus accrued interest, provided that firm commitments to sell
Bonds are received at least five (5) Business Days before the notice of redemption would
otherwise be required to be given; provided further, that in the event of purchases at
purchase prices less than the principal amount to be redeemed plus accrued interest, the
difference between the amount in the Sinking Fund Account representing the principal
amount of the Bonds purchased and the purchase price (exclusive of accrued
interest) shall be deposited in the Debt Service Fund for application pursuant to the
paragraphs SECOND or THIRD above as directed by the Institution in writing; provided
further, that prior to any such purchase, the Institution shall give written directions to the
Trustee to purchase such Bonds; or
(B)
The Institution may deliver to the Trustee for cancellation Bonds of the
maturity then subject to redemption by Sinking Fund Installments at least five
(5) Business Days before the notice of redemption would otherwise be required to be
given, in which event to the extent of the principal amount of Bonds so surrendered (i) no
deposit from the Institution into the Sinking Fund Account need be made and (ii) no such
redemption from Sinking Fund Installments shall occur. The principal amount of Bonds
of each maturity so purchased shall be credited against the unsatisfied Sinking Fund
Installments in such order as the Institution may direct.
So long as beneficial ownership interests in the Bonds are held through the bookentry-system, any purchase or delivery of such Bonds as set forth in such clauses (A) and
(B) above shall be deemed to have occurred upon the purchase or delivery of beneficial
ownership interests in such Bonds made pursuant to the provisions hereof.
SECTION 5.5. APPLICATION OF MONEYS IN THE DEBT SERVICE
FUND. The Trustee shall transfer moneys out of the Interest Account on each Interest Payment
Date for the payment of interest then due on the Bonds. The Trustee shall pay out of such
Interest Account any amounts required for the payment of accrued interest upon any redemption
or purchase of the Bonds.
The Trustee shall transfer moneys out of the Principal Account or the Sinking
Fund Account on each principal maturity date or Sinking Fund Installment date for the payment
of the principal amount of the Bonds or Sinking Fund Installment then due. The Trustee shall
pay out of the Sinking Fund Account any amounts directed by the Institution for the purchase of
Bonds pursuant to Section 5.4 hereof.
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SECTION 5.6. APPLICATION OF MONEYS IN THE REDEMPTION
FUND. (a) Moneys in the Redemption Fund derived from optional prepayment shall, at the
written direction of the Institution, be applied to payment of the Redemption Price of Bonds, plus
accrued interest, if any, thereon to the date set for redemption, in accordance with Section 2.5
hereof.
(b)
Subject to the provisions of paragraph (a) hereof, moneys in the
Redemption Fund may be applied to the purchase of Bonds at purchase prices not exceeding the
Redemption Price applicable to the Bonds to be purchased plus accrued interest due, in such
manner as the Institution may direct. Bonds so purchased shall be cancelled by the Trustee if so
directed in writing by the Institution.
(c)
Moneys in the Redemption Fund may be applied to the purchase of Bonds
in lieu of redemption in accordance with Section 2.5 hereof if so directed in writing by the
Institution.
(d)
Any excess moneys on deposit in the Redemption Fund and not needed to
pay the Redemption Price of Bonds called for redemption shall be paid to the Institution or
deposited to the Principal Account of the Debt Service Fund, the Interest Account of the Debt
Service Fund, or the Sinking Fund Account of the Debt Service Fund, or applied to the optional
redemption of Bonds in accordance with Section 2.5 hereof, as the Institution shall direct in
writing.
SECTION 5.7. INVESTMENT OF MONEYS. Any moneys held in any of
the funds or accounts established hereunder shall be invested by the Trustee, as directed by the
Institution in a written order signed by an Authorized Officer thereof, which written order shall
contain investment instruction consistent with the requirements of this Indenture, but only as
follows:
(a)
Moneys in the Debt Service Fund only in Qualified Investments maturing
in such amounts and on such dates as may be necessary to provide moneys to meet the payments
from such Fund;
(b)
Moneys in the Redemption Fund only in Qualified Investments maturing
or redeemable at the option of the owner not later than the next succeeding date on which the
Bonds are subject to redemption; and
(c)
Any moneys held by the Trustee in the Proceeds Fund may be invested by
the Trustee at the written direction of an Authorized Officer of the Institution in any manner
permitted hereunder.
Notwithstanding any other provisions of this Indenture concerning the
requirement that all investment instructions shall be given to the Trustee or any depository by the
Institution, in the event that the Trustee has not received instructions from the Institution to
invest any moneys remaining in any Fund or Account hereunder, the Trustee shall invest such
moneys in accordance with Attachment B attached hereto.
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The Trustee is hereby authorized, in making or disposing of any investment
permitted by this Section, to deal with itself (in its individual capacity) or with any one or more
of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third
person or dealing as principal for its own account.
Any securities or investments held by the Trustee shall be transferred by the
Trustee, if requested in writing by an Authorized Officer of the Institution, from any of the funds
or accounts mentioned in this Section to any other of the funds or accounts mentioned in this
Section at the then current market value thereof without having to be sold and purchased or
repurchased; provided, however, that after any such transfer or transfers the investments in each
such fund or account shall be in accordance with the provisions as stated in this Section.
Unless otherwise directed by the Institution, interest earned, profits realized and
losses suffered by reason of any investment shall be credited or charged, as the case may be, to
the Fund or Account for which such investment shall have been made.
The Trustee and the Institution may sell or redeem any obligations in which
moneys shall have been invested, to the extent necessary to provide cash in the respective funds
or accounts, to make any payments required to be made therefrom, or to facilitate the transfers of
moneys, securities or investments between various funds and accounts as may be required or
permitted from time to time pursuant to the provisions of this Article.
In computing the value of the assets in any fund or account hereunder, the Trustee
and the Institution, if required hereunder to value any fund or account under its control, shall
value such assets at the current market value thereof. In computing such value, accrued interest
on any investment shall be deemed a part thereof.
The Trustee shall not be liable for any depreciation in the value of any obligations
in which moneys of the funds or accounts shall be invested, as aforesaid, or for any loss arising
from any investment made in accordance with the written instructions of the Institution.
ARTICLE VI
PARTICULAR COVENANTS
SECTION 6.1. PAYMENT OF PRINCIPAL AND INTEREST. The
Institution shall pay or cause to be paid the principal or Redemption Price of and interest on
every Bond on the date and at the places and in the manner mentioned in such Bonds according
to the true intent and meaning thereof.
SECTION 6.2. REVENUES. The Institution covenants that it shall pay
amounts sufficient to provide Revenues sufficient at all times: (i) to pay the principal of and
interest on the Bonds as the same respectively become due and payable by redemption or
otherwise; and (ii) to pay the expenditures of the Trustee incurred in relation to this Indenture for
which the Institution is obligated hereunder to reimburse the Trustee.
SECTION 6.3. ACCOUNTS. The Institution shall keep proper books of
records and accounts in which complete and correct entries shall be made of its transactions
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relating to the Institution’s facilities and this Indenture, which books and accounts, at reasonable
hours and subject to the reasonable rules and regulations of the Institution, shall be subject to the
inspection of the Trustee or of any owner of a Bond or of the owner’s representative duly
authorized in writing.
ARTICLE VII
CONCERNING THE TRUSTEE
SECTION 7.1. CONCERNING THE TRUSTEE; ACCEPTANCE OF
TRUSTEE. The Trustee hereby accepts and agrees to execute the trusts imposed upon it by this
Indenture, but only upon the terms and conditions set forth in this Article and subject to the
provisions of this Indenture, to all of which the parties hereto and the respective Owners of the
Bonds agree.
SECTION 7.2. OBLIGATION OF TRUSTEE. Except as set forth in
Section 7.6 hereof, the Trustee shall be under no obligation to institute any suit, or to take any
action or proceeding under this Indenture or to enter any appearance or in any way defend in any
suit in which it may be made defendant, or to take any steps in the execution of the trusts hereby
created or in the enforcement of any rights and powers hereunder, including, without limitation,
pursuant to the direction of, or on behalf of, any of the Bondowners, until it shall be paid or
reimbursed or indemnified to its satisfaction against any and all reasonable costs and expenses,
outlays, liabilities, damages and reasonable counsel fees and expenses and other reasonable
disbursements. The Trustee may nevertheless begin suit, or appear in and defend suit, or do
anything else in its judgment proper to be done by it as the Trustee, and in such case the
Institution shall reimburse the Trustee for all costs and expenses, outlays, liabilities, damages and
reasonable counsel fees and expenses and other reasonable disbursements properly incurred in
connection therewith. If the Institution shall fail to make such reimbursement, the Trustee may
reimburse itself from any moneys in its possession under the provisions of this Indenture (other
than any money on deposit in any irrevocable trust or escrow fund established with respect to
any defeased Bonds) upon notice to the Institution of its intention to reimburse itself and the
Trustee shall be entitled to a preference therefor over any of the Bonds Outstanding hereunder.
SECTION 7.3. RESPONSIBILITIES OF TRUSTEE. (a) The recitals
contained in this Indenture, any Supplemental Indenture, in the Bonds or any offering documents
for the Bonds shall be taken as the statements of the Institution and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Indenture, any Supplemental Indenture or of the Bonds or in
respect of the security afforded by this Indenture or any Supplemental Indenture and the Trustee
shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or
duty with respect to: (i) the issuance of the Bonds for value; or (ii) the application of the
proceeds thereof provided such proceeds are paid out in accordance with this Indenture; or
(iii) the application of any moneys paid to the Institution or others in accordance with this
Indenture; or (iv) the recording or rerecording, registration or reregistration, filing or refiling of
this Indenture or any security documents contemplated thereby, provided, however, the Trustee
shall be responsible for the filing of Uniform Commercial Code continuation statements; or
(v) the validity of the execution by the Institution of this Indenture; or (vi) compliance by the
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Institution with the terms of this Indenture. The Trustee may require of the Institution full
information and advice regarding the performance of the covenants, conditions and agreements
contained in this Indenture. The Trustee shall not be liable in connection with the performance
of its duties hereunder except for its own negligence or willful misconduct. The Trustee shall be
reimbursed for any costs and expenses incurred with the filing of Uniform Commercial Code
continuation statements.
(b)
Except as otherwise provided in this Indenture, the Trustee shall not be
bound to recognize any person as a Holder of any Bond or to take action at such person’s
request, unless such person shall be the Bondowner of such Bond. Any action duly taken by the
Trustee pursuant to this Indenture upon the request, authority or consent of any person who at the
time of making such request or giving such authority or consent is the Bondowner of any Bond
secured hereby shall be conclusive and binding upon all future Bondowners of such Bond.
(c)
The duties and obligations of the Trustee shall be determined by the
express provisions of this Indenture, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this Indenture. The
permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as
a duty. In the case of an event of default specified in Article VIII hereof, in exercising such
rights and the rights given the Trustee in this Indenture, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture and shall use the same degree of care and skill in
its exercise thereof as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs.
(d)
The Trustee shall not be charged with knowledge of any event hereunder
unless an officer or administrator in the Trustee’s corporate trust department has actual
knowledge of such event.
(e)
The Trustee, upon receipt of documents furnished to it by or on behalf of
the Institution pursuant to this Indenture, shall examine the same to determine whether or not
such documents conform to the requirements of this Indenture, provided that to the extent this
Indenture or the Agreement requires such document or statement contained therein to be in
accordance with any law, the Trustee shall have no obligation to determine whether such
document or statement therein is in accordance with or complies with such law.
(f)
Except as otherwise expressly provided by the provisions of this
Indenture, the Trustee shall not be obligated and may not be required to give or furnish any
notice, demand, report, request, reply, statement, advice or opinion to the Bondowner of any
Bond and the Trustee shall not incur any liability for its failure or refusal to give or furnish the
same unless obligated or required to do so by an express provision hereof. The Trustee shall not
be liable for any action taken or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture. The Trustee shall
incur no liability in respect of any action taken or omitted by it without negligence or willful
misconduct in accordance with the direction of the Bondowners of the percentage of the Bonds
specified herein relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred upon the Trustee
under this Indenture.
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(g)
Subject to Section 8.6 hereof, in the event the Trustee shall receive
inconsistent or conflicting requests and indemnity from two or more groups of Bondowners, each
representing less than a majority of the aggregate principal amount of the Bonds then
Outstanding, the Trustee, in its sole discretion, may determine what action, if any, shall be taken.
(h)
The Trustee shall not be liable for interest on any funds deposited with it
hereunder, except as provided herein or as the Trustee may otherwise specifically agree in
writing.
SECTION 7.4. PROPERTY HELD IN TRUST. All moneys and securities
held by the Trustee at any time pursuant to the terms of this Indenture shall be and hereby are
assigned, transferred and set over unto the Trustee in trust for the purposes and under the terms
and conditions of this Indenture.
SECTION 7.5. EVIDENCE ON WHICH TRUSTEE MAY ACT. The
Trustee shall be protected in acting upon any notice, resolution, request, consent, order,
certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to
have been signed or presented by the proper party or parties. The Trustee may consult with
counsel, who may or may not be counsel to the Institution, and may rely on an Opinion of
Counsel. Any such Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken or suffered, or any action not taken, by it in good faith and in
accordance therewith, and the Trustee shall not be liable for any action taken or omitted in good
faith in reliance on such Opinion of Counsel. The Trustee shall have the right to act through its
attorneys and agents. Whenever the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or not taking any action under this Indenture,
such matter (unless other evidence in respect thereof be hereby specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by an Authorized
Officer of the Institution. Such certificate shall be full warrant for any action taken or suffered,
or any action not taken, in good faith under the provisions hereof, but the Trustee may (but shall
not be required to) in addition thereto or in lieu thereof require or accept other evidence of such
fact or matter or may require such further or additional evidence as it may deem reasonable.
Except as otherwise expressly provided herein, any request, order, notice or other direction
required or permitted to be furnished pursuant to any provision hereof by the Institution to the
Trustee shall be sufficiently executed if executed in the name of the Institution by an Authorized
Officer.
SECTION 7.6. COMPENSATION AND INDEMNIFICATION. Unless
otherwise provided by written contract between the Trustee and the Institution, the Institution
shall pay or cause to be paid to the Trustee after reasonable notice to the Institution in light of the
compensation sought to be received, reasonable compensation for all services rendered by it
hereunder, including, if applicable, its services as registrar, paying agent and transfer agent, and
also all its reasonable expenses, charges, reasonable counsel fees, expenses and other
disbursements and those of its attorneys, agents, and employees, incurred in and about the
performance of its powers and duties hereunder. The Institution shall indemnify and save the
Trustee harmless against any expenses and liabilities which it may incur in the exercise and
performance of its powers and duties hereunder which are not due to its negligence or willful
misconduct. None of the provisions contained in this Indenture shall require the Trustee to
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expend or risk its own funds or otherwise incur financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers. The obligations of the Institution under
this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements, charges and reasonable counsel fees and to indemnify and hold harmless the
Trustee shall survive the satisfaction and discharge of this Indenture and the removal or
resignation of the Trustee. If the monies from the Institution are not adequate to pay such
obligations, the Trustee may, upon written notice to the Institution, reimburse itself from any
moneys in its possession under the provisions of this Indenture (other than any money on deposit
in any irrevocable trust or escrow fund established with respect to any defeased Bonds) and shall
be entitled to a preference therefor over any of the Bonds Outstanding hereunder.
SECTION 7.7. PERMITTED ACTS. The Trustee may become the owner of
or may deal in Bonds or may deal with the Institution as fully and with the same rights as if it
were not the Trustee. The Trustee may act as depository for, and permit any of its officers or
directors to act as a member of, or in any other capacity with respect to, the Institution or any
committee formed to protect the rights of Bondowners or to effect or aid in any reorganization
growing out of the enforcement of the Bonds or this Indenture, whether or not such committee
shall represent the Owners of a majority in principal amount of the Outstanding Bonds in respect
of which any such action is taken.
SECTION 7.8. RESIGNATION OF TRUSTEE. The Trustee, or any
successor thereof, may at any time resign and be discharged of its duties and obligations
hereunder by giving not less than forty-five (45) days’ written notice to the Institution and the
Bondowners, specifying the date when such resignation shall take effect, provided such
resignation shall not take effect until a successor shall have been appointed by the Institution or a
court of competent jurisdiction as provided in Section 7.10 and shall have accepted such
appointment.
SECTION 7.9. REMOVAL OF TRUSTEE. The Trustee, or any successor
thereof, may be removed with or without cause at any time by the Institution upon thirty
(30) days written notice, if no Event of Default under this Indenture shall have occurred and be
continuing, or upon and during the continuation of an Event of Default under this Indenture by
the owners of a majority in principal amount of Outstanding Bonds, excluding any Bonds held
by or for the account of the Institution, by an instrument or concurrent instruments in writing
signed and acknowledged by such Bondowners or by their attorneys-in-fact duly authorized and
delivered to the Institution, provided that such removal shall not take effect until a successor is
appointed. Such removal shall take effect on the date a successor shall have been appointed by
the Institution or a court of competent jurisdiction as provided in Section 7.10 and shall have
accepted such appointment. Copies of each instrument providing for any such removal shall be
delivered by the Institution to the Trustee and any successor thereof.
SECTION 7.10. SUCCESSOR TRUSTEE. In case the Trustee, or any
successor thereof, shall resign or shall be removed or shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or if a receiver, liquidator or conservator of the Trustee or
of its property shall be appointed, or if any public officer shall take charge of control of the
Trustee, or of its property or affairs, the Institution shall forthwith appoint a Trustee to act.
Notice of any such appointment shall be delivered by the Institution to the Trustee so appointed
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and the predecessor Trustee. The Institution shall give or cause to be given written notice of any
such appointment to the Bondowners.
If no appointment of a successor shall be made within forty-five (45) days after
the giving of written notice in accordance with Section 7.8 or after the occurrence of any other
event requiring or authorizing such appointment, the Trustee or any Bondowner may apply to
any court of competent jurisdiction for the appointment of such a successor, and such court may
thereupon, after such notice, if any, as such court may deem proper, appoint such successor.
Any successor appointed under the provisions of this Section shall be a bank or
trust company or national banking association, in each case with corporate trust powers, which is
able to accept the appointment on reasonable and customary terms and authorized by law to
perform all the duties required by this Indenture, which is approved by the Institution (unless an
event of default under Section 8.1 exists, in which case a successor shall be appointed by the
owners of a majority in principal amount of Outstanding Bonds or by a court pursuant to the
above paragraph, or unless a successor is appointed by a court pursuant to the above
paragraph) and which has a combined capital and surplus aggregating at least $50,000,000 (or
such other financial resources acceptable to the Institution in its sole discretion), if there be such
a bank or trust company or national banking association willing to serve as Trustee hereunder.
SECTION 7.11. TRANSFER OF RIGHTS AND PROPERTY TO
SUCCESSOR TRUSTEE. Any successor appointed under the provisions of Section 7.10 shall
execute, acknowledge and deliver to its predecessor, and also to the Institution, an instrument
accepting such appointment, and thereupon such successor, without any further act, deed or
conveyance shall become fully vested with all moneys, estates, properties, rights, powers, duties
and obligations of its predecessor hereunder, with like effect as if originally appointed as
Trustee. However, the Trustee then ceasing to act shall nevertheless, on request by the
Institution or of such successor, execute, acknowledge and deliver such instruments of
conveyance and further assurance and do such other things as may reasonably be required for
more fully and certainly vesting and confirming in such successor all the right, title and interest
of such Trustee in and to any property held by it hereunder, and upon payment of its fees and
expenses to which it is entitled hereunder shall pay over, assign and deliver to such successor
any moneys or other properties subject to the trusts and conditions herein set forth and subject to
any indemnification rights of the Trustee hereunder. Should any deed, conveyance or instrument
in writing from the Institution be required by such successor for more fully and certainly vesting
in and confirming to it any such moneys, estates, properties, rights, powers, duties or obligations,
any and all such deeds, conveyances and instruments in writing shall, on request, and so far as
may be authorized by law, be executed, acknowledged and delivered by the Institution.
SECTION 7.12. MERGER OR CONSOLIDATION OF THE TRUSTEE.
Any company into which the Trustee may be merged or with which it may be consolidated or
any company resulting from any merger or consolidation to which it shall be a party or any
company to which such Trustee may sell or transfer all or substantially all of its corporate trust
business, provided such company shall be a bank or trust company or national banking
association qualified to be a successor to such Trustee under the provisions of Section 7.10
(except that the approval of the Institution shall not be required), shall be the successor to such
Trustee, without any further act, deed or conveyance.
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SECTION 7.13. SEVERAL CAPACITIES. Anything in this Indenture to the
contrary notwithstanding, the same entity may serve hereunder as the Trustee and in any other
capacities, to the extent permitted by law. The Trustee is hereby appointed to serve initially in
the capacity of Trustee.
SECTION 7.14. CO-TRUSTEES. (a) With the consent of the Institution, for
the purpose of meeting the legal requirements of any applicable jurisdiction, the Trustee shall
have power to appoint one or more persons to act as co-trustee under this Indenture, with such
powers as may be provided in the instrument of appointment, and to vest in such person or
persons any property, title, right or power deemed necessary or desirable, subject to the
remaining provisions of this Section.
(b)
Each co-trustee shall, to the extent permitted by applicable law, be
appointed subject to the following terms:
(i)
The rights, powers, duties and obligations conferred or imposed
upon any such trustee shall not be greater than those conferred or imposed upon
the Trustee, and such rights and powers shall be exercisable only jointly with the
Trustee, except to the extent that, under any law of any jurisdiction in which any
particular act or acts are to be performed, the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights and powers
shall be exercised by such co-trustee subject to the provisions of subsection
(b) (iv) of this Section.
(ii)
The Trustee may at any time, by an instrument in writing executed
by it and with written notice to the Institution, accept the resignation of or remove
any co-trustee appointed under this Section.
(iii)
No co-trustee under this Indenture shall be liable by reason of any
act or omission of any other co-trustee appointed under this Indenture.
(iv)
No power given to such co-trustee shall be separately exercised
hereunder by such co-trustee except with the consent in writing of the Trustee,
anything herein contained to the contrary notwithstanding.
SECTION 7.15. TRUSTEE MAY FIX RECORD DATE. The Trustee may,
but shall not be obligated to, fix a record date for the purpose of determining the Bondowners
entitled to give their consent or take any other action pursuant to this Indenture. If a record date
is fixed, then at such record date only those persons (or their duly designated proxies), shall be
entitled to give such consent or to revoke any consent previously given or to take any such
action, whether or not such persons continue to be Owners after such record date. No such
consent shall be valid or effective for more than 120 days after such record date.
SECTION 7.16. WHEN BONDS DISREGARDED. In determining whether
the Owners of the required principal amount of Bonds have concurred in any direction, waiver or
consent, Bonds owned by the Institution or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Institution shall be disregarded
and deemed not to be Outstanding, except that, for the purpose of determining whether the
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Trustee shall be protected in relying on any such direction, waiver or consent, only Bonds which
the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only
Bonds Outstanding at the time shall be considered in any such determination.
SECTION 7.17. INDEMNIFICATION. The Institution hereby releases and
agrees to hold harmless and indemnify the Trustee and its members, directors, officers, counsel,
consultants, agents and employees (the “Trustee Indemnified Parties”) from and against all, and
agrees that the Trustee Indemnified Parties shall not be liable for any, (i) liabilities, suits, actions,
claims, demands, damages, losses, expenses and costs of every kind and nature resulting from
any action taken in accordance with, or permitted by, the Institution Documents or this Indenture
or by reason of its duties and responsibilities under this Indenture, or arising from or incurred by
the Trustee by reason of this Indenture or the failure of the Institution to comply with the
provisions of the Institution Documents, including but not limited to those arising out of any
environmental hazard or violation of any environmental law, rule or regulation (but excluding
any loss, damage or liability which may arise as a result of the negligence or willful misconduct
of any Trustee Indemnified Party and excluding any loss, damage or liability which may arise as
a result of the negligence or willful misconduct of any Trustee Indemnified Party), including,
without limiting the generality of the foregoing, reasonable attorneys’ fees and other expenses
incurred in defending or investigating any claims, suits or actions which may arise as a result of
any of the foregoing. The Institution agrees to deliver at the request of the Trustee, any further
instrument or instruments in form satisfactory to the Trustee to effectuate more fully the
provisions of this Section. In case any action shall be brought against one or more of the Trustee
Indemnified Parties in respect of which indemnity may be sought against the Institution under
the provision of this Section, the Trustee Indemnified Parties shall promptly (and in no event
later than thirty (30) days after knowledge of such action) notify the Institution in writing, and
the Institution shall, if the applicable Trustee Indemnified Party is entitled to indemnification
hereunder or if the Institution otherwise elects in its discretion, promptly assume the defense
thereof, including the employment of counsel, the payment of all reasonable expenses and the
right to negotiate and consent to settlement and the Trustee Indemnified Parties shall cooperate
with the Institution at the expense of the Institution in asserting such defense. Any failure of the
Trustee to notify the Institution of an action in respect of which indemnity is sought shall not
relieve the Institution of its obligation to indemnify the Trustee for such actions as provided
herein. Any one or more of the Trustee Indemnified Parties shall have the right to employ
separate counsel in any such action and to participate in the defense thereof, but the reasonable
fees and expenses of such counsel shall be at the expense of such Trustee Indemnified Party or
Trustee Indemnified Parties unless the employment of such counsel has been specifically
authorized in writing by the Institution, which authorization shall not be unreasonably withheld,
or unless by reason of conflict of interest, or there are legal defenses available to the Trustee that
are not available to the Institution in the reasonable judgment of any Trustee Indemnified Party,
it is advisable for it to be represented by separate counsel, in which case the reasonable fees and
expenses of such separate counsel shall be borne by the Institution. The Institution shall not be
liable for any settlement of any such action effected without its written consent, but if settled
with the written consent of the Institution or if there be a final judgment for the plaintiff in any
such action with or without such consent, the Institution agrees to indemnify and hold harmless
the Trustee Indemnified Parties from and against any loss or liability by reason of such
settlement or judgment in accordance with the terms and conditions of this Section 7.17. The
hold harmless and indemnification provisions provided by this Section shall be in addition to and
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not limited by any of the provisions of Section 7.6 above. The Institution shall not, without the
prior written consent of the Trustee, effect any settlement of any pending or threatened
proceeding in respect of which the Trustee is or could have been a party and indemnity could
have been sought hereunder by the Trustee, unless such settlement (x) includes an unconditional
release of the Trustee from all liability on claims that are the subject matter of such proceeding,
and (v) does not include a statement or admission of fault, culpability, or a failure to act, by or on
behalf of the Trustee. The provisions of this Section shall survive the expiration of this
Indenture and the resignation or the removal of the Trustee, and each Trustee Indemnified Party
shall be deemed a third party beneficiary hereunder.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following events is
hereby declared an “Event of Default” hereunder (herein called an “Event of Default”):
(a)
Payment of the principal of any of the Bonds shall not be made when the
same shall become due and payable, either at maturity or by proceedings for redemption or
otherwise; or
(b)
Payment of an installment of interest on any Bonds shall not be made
when the same shall become due and payable; or
(c)
An Event of Default shall have occurred under and as defined in the
Master Indenture; or
(d)
Failure by the Institution to observe and perform any covenant, condition
or agreement in the Institution Documents on its part to be observed or performed, or failure of
any representation made by the Institution in the Institution Documents to be correct in all
material respects, which failure shall continue for a period of thirty (30) days after written notice,
specifying such failure and requesting that it be remedied, shall have been given to the Institution
by the Trustee; provided, however, that if such performance, observation or compliance requires
work to be done, action to be taken, or conditions to be remedied which by their nature cannot
reasonably be done, taken or remedied, as the case may be, within such 30-day period, no Event
of Default shall be deemed to have occurred or to exist if, and so long as the Institution shall in
good faith commence such performance, observation or compliance within such period and shall
diligently and continuously prosecute the same to completion.
SECTION 8.2. ACCELERATION OF MATURITY. Upon the happening
of any Event of Default specified in Section 8.1, the Trustee may, and shall, upon the written
request of the owners of not less than a majority in principal amount of the Outstanding Bonds,
declare an acceleration of the payment of principal on the Bonds. All such declarations shall be
by a notice in writing to the Institution, declaring the principal of all of the Outstanding Bonds to
be due and payable immediately. Upon the giving of notice of such declaration of acceleration
such principal shall become and be immediately due and payable, and if principal of the Bonds is
so paid in full upon acceleration, all interest on the Bonds shall cease to accrue, anything in the
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Bonds or in this Indenture to the contrary notwithstanding. Interest on all Bonds shall accrue
until the principal of such Bonds shall be paid in full. At any time after the principal of the
Bonds shall have been so declared to be due and payable, and before the entry of final judgment
or decree in any suit, action or proceeding instituted on account of such default, or before the
completion of the enforcement of any other remedy under this Indenture, the Trustee shall, with
the written consent of the owners of not less than a majority in principal amount of the Bonds not
then scheduled to be due by their terms and then Outstanding and by written notice to the
Institution, annul such declaration and its consequences if: (i) moneys shall have accumulated in
the Debt Service Fund sufficient to pay all arrears of principal and interest, if any, upon all of the
Outstanding Bonds (except the interest accrued on such Bonds since the last Interest Payment
Date and the principal of such Bonds then due only because of a declaration under this Section);
(ii) moneys shall have accumulated and be available sufficient to pay the charges, compensation,
expenses, disbursements, advances and liabilities of the Trustee that are payable or reimbursable
by the Institution hereunder; (iii) all other amounts then payable by the Institution hereunder
shall have been paid or a sum sufficient to pay the same shall have been deposited with the
Trustee; and (iv) every other default known to the Trustee in the observance or performance of
any covenant, condition or agreement contained in the Bonds or in this Indenture (other than a
default in the payment of the principal of such Bonds then due only because of a declaration
under this Section) shall have been remedied to the satisfaction of the Trustee or waived pursuant
to Section 8.10. No such annulment shall extend to or affect any subsequent default or impair
any right consequent thereon.
SECTION 8.3. ENFORCEMENT OF REMEDIES. Upon the happening
and continuance of any Event of Default specified in Section 8.1, then and in every such case,
the Trustee may proceed, and upon the written request of the Owners of not less than a majority
in principal amount of the Outstanding Bonds shall proceed (subject to the provisions of Sections
7.2 and 8.6), to protect and enforce its rights and the rights of the owners of the Bonds under the
laws of the State of New Jersey or under this Indenture, the Bonds, or the Note by such suits,
actions or special proceedings in equity or at law, either for the specific performance of any
covenant contained hereunder or in aid or execution of any power herein granted, or for the
enforcement of the Note, or for an accounting against the Institution as if the Institution were the
trustee of an express trust, or for the enforcement of any proper legal or equitable remedy as the
Trustee shall deem most effectual to protect and enforce such rights.
In the enforcement of any remedy under this Indenture, the Trustee shall be
entitled to sue for, enforce payment of, and receive any and all amounts then or during any
default becoming, and at any time remaining, due from the Institution for principal or interest or
otherwise under any of the provisions of this Indenture or of the Bonds, with interest on overdue
payments at the rate or rates of interest specified in such Bonds, together with any and all costs
and expenses of collection and of all proceedings hereunder and under such Bonds, without
prejudice to any other right or remedy of the Trustee or of the Owners of such Bonds, and to
recover and enforce any judgment or decree against the Institution but solely as provided herein
and in such Bonds, for any portion of such amounts remaining unpaid, with interest, cost and
expenses, and to collect in any manner provided by law, the moneys adjudged or decreed to be
payable.
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SECTION 8.4. PRIORITY OF PAYMENTS AFTER DEFAULT. If at any
time the moneys held by the Trustee under this Indenture shall not be sufficient to pay the
principal of and interest on the Bonds as the same become due and payable (either by their terms
or by acceleration of maturity under the provisions of Section 8.2), such moneys together with
any moneys then available or thereafter becoming available for such purpose, whether through
exercise of the remedies provided for in this Article or otherwise, shall be applied (after payment
of all amounts owing to the Trustee from moneys under this Indenture other than from moneys in
any irrevocable trust or escrow fund established with respect to any defeased Bonds) as follows:
(a)
Unless the principal of all the Bonds shall have become due and
payable, all such moneys shall be applied:
FIRST:
To the payment to the persons entitled
thereto of all installments of interest on any of the Bonds then due,
in the order of the maturity of the installments of such interest, and,
if the amount available shall not be sufficient to pay in full any
particular installment, then to the payment ratably, according to the
amounts due on such installment, to the persons entitled thereto,
without any discrimination or preference;
SECOND:
To the payment to the persons entitled
thereto of the unpaid principal of any of the Bonds which shall
have become due (other than Bonds called for redemption or
contracted to be purchased for the payment of which moneys are
held pursuant to the provisions of this Indenture) with interest upon
such Bonds from the respective dates upon which they shall have
become due, in the order of their due dates, and, if the amount
available shall not be sufficient to pay in full Bonds due on any
particular due date, together with such interest, then to the payment
ratably, according to the amount of principal due on such date, to
the persons entitled thereto, without any discrimination or
preference; and
THIRD:
To the payment of the interest on and the
principal of the Bonds as the same become due and payable.
(b)
If the principal of all the Bonds shall have become due and
payable, either by their terms or by a declaration of acceleration, all such moneys
shall be applied to the payment of the principal and interest then due and unpaid
upon the Bonds, without preference or priority of principal over interest or of
interest over principal, or of any installment of interest over any other installment
of interest, or of any Bond over any other Bond, ratably, according to the amounts
due respectively for principal and interest, to the persons entitled thereto, without
any discrimination or preference.
Whenever moneys are to be applied by the Trustee pursuant to the provisions of
this Section, such moneys shall be applied by the Trustee at such times, and from time to time, as
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the Trustee in its sole discretion shall determine, having due regard to the amount of such
moneys available for application and the likelihood of additional moneys becoming available for
such application in the future. The setting aside of such moneys in trust for the proper purpose
shall constitute proper application by the Trustee, and the Trustee shall incur no liability
whatsoever to the Institution, to any Bondowner or to any other person for any delay in applying
any such moneys, so long as the Trustee acts with reasonable diligence, having due regard to the
circumstances, and ultimately applies the same in accordance with such provisions of this
Indenture as may be applicable at the time of application by the Trustee. Whenever the Trustee
shall exercise such discretion in applying such moneys it shall fix the date (which shall be an
Interest Payment Date unless the Trustee shall deem another date more suitable) upon which
such application is to be made, and upon such date, interest on the amounts of principal to be
paid on such date shall cease to accrue. The Trustee shall give such notice as it may deem
appropriate of the fixing of any such date. The Trustee shall not be required to make payment to
the owner of any unpaid interest or any Bond unless such Bond shall be presented to the Trustee
for appropriate endorsement.
SECTION 8.5. EFFECT OF DISCONTINUANCE OF PROCEEDINGS.
In case any proceedings taken by the Trustee on account of any default in respect of Bonds shall
have been discontinued or abandoned for any reason or shall have been determined adversely to
the Trustee, then and in every such case the Institution, the Trustee and the Bondowners shall be
restored to their former positions and rights hereunder, respectively, and all rights, remedies,
powers and duties of the Trustee shall continue as though no such proceeding had been taken.
SECTION 8.6. CONTROL OF PROCEEDINGS.
Anything in this
Indenture to the contrary notwithstanding, the owners of a majority in principal amount of the
Outstanding Bonds, shall have the right, subject to the provisions of Section 7.2, by an
instrument in writing executed and delivered to the Trustee, to direct the method and place of
conducting all remedial proceedings to be taken by the Trustee under this Indenture, provided
such direction shall not be otherwise than in accordance with law and the provisions of this
Indenture.
SECTION 8.7. RESTRICTIONS UPON ACTION BY INDIVIDUAL
BONDOWNERS. No Owner of any of the Bonds shall have any right to institute any suit,
action or proceeding in equity or at law for the execution of any trust hereunder or for any other
remedy hereunder unless such Owner previously shall have given to the Trustee written notice of
the Event of Default on account of which such suit, action or proceeding is to be instituted, and
unless also the owners of not less than a majority in principal amount of all Outstanding Bonds
shall have made written request to the Trustee after the right to exercise such powers or right of
action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable
opportunity either to proceed to exercise the powers granted by this Indenture or to institute such
action, suit or proceeding in its or their name, and unless, also, there shall have been offered to
the Trustee security and indemnity as required by Section 7.2 hereof against the costs, expenses,
and liabilities to be incurred therein or thereby, and the Trustee shall have refused or neglected to
comply with such request within a reasonable time. Such notification, request and offer of
indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions
precedent to the execution of the powers and trusts of this Indenture or for any other remedy
hereunder. It is understood and intended that no one or more Owners of the Bonds secured by
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this Indenture shall have any right in any manner whatever by his or their action to affect, disturb
or prejudice the security of this Indenture or to enforce any right hereunder except in the manner
herein provided, and that all proceedings at law or in equity shall be instituted, had and
maintained in the manner herein provided and for the benefit of all Owners of the Outstanding
Bonds.
SECTION 8.8. ACTIONS BY TRUSTEE. All rights of action under this
Indenture or under any of the Bonds secured hereby, enforceable by the Trustee may be enforced
by it without the possession of any of such Bonds or the production thereof at the trial or other
proceeding relative thereto, and any such suit, action or proceeding instituted by the Trustee shall
be brought in its name for the benefit of all the Owners of the Bonds, subject to the provisions of
this Indenture.
SECTION 8.9. REMEDIES NOT EXCLUSIVE.
No remedy herein
conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended to be
exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute.
SECTION 8.10. WAIVER AND NON-WAIVER. No delay or omission of
the Trustee or of any Owner of the Bonds to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed to be a waiver of any such
default or an acquiescence therein. Every power and remedy given by this Article to the Trustee
and the Owners of the Bonds may be exercised from time to time and as often as may be deemed
expedient.
The Trustee may, and upon written request of the Owners of not less than a
majority of the principal amount of the Outstanding Bonds shall, waive any default or Event of
Default with respect to the Bonds which in its opinion shall have been remedied before the entry
of final judgment or decree in any suit, action or proceeding instituted by it under the provisions
of this Indenture or before the completion of the enforcement of any other remedy under this
Indenture; but no such waiver shall extend to or affect any other existing or any subsequent
default or defaults or Event(s) of Default or impair any rights or remedies consequent thereon.
SECTION 8.11. NOTICE OF DEFAULT. The Trustee shall mail or cause to
be mailed to all Bondowners written notice of the occurrence of any Event of Default set forth in
clause (a) or (b) of Section 8.1 promptly after any such Event of Default shall have occurred of
which the Trustee has actual knowledge. If in any Bond Year the total amount of deposits to the
credit of the Debt Service Fund shall be less than the amounts required so to have been deposited
under the provisions of this Indenture and any Supplemental Indenture, the Trustee, on or before
the thirtieth (30th) day of the next succeeding Bond Year, shall mail to all Bondowners a written
notice of the failure to make such deposits. The Trustee shall not, however, be subject to any
liability to any such Bondowner by reason of its failure to mail or cause to be mailed any notice
required by this Section.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. ADOPTION AND FILING. The Institution and the Trustee
may enter into Supplemental Indentures at any time or from time to time as provided in
Articles IX and X hereof, and a copy thereof shall be filed with the Trustee and the Institution, as
provided in Section 9.3 hereof.
SECTION 9.2. GENERAL
PROVISIONS
RELATING
TO
SUPPLEMENTAL INDENTURES. Neither this Indenture, nor any Supplemental Indenture
nor the Bonds shall be modified or amended in any respect except in accordance with and subject
to the provisions of this Article IX and Article X. Nothing contained in Article IX or Article X
shall affect or limit the right or obligations of the Institution to adopt, make, do, execute or
deliver any resolution, act or other instrument pursuant to the provisions of Section 1.3 or
Section 13.2 or the right or obligation of the Institution to execute and deliver to the Trustee any
instrument elsewhere in this Indenture or any Supplemental Indenture provided or permitted to
be delivered to the Trustee.
Prior to entering into each Supplemental Indenture with the Institution, the
Trustee shall receive an Opinion of Counsel addressed to the Trustee stating that such
Supplemental Indenture has been duly and lawfully executed by the Institution in accordance
with the provisions of this Indenture, is authorized or permitted by this Indenture, is valid and
binding upon the Institution and enforceable in accordance with its terms, and that its
enforceability may be limited by bankruptcy, insolvency or other laws affecting creditors’ rights
generally.
The Trustee is hereby authorized to enter into any Supplemental Indenture
permitted or authorized pursuant to the provisions of this Indenture and to make all further
agreements and stipulations which may be contained therein, and, in taking such action, the
Trustee shall be fully protected in relying on an Opinion of Counsel that such Supplemental
Indenture is authorized or permitted by this Indenture.
SECTION 9.3. ADOPTION AND FILING OF SUPPLEMENTAL
INDENTURES. Any Supplemental Indenture referred to and permitted or authorized by
Articles IX or X may be executed by the Institution and the Trustee, but shall become effective
only on the conditions, to the extent and at the time provided in such Articles. Every such
Supplemental Indenture so becoming effective shall thereupon form a part of this Indenture, and
this Indenture shall be and be deemed to be modified and amended in accordance therewith and
the respective rights, limitation of rights, obligations, duties and immunities under this Indenture
of the Institution, the Trustee and the Bondowners shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and amendments. Any
Supplemental Indenture shall be filed with the Trustee and the Institution. A copy of such
Supplemental Indenture shall be delivered to any Rating Agency then rating the Bonds.
SECTION 9.4. NOTATION ON BONDS. Bonds authenticated and delivered
after the effective date of any action taken as in Article IX or Article X may bear a notation by
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endorsement or otherwise in form approved by the Institution and the Trustee as to such action,
and in that case, upon demand of the Owner of any Outstanding Bond at such effective date and
presentation of such owner’s Bond for such purpose to the Trustee, suitable notation shall be
made on such Bond by the Trustee as to any such action. If the Institution shall so determine,
new Bonds so modified as in the opinion of the Institution to conform to such action shall be
prepared, authenticated and delivered, and upon demand of the owner of any Outstanding Bond
shall be exchanged, without cost to such Bondowner, for such Outstanding Bond upon surrender
of such Outstanding Bond to the Trustee.
ARTICLE X
CONSENTS TO SUPPLEMENTAL INDENTURES
SECTION 10.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT
OF BONDOWNERS. Notwithstanding any other provisions of this Article X, the Institution
and the Trustee may at any time or from time to time enter into a Supplemental Indenture
supplementing this Indenture or any Supplemental Indenture so as to modify or amend such
indentures, for one or more of the following purposes:
(a)
To add to the covenants and agreements of the Institution contained in this
Indenture or any Supplemental Indenture, other covenants and agreements thereafter to be
observed relative to the application, custody, use and disposition of the proceeds of the Bonds; or
(b)
To confirm, as further assurance, any pledge under and the subjection to
any lien on or pledge of the Revenues created or to be created by this Indenture or a
Supplemental Indenture; or
(c)
To cure any ambiguity, supply any omission, or cure or correct any defect
or inconsistent provision in this Indenture; or
(d)
To grant to or confer on the Trustee for the benefit of the Bondowners any
additional rights, remedies, powers, authority, or security which may lawfully be granted or
conferred and which are not contrary to or inconsistent with this Indenture as theretofore in
effect; or
(e)
To amend any provisions of this Indenture if, prior to the execution of any
such amendment there shall be delivered to the Trustee an Opinion of Counsel to the effect that
such amendment will not have a material adverse effect on the security, remedies or rights of the
Bondowners.
Supplemental Indentures for the above purposes may be adopted and executed
without the consent of any Bondowner.
SECTION 10.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF
BONDOWNERS. (a) At any time or from time to time but subject to the conditions or
restrictions contained in this Indenture and each Supplemental Indenture, a Supplemental
Indenture may be entered into by the Institution and the Trustee amending or supplementing this
Indenture, any Supplemental Indenture or any of the Bonds or releasing the Institution from any
44
of the obligations, covenants, agreements, limitations, conditions or restrictions therein
contained. However, no such Supplemental Indenture shall be effective unless such
Supplemental Indenture is approved or consented to by the Owners, obtained as provided in
Section 11.2, of at least a majority in aggregate principal amount of all Outstanding Bonds
affected thereby. In computing any such required percentage there shall be excluded from such
consent, and from such Outstanding Bonds, any such Outstanding Bonds owned or held by or for
the account of the Institution.
(b)
Notwithstanding the provisions of paragraph (a) of this Section, except as
provided in Section 10.3, no such modification changing any terms of redemption of Bonds, due
date of principal of or interest on Bonds or making any reduction in principal or Redemption
Price of and interest on any Bonds shall be made without the consent of the affected Bondowner.
(c)
Notwithstanding any other provisions of this Section, no Supplemental
Indenture shall be entered into by the Institution and the Trustee, except as provided in
Section 10.3, reducing the percentage of consent of Bondowners required for any modification of
this Indenture or any Supplemental Indenture or diminishing the pledge of the Revenues securing
the Bonds.
(d)
The provisions of paragraph (a) of this Section shall not be applicable to
Supplemental Indentures adopted in accordance with the provisions of Section 10.1.
SECTION 10.3. SUPPLEMENTAL INDENTURES BY UNANIMOUS
ACTION. Notwithstanding anything contained in the foregoing provisions of this Article, the
rights and obligations of the Institution and of the owners of the Bonds and the terms and
provisions of this Indenture, any Supplemental Indenture or the Bonds may be modified or
amended in any respect upon the adoption of a Supplemental Indenture by the Institution with
the consent of the Owners of all the Outstanding Bonds affected by such modification or
amendment, such consent to be given as provided in Section 11.2, except that no notice to
Bondowners by mailing shall be required; provided, however, that no such modification or
amendment shall change or modify any of the rights or obligations of the Trustee without its
written consent thereto in addition to the consent of the Bondowners so affected.
ARTICLE XI
PROCEDURES FOR BONDOWNER CONSENTS
SECTION 11.1. MAILING. Any provision in this Article or in Article IV
hereof for the mailing of a notice or other paper to the owners of the Bonds shall be fully
complied with if it is mailed or caused to be mailed, postage prepaid, by the Institution to each
registered Owner of Outstanding Bonds at the Bondowner’s address appearing upon the registry
books of the Institution and to the Trustee.
SECTION 11.2. CONSENT OF BONDOWNERS. When the Institution and
the Trustee enter into a Supplemental Indenture making a modification or amendment permitted
by and requiring the consent of the Bondowners pursuant to the provisions of Sections 10.2 or
10.3, such Supplemental Indenture shall take effect when and as provided in this Section. Upon
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the execution of such Supplemental Indenture, a copy thereof, certified by an Authorized Officer
of the Institution, shall be filed with the Trustee for the inspection of the Bondowners affected.
A copy of such Supplemental Indenture (or summary thereof) together with a request to such
Bondowners for their consent thereto in form satisfactory to the Trustee, shall be mailed or
caused to be mailed by the Institution to such Bondowners. Such Supplemental Indenture shall
not be effective unless and until there shall have been filed with the Trustee the written consents
of the percentages of owners of Outstanding Bonds in accordance with Sections 10.2 or 10.3.
Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for
which such consent is given, which proof shall be such as is permitted hereinafter by this
Section or Section 13.4. A certificate or certificates by the Trustee, which shall be placed on file,
that it examined such proof and that such proof is sufficient, shall be conclusive that the consents
have been given by the owners of the Bonds described in such certificate or certificates of the
Trustee. Any consent shall be binding upon the owner of the Bonds giving such consent and on
any subsequent owner of such Bonds (whether or not such owner has notice thereof) unless such
consent is revoked in writing by the owner of such Bonds giving such consent or a subsequent
owner by filing revocation with the Trustee prior to the date when the notice hereinafter in this
Section provided for is first given. The fact that a consent has not been revoked may likewise be
proved by a certificate of the Trustee which shall be placed on file. At any time after the owners
of the required percentage of Bonds shall have filed their consent to any Supplemental Indenture
a notice shall be given or caused to be given to such Bondowners by the Institution by mailing
such notice to such Bondowners (but failure to mail such notice shall not prevent such
Supplemental Indenture from becoming effective and binding as herein provided). The
Institution shall file with the Trustee proof of giving such notice. Such notice shall state in
substance that any Supplemental Indenture (which may be referred to as an indenture executed
by and between the Institution and the Trustee on a stated date, a copy of which is on file with
the Trustee) has been consented to by the owners of the required percentage of Bonds and shall
be effective as provided in this Section. A record, consisting of the papers required or permitted
by this Section to be filed with the Trustee, shall be proof of the matters therein stated. Upon
such notice, such Supplemental Indenture making such amendment or modification shall become
effective and conclusively binding upon the Institution, the Trustee, and the owners of all Bonds.
SECTION 11.3. EXCLUSION OF BONDS. Bonds owned or held by or for
the account of the Institution shall not be deemed Outstanding Bonds for the purpose of any
consent or other action or any calculation of Outstanding Bonds provided for in Article X, and
shall not be entitled to consent or take any other action provided for in Article X. At the time of
any consent or other action taken under Article X, the Institution shall furnish the Trustee a
certificate signed by an Authorized Officer upon which the Trustee may rely, describing all
Bonds so to be excluded.
ARTICLE XII
DEFEASANCE
SECTION 12.1. DEFEASANCE. (a) If the Institution shall pay or cause to be
paid, or there shall be otherwise paid, to the owners of all or any of the Bonds then Outstanding,
the principal or Redemption Price of and interest thereon, at the times and in the manner
stipulated therein and in this Indenture and any Supplemental Indenture, and all fees and
46
expenses of the Trustee and the Institution, then the pledge of any Revenues or other moneys and
securities hereby pledged to such Bonds and all other rights granted hereby to such Bonds shall
be discharged and satisfied. In such event, the Trustee shall, upon the request of the Institution,
execute and deliver to the Institution all such instruments as may be desirable to evidence such
discharge and satisfaction and the Trustee or other fiduciary shall pay or deliver to the Institution
all moneys or securities held by it pursuant to this Indenture and any Supplemental Indenture
which are not required for the payment or redemption of Bonds not theretofore surrendered for
such payment or redemption to be used by the Institution in any lawful manner including
distribution to the Institution.
(b)
Any Bonds for which moneys shall then be held by a trustee, which may
be the Trustee (through deposit by the Institution of funds for such payment or redemption or
otherwise), whether at or prior to the maturity or the redemption date of such Bonds, shall be
deemed to have been paid within the meaning and with the effect expressed in this Section. Any
Outstanding Bonds shall prior to the maturity or redemption date thereof be deemed to have been
paid within the meaning and with the effect expressed in subparagraph (a) of this Section if:
(i) in case any of such Bonds are to be redeemed on any date prior to their maturity, the
Institution shall have given to the Trustee, in form satisfactory to the Trustee, irrevocable
instructions to give notice of redemption on such date of such Bonds; (ii) there shall have been
deposited with the Trustee either moneys in an amount which shall be sufficient, or Defeasance
Obligations, the principal of and the interest on which when due will provide moneys which,
together with the moneys, if any, deposited with the Trustee at the same time, shall be sufficient,
to pay when due the principal or Redemption Price, if applicable, and interest due and to become
due on such Bonds on and prior to the redemption date or maturity date thereof, as the case may
be; (iii) there shall have been filed with the Trustee and the Institution (x) a report of a firm of
certified public accountants, acceptable to the Institution, confirming the arithmetical accuracy of
the computations showing the cash or Defeasance Obligations, the principal of and interest on
which, together with cash, if any, deposited at the same time will be sufficient to pay when due,
the principal or Redemption Price, if applicable, and interest due or to become due on such
Bonds, on and prior to the redemption date or maturity date thereof, as the case may be and
(y) an Opinion of Counsel, acceptable to the Institution, to the effect that upon provision for the
payment of the principal or Redemption Price, if applicable, of, and interest due or to become
due on such Bonds, the pledge of Revenues and other moneys and securities hereunder and the
grant of all rights to the Owners of such Bonds hereunder shall be discharged and satisfied and
all conditions precedent to defeasance set forth in this Indenture have been satisfied; and (iv) in
the event such Bonds are not by their terms subject to redemption within the next succeeding
sixty (60) days, the Institution shall have given the Trustee, in form satisfactory to the Trustee,
irrevocable instructions to mail, as soon as practicable, a notice to the owners of such Bonds that
the deposit required by (ii) above has been made with the Trustee and that such Bonds are
deemed to have been paid in accordance with this Section 12.1 and stating such maturity or
redemption date upon which moneys are to be available for the payment of the principal or
Redemption Price, if applicable, on such Bonds. Neither Defeasance Obligations deposited with
the Trustee pursuant to this Section nor principal or interest payments on any such securities
shall be withdrawn or used for any purpose other than the payment of the principal or
Redemption Price, if applicable, and interest on such Bonds; provided that any cash received
from such principal or interest payments on such Defeasance Obligations deposited with the
Trustee, if not then needed for such purpose, may, to the extent practicable, be reinvested in
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Defeasance Obligations maturing at times and in amounts sufficient to pay when due the
principal or Redemption Price, if applicable, and interest to become due on such Bonds on and
prior to such redemption date or maturity date thereof, as the case may be, and interest earned
from such reinvestment shall be paid over to the Institution to be used by it in any lawful manner
in furtherance of its “exempt purpose” as defined in Section 501(c)(3) of the Code, provided all
amounts owing to the Institution and the Trustee have been satisfied, free and clear of any trust,
lien or pledge. Nothing in this paragraph (b) shall be, or be deemed to be, a restriction on the
Institution’s ability to provide for Defeasance Obligation substitutions or restructuring provided
that the Defeasance Obligations shall at all times be in compliance with clause (ii) above, as
evidenced by a report of a firm of certified public accountants in compliance with
clause (iii)(x) above. Notwithstanding any provision of this Indenture, the Trustee shall have no
right of set off against any moneys and securities deposited under this subsection (b).
(c)
Anything in this Indenture to the contrary notwithstanding, any moneys
held by the Trustee in trust for the payment and discharge of any of the Bonds which remain
unclaimed for two (2) years after the date when all of the Bonds have become due and payable
either at their stated maturity dates or by a call for earlier redemption, if such moneys were held
by the Trustee at such date, or for two (2) years after the date of deposit of such moneys if
deposited with the Trustee after such date when all of the Bonds become due and payable, shall,
at the written request of the Institution be repaid by the Trustee to the Institution as its absolute
property and free from trust (to the extent permitted by law) to be used by the Institution in any
lawful manner in furtherance of its “exempt purpose” as defined in Section 501(c)(3) of the
Code, and the Institution and the Trustee shall thereupon be released and discharged of its
obligations with respect to the Bonds; provided, however, that, before being required to make
any such payment to the Institution, the Trustee shall mail to the Bondowners a notice that such
moneys remain unclaimed and that, after a date named in such notice, which date shall be not
less than forty (40) nor more than ninety (90) days after the date of mailing of such notice, the
balance of such moneys then unclaimed shall be returned to the Institution to be used by the
Institution in any lawful manner in furtherance of its “exempt purpose” as defined in
Section 501(c)(3) of the Code.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. MISCELLANEOUS POWERS AS TO BONDS AND
PLEDGE. The Institution represents that it is duly authorized under all applicable laws to create
and issue the Bonds, to execute this Indenture and any Supplemental Indenture, and to pledge the
Revenues and other moneys, securities and funds pledged by this Indenture in the manner and to
the extent provided herein and in any Supplemental Indenture. The Institution covenants that the
Revenues and other moneys, securities and funds so pledged are and shall be free and clear of
any pledge, lien, charge or encumbrance thereon or with respect thereto, prior to, or of equal rank
with, the pledge created by this Indenture and any Supplemental Indenture, and all corporate
action on the part of the Institution to that end has been duly and validly taken. The Institution
further covenants that the Bonds and the provisions of this Indenture and any Supplemental
Indenture are and shall be the valid and binding special obligations of the Institution in
accordance with their terms and the terms of this Indenture and any Supplemental Indenture.
48
The Institution further covenants that it shall at all times, to the extent permitted by law, defend,
preserve and protect the pledge of the Revenues and other moneys, securities and funds pledged
under and in accordance with this Indenture and any Supplemental Indenture, and all of the
rights of the Bondowners under and in accordance with this Indenture against all claims and
demands of all persons whomsoever.
SECTION 13.2. FURTHER ASSURANCE. The Institution covenants that at
any and all times the Institution shall, so far as it may be authorized by law, pass, make, do,
execute, acknowledge and deliver, all and every such further resolutions, acts, deeds,
conveyances, assignments, transfers and assurances as may be necessary or desirable for the
better assuring, conveying, granting, assigning and confirming all and singular the rights and
Revenues and other moneys, securities and funds hereby pledged or assigned, or intended so to
be, or which the Institution may hereafter bind itself to pledge or assign.
SECTION 13.3. NO RIGHTS CONFERRED ON OTHERS. Nothing herein
contained shall confer any right upon any person other than the Trustee, the Institution and the
Owners of the Bonds.
SECTION 13.4. EVIDENCE OF SIGNATURES OF BONDOWNERS AND
OWNERSHIP OF BONDS. Any request, consent or other instrument which this Indenture
may require or permit to be signed and executed by the Bondowners may be in one or more
instruments of similar tenor, and shall be signed or executed by such Bondowners in person or
by their attorneys or DTC proxies duly appointed in writing. Proof of the execution of any such
instrument, or of an instrument appointing any such attorney, or the holding by any person of
such Bonds, shall be sufficient for any purpose of this Indenture (except as otherwise herein
expressly provided) if made in the following manner:
(a)
The fact and date of the execution by any Bondowner or his
attorney of such instrument may be proved by the certificate, which need not be
acknowledged or verified, of an officer of a bank or trust company satisfactory to
the Trustee or of any notary public or other officer authorized to take
acknowledgments of deeds to be recorded in the state in which he purports to act,
the person signing such request or other instrument acknowledged to him the
execution thereof, or by an affidavit of a witness of such execution, duly sworn to
before such notary public or other officer. The authority of the person or persons
executing any such instrument on behalf of a corporate Bondowner may be
established without further proof if such instrument is signed by a person
purporting to be the president or a vice-president of such corporation with a
corporate seal affixed and attested by a person purporting to be its secretary or an
assistant secretary.
(b)
The amount of Bonds held by any person executing such request or
other instrument as a Bondowner, and the numbers and other identification
thereof, and the date of his holding such Bonds, may be proved by a certificate
(which need not be acknowledged or verified) satisfactory to the Trustee,
executed by an officer or partner of a bank, trust company, or other financial firm
or corporation satisfactory to the Trustee, showing that at the date therein
49
mentioned such person exhibited to such officer or partner or had on deposit with
such depository the Bonds described in such certificate. Continued ownership
after the date stated in such certificate shall be presumed unless and until a
certificate complying with the provisions of this paragraph (b), bearing a
subsequent date and relating to the same Bonds, shall be delivered to the Trustee.
The ownership of Bonds and the amount, numbers and other identification, and
date of holding the same shall be proved by the registry books. Any request, consent or vote of
the owner of any Bond shall bind all future owners of such Bond in respect of anything done or
suffered to be done or omitted to be done by the Institution or the Trustee in accordance
therewith.
SECTION 13.5. REMEDIES. The Bondowners and the Trustee acting for the
Bondowners shall be entitled to all of the rights and remedies provided or permitted by law
except as otherwise provided by this Indenture or any Supplemental Indenture.
SECTION 13.6. PRESERVATION AND INSPECTION OF DOCUMENTS.
All documents received by the Trustee from the Institution or Bondowners under the provisions
of this Indenture shall be retained in its possession and shall be subject at all reasonable times to
the inspection of the Institution, any Bondowner and their agents and their representatives, any of
whom may make copies thereof.
SECTION 13.7. MONEYS AND FUNDS HELD FOR PARTICULAR
BONDS. Subject to Section 12.1(c) hereof, the amounts held by the Trustee for the payment of
the principal or Redemption Price of and interest on the Bonds due on any date with respect to
particular Bonds shall, pending such payment, be set aside and held in trust by it for the owners
of such Bonds entitled thereto, and for the purposes of this Indenture such principal or
Redemption Price of and interest on such Bonds, due after such date thereof, shall no longer be
considered to be unpaid.
SECTION 13.8. CANCELLATION OF BONDS. The Trustee shall forthwith
cancel or cause to be cancelled all Bonds which have been redeemed or paid by it and may
cremate or otherwise destroy or dispose of such Bonds in accordance with its customary
practices and deliver a certificate to that effect to the Institution. No such Bonds shall be deemed
Outstanding Bonds under this Indenture and no Bonds shall be issued in lieu thereof.
SECTION 13.9. NO RECOURSE ON THE BONDS. No recourse shall be
had for the payment of the principal or Redemption Price of and interest on the Bonds or for any
claims based thereon or on this Indenture against any trustee, director, officer, employee or agent
of the Institution or any other Member of the Obligated Group or any person executing the
Bonds, all such liability, if any, being expressly waived and released by every Bondowner by the
acceptance of the Bond.
SECTION 13.10. SEVERABILITY OF INVALID PROVISION. If any one
or more of the covenants or agreements provided in this Indenture or a Supplemental Indenture
on the part of the Institution or the Trustee to be performed should be contrary to law, then such
covenant or covenants, agreement or agreements shall be null and void and shall in no way affect
50
the validity of the other provisions of this Indenture, such Supplemental Indenture or of the
Bonds.
SECTION 13.11. NOTICES. Any notices or other instruments delivered to the
Institution pursuant to this Indenture or a Supplemental Indenture shall be in writing and shall be
delivered or sent by registered or certified mail or overnight courier or Electronic Means to it at
its office at Hackensack Meridian Health, Inc, 343 Thornall Street, Edison, NJ 08837, Attention:
Chief Financial Officer, or such other address as it shall designate to the Trustee in writing, and
any notice, directions, instructions or other instrument delivered to the Trustee pursuant to this
Indenture or a Supplemental Indenture shall be in writing and shall be delivered or sent by
registered or certified mail or overnight courier or Electronic Means to it at the office of the
Trustee at The Bank of New York Mellon, 385 Rifle Camp Road, 3rd Floor, Woodland Park, NJ
07424, Attention: Corporate Trust Department, or such other address as it shall designate to the
Institution in writing. Notwithstanding the foregoing, unless otherwise consented to by the
Trustee, all notices sent to the Trustee with investment instructions shall be sent only by
facsimile, registered or certified mail, or overnight courier. The Trustee shall have the right to
accept and act upon instructions or directions pursuant to this Indenture in the form of a
manually signed document sent by Electronic Means, provided, however, that the Institution
shall provide to the Trustee an incumbency certificate listing designed persons with the authority
to provide such instructions and containing specimen signatures of such designated persons,
which incumbency certificate shall be amended whenever a person is to be added or deleted from
the listing. If the Institution elects to give the Trustee instruction or other communications via
Electronic Means, and the Trustee in its discretion elects to act upon such instructions, the
Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not
be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s
reliance upon and compliance with such instructions notwithstanding that such instructions
conflict or are inconsistent with a subsequent written instruction. The Institution agrees to
assume all risks arising out of the use of such electronic methods to submit instructions and
directions to the Trustee, including, without limitation, the risk of the Trustee acting on
unauthorized instructions, and the risk of interception and misuse by third parties.
In addition to notice provisions provided elsewhere in this Indenture, the
Institution shall provide notice of the following events to each Rating Agency for so long as such
Rating Agency shall maintain a rating on any Outstanding Bonds: (i) a change in the Trustee,
(ii) any amendment to this Indenture or (iii) any redemption, defeasance or acceleration of the
Bonds.
SECTION 13.12. SECONDARY MARKET DISCLOSURE. Certain members
of the Obligated Group have entered into continuing disclosure undertakings (the “Continuing
Disclosure Undertakings”) in connection with tax-exempt revenue bonds issued for the benefit of
the Institution and the other members of the Obligated Group (the “Tax-Exempt Bonds”).
Holders and prospective purchasers of the Bonds may obtain copies of the information provided
by the Institution and the other members of the Obligated Group under those Continuing
Disclosure Undertakings on the Municipal Securities Rulemaking Board’s Electronic Municipal
Market Access system (“EMMA”). Each Continuing Disclosure Undertaking terminates when
the related Tax-Exempt Bonds are paid or deemed paid in full. The Institution hereby covenants
that unless otherwise available on EMMA or any successor thereto or to the functions thereof
51
pursuant to the Continuing Disclosure Undertakings, copies of the Institution’s and its affiliates’
unaudited quarterly consolidated financial statements, and consolidated annual audited financial
statements, each with consolidating schedules for the Obligated Group, will either be posted on
the Institution’s website, posted on EMMA, or filed with the Trustee, provided, however, that the
Trustee shall have no responsibility whatsoever to determine if any such posting has occurred.
The failure of the Institution to comply with the covenants of this Section 13.12 shall not be
considered an Event of Default. As the sole and exclusive remedy for the Institution’s failure to
comply with this Section 13.12, the Trustee may (and, at the request of the Holders of at least
51% in aggregate principal amount of the Outstanding Bonds, shall), or any Bondowner or any
owner of a beneficial interest in a Bond or Bonds may, take such actions to seek specific
performance by court order and to cause the Institution to comply with its obligations under this
Section 13.12 and no person, including any Holder or any Beneficial Owner of the Bonds, may
recover monetary damages.
SECTION 13.13. HOLIDAYS. If the date for making any payment or the last
date for performance of any act or the exercising of any right as provided herein, shall not be a
Business Day, such payment may be made or act performed or right exercised on the next
succeeding Business Day, with the same force and effect as if done on the nominal date provided
herein, and no interest shall accrue for the period after such nominal date.
SECTION 13.14. SUCCESSORS AND ASSIGNS. All the covenants, promises
and agreements in this Indenture contained by or on behalf of the Institution or by or on behalf of
the Trustee shall bind and inure to the benefit of their respective successors and assigns, whether
so expressed or not.
SECTION 13.15. ARTICLE AND SECTION HEADINGS. The article and
section headings have been prepared for convenience only and are not a part of this Indenture
and shall not be taken as an interpretation of any provision of this Indenture.
SECTION 13.16. EFFECTIVE DATE. This Indenture and the lien thereof shall
become effective on the date and at the time on which the Bonds initially issued under this
Indenture are delivered.
SECTION 13.17. GOVERNING LAW. THE EFFECT AND MEANING OF
THIS INDENTURE AND THE RIGHTS OF ALL PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW JERSEY.
SECTION 13.18. COUNTERPARTS. This Indenture may be executed in
multiple counterparts, each of which shall be regarded for all purposes as an original and such
counterparts shall constitute but one and the same instrument.
52
IN WITNESS WHEREOF, the parties hereto have each caused this Indenture to
be executed by its duly authorized officer.
HACKENSACK MERIDIAN HEALTH, INC.
By:
Name:
Title:
THE BANK OF NEW YORK MELLON, as
Trustee
By:
Name:
Title: Vice President
53
ATTACHMENT A
(FORM OF SERIES 2017 BOND)
UNITED STATES OF AMERICA
STATE OF NEW JERSEY
AS PROVIDED IN THE INDENTURE REFERRED TO HEREIN, UNTIL
THE TERMINATION OF THE SYSTEM OF BOOK-ENTRY-ONLY TRANSFERS
THROUGH THE DEPOSITORY TRUST COMPANY (TOGETHER WITH ANY
SUCCESSOR SECURITIES DEPOSITORY APPOINTED PURSUANT TO THE
INDENTURE, “DTC”), AND NOTWITHSTANDING ANY OTHER PROVISION OF
THE INDENTURE TO THE CONTRARY, A PORTION OF THE PRINCIPAL
AMOUNT OF THIS BOND MAY BE PAID OR REDEEMED WITHOUT SURRENDER
HEREOF TO THE TRUSTEE. DTC OR A NOMINEE, TRANSFEREE OR ASSIGNEE
OF DTC AS OWNER OF THIS BOND MAY NOT RELY UPON THE PRINCIPAL
AMOUNT INDICATED HEREON AS THE PRINCIPAL AMOUNT HEREOF
OUTSTANDING AND UNPAID.
THE PRINCIPAL AMOUNT HEREOF
OUTSTANDING AND UNPAID SHALL FOR ALL PURPOSES BE THE AMOUNT
DETERMINED IN THE MANNER PROVIDED IN THE INDENTURE.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED OFFICER
OF DTC (A) TO THE TRUSTEE FOR REGISTRATION OF TRANSFER OR
EXCHANGE OR (B) TO THE TRUSTEE FOR PAYMENT OF PRINCIPAL, AND ANY
BOND ISSUED IN REPLACEMENT THEREOF OR SUBSTITUTION THEREFOR IS
REGISTERED IN THE NAME OF DTC OR ITS NOMINEE CEDE & CO., OR SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
AND ANY PAYMENT IS MADE TO DTC, ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, DTC OR ITS NOMINEE,
CEDE & CO., HAS AN INTEREST HEREIN.
HACKENSACK MERIDIAN HEALTH
TAXABLE BOND, SERIES 2017
NUMBER:
R-1
DATED DATE:
April __, 2017
INTEREST RATE:
__%
MATURITY DATE:
July 1, ____
CUSIP:
A-1
REGISTERED
OWNER:
Cede & Co.
PRINCIPAL AMOUNT: $__________
For value received, HACKENSACK MERIDIAN HEALTH, INC., a nonprofit
corporation duly organized and existing under laws of the State of New Jersey (the “Institution”),
acknowledges itself indebted and hereby promises to pay to the order of the Registered Owner,
or registered assigns, the Principal Amount on the Maturity Date, unless this bond shall have
been previously called for redemption and payment of the Redemption Price shall have been
duly made or provided for, with interest thereon from the Dated Date hereof to the Maturity
Date, payable on each Interest Payment Date (as provided in the hereinafter defined Indenture) at
a per annum interest rate (calculated as provided in the Indenture) equal to the Interest Rate
stated above. The interest on this bond is payable by wire or by check or draft mailed by the
Trustee to the Registered Owner of record at the close of business on the applicable Record Date
preceding each Interest Payment Date at the address shown on the registration books unless an
alternate method of payment shall be agreed upon by the Trustee and the Registered Owner;
provided, however, that such alternate method of payment is subject to the approval of the
Institution, which approval will not unreasonably be withheld. The Principal Amount is payable
when due only upon presentation and surrender of this bond at the Corporate Trust Office of The
Bank of New York Mellon, or its successor as Trustee (the “Trustee”); except that until
termination of the system of book-entry-only transfers through The Depository Trust Company
or a successor securities depository appointed pursuant to the Indenture (hereinafter defined),
and notwithstanding any other provision of the Indenture to the contrary, a portion of the
Principal Amount (other than a portion payable upon redemption in whole or upon final
maturity) may be paid or redeemed in accordance with the Indenture without surrender of this
bond to the Trustee as hereinbefore described.
This bond is issuable in the denominations authorized under the Indenture.
This bond has been duly issued by the Institution under and pursuant to the Trust
Indenture, dated as of April 1, 2017 (the “Indenture”), by and between the Institution and the
Trustee. This bond is a general obligation of the Institution secured by a pledge of, equally and
ratably with all other bonds of this issue, the Revenues (as defined in the Indenture) derived by
or for the account of the Institution. This bond is one of a total authorized issue of
$____________ all of like tenor except as to date, interest rate, maturity, number and amount.
The bonds of this issue shall be issued as the Institution’s Taxable Bonds, Series 2017 (the
“Bonds”). Reference is hereby made to the Indenture for a description of the funds, revenues
and charges pledged thereunder, the nature and extent of the security thereby created, and the
rights, limitation of rights, obligations, duties and immunities of the Institution, the Trustee, and
the owners of the bonds. Certified copies of the Indenture are on file in the office of the
Institution.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Indenture.
A-2
The Bonds are subject to redemption prior to maturity as provided in the
Indenture. If less than all the Bonds of a maturity are to be redeemed, the Bonds (or portions
thereof) to be so redeemed shall be selected by the Trustee as provided in the Indenture.
In the event this bond shall be called for redemption, notice of such redemption
shall be given by the Trustee in accordance with the terms of the Indenture by mail addressed to
the Registered Owner not more than forty-five (45) nor less than thirty (30) days prior to the
redemption date. Notice of redemption having been given as aforesaid, and any conditions for
such redemption having been met, the Bonds so called for redemption, on the date specified in
such notice, shall become due and payable at 100% of the principal amount thereof plus any
applicable premium and from and after the date so fixed for redemption, interest on the Bonds so
called for redemption shall cease to accrue if, on the redemption date, moneys for the redemption
of all Bonds to be redeemed, together with interest to the redemption date, shall be held by the
Trustee so as to be available therefor on such date. If such moneys shall not be so available on
the redemption date, such Bonds shall continue to bear interest until paid at the same rate as they
would have borne had they not been called for redemption, and in the case of optional
redemption, the Bonds shall continue to be due on their original maturity dates as if the Bonds
had not been called for redemption.
In case an Event of Default, as defined in the Indenture, shall occur, the principal
of this bond may be declared due and payable in the manner and with the effect provided in the
Indenture.
No recourse shall be had for the payment of the principal of or interest on this
bond against any trustee, director, officer, employee or agent of any member of the Obligated
Group (as defined in the Indenture), or any person executing this bond, all such liability, if any,
being hereby expressly waived and released by the Registered Owner of this bond by the
acceptance hereof and as a part of the consideration hereof, as provided in the Indenture.
The Indenture contains provisions permitting the Institution, with the consent of
the Registered Owners of not less than a majority in aggregate principal amount of the Bonds
Outstanding, evidenced as in the Indenture provided, to adopt supplemental indentures
modifying any of the provisions of the Indenture or any supplemental indenture or of the Bonds
or releasing the Institution from any of the obligations, covenants, agreements, limitations,
conditions or restrictions therein contained; provided, however, that no such supplemental
indenture shall: (i) change any terms of redemption of Bonds or the due date of principal of or
interest on Bonds or make any reduction in principal or redemption price of and interest on any
Bond, without the consent of the Registered Owners affected thereby; or (ii) diminish the pledge
of the Revenues securing the Bonds or reduce the aforesaid percentage of Bonds, the consent of
the Registered Owners of which is required for any such supplemental indenture, without the
consent of the Registered Owners of all Bonds then Outstanding. In addition, the Indenture
contains provisions permitting the Institution to adopt supplemental indentures without the
consent of the Owners of the Bonds upon the terms and conditions specified in the Indenture.
This bond is a negotiable instrument for all purposes and shall be transferable, as
provided in the Indenture, only upon the books of the Institution kept for that purpose at the
above-mentioned office of the Trustee by the Registered Owner hereof in person, or by his or her
A-3
duly authorized attorney, upon surrender of this bond together with a written instrument of
transfer satisfactory to the Trustee duly executed by the Registered Owner or his or her duly
authorized attorney, and thereupon a new registered Bond or Bonds, and in the same aggregate
principal amount, maturity date and interest rate, shall be issued to the transferee in exchange
therefor as provided in the Indenture, and upon payment of the charges therein prescribed. The
Trustee will not be required to make an exchange or transfer of this bond during the period from
each Record Date to the following Interest Payment Date or during the forty-five (45) days
preceding any date fixed for redemption if this bond (or any part thereof) is eligible to be
selected or has been selected for redemption.
The Institution and the Trustee may deem and treat the person in whose name this
bond is registered as the absolute owner hereof for the purpose of receiving payment of, or on
account of, the principal and interest due and for all other purposes and neither the Institution nor
the Trustee shall be affected by any notice to the contrary.
It is hereby certified and recited by the Institution that all acts, conditions and
things necessary to be done, precedent to and in the issuance of the Bonds of the issue of which
this bond is a part in order to make them the legal, valid and binding general obligations of the
Institution in accordance with their terms, have been done, have happened and have been
performed in regular and due form as required by law, and that the issuance of such Bonds does
not exceed or violate any constitutional, statutory or other limitation upon the amount of the
bonded indebtedness prescribed by law for the Institution.
This bond shall not be valid or obligatory for any purpose until the certificate of
authentication hereon shall have been manually signed by the Trustee.
A-4
IN WITNESS WHEREOF, HACKENSACK MERIDIAN HEALTH, INC. has
caused this bond to be executed in its name by a manual or a facsimile signature of its
Authorized Officer, all as of the Dated Date.
HACKENSACK MERIDIAN HEALTH,
INC.
By:
Name:
Title:
TRUSTEE’S AUTHENTICATION CERTIFICATE
This bond is one of the Bonds of Hackensack Meridian Health, Inc. described in
the within-mentioned Indenture.
THE BANK OF NEW YORK MELLON, as
Trustee
By:
Name:
Title: Vice President
Date of Authentication: April __, 2017
A-5
[FORM OF ASSIGNMENT]
Assignment
For value received the undersigned hereby sells, assigns and transfers this bond to
(Name and Address of Assignee)
(Social Security or Other Taxpayer Identification Number of Assignee)
issued by Hackensack Meridian Health, Inc., and all rights thereunder, hereby irrevocably
appointing _________________________________________________________ to transfer
this bond on the books of Hackensack Meridian Health, Inc. kept and maintained for registration
of this bond by such entity as Trustee with full power of substitution in the premises.
Dated:
SIGNATURE GUARANTY:
Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of
the registrar, which requirements include membership or participation in the Security Transfer
Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be
determined by the registrar in addition to, or in substitution for STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
Signature Guaranteed:
By:
Authorized Signature
Note: The signature to this assignment must correspond with the name as written on the face of
this bond without alterations or enlargement or other change.
A-6
ATTACHMENT B
STANDING INVESTMENT INSTRUCTIONS
B-1
MASTER TRUST INDENTURE
by and between
HACKENSACK MERIDIAN HEALTH, INC.
and
THE BANK OF NEW YORK MELLON,
as Master Trustee
Dated as of April 1, 2017
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND CERTAIN GENERAL PROVISIONS Section 101. Section 102. Section 103. Section 104. Section 105. Definitions................................................................................................................2 Interpretation ..........................................................................................................20 Accounting Principles and Financial Reporting ....................................................21 Delivery of Financial Statements ...........................................................................22 Treatment of Debt Obligations Securing Related Bonds .......................................22 ARTICLE II
THE OBLIGATIONS Section 201. Section 202. Section 203. Section 204. Section 205. Section 206. Section 207. Section 208. Section 209. Section 210. Section 211. Section 212. Series, Designation and Amount of Obligations....................................................23 Payment of Obligations..........................................................................................23 Execution ...............................................................................................................24 Authentication ........................................................................................................24 Form of Obligations ...............................................................................................25 Mutilated, Lost, Stolen or Destroyed Obligations .................................................25 Registration; Negotiability; Cancellation Upon Surrender; Exchange of
Obligations .............................................................................................................25 Security for Obligations; Pledge of Gross Revenues; Collateral Assignment .......26 Issuance of Obligations in Forms Other than Notes ..............................................29 Substitute Obligations upon Withdrawal of a Member .........................................30 Appointment of Combined Group Agent ..............................................................30 Conditions to Issuance of Obligations Hereunder .................................................31 ARTICLE III
PREPAYMENT OR REDEMPTION OF OBLIGATIONS Section 301. Prepayment or Redemption Dates and Prices ........................................................31 ARTICLE IV
GENERAL COVENANTS Section 401. Payment of Principal, Premium, if any, and Interest and Other Amounts;
Designated Affiliates and System Affiliates ..........................................................31 Section 402. Performance of Covenants .....................................................................................33 Section 403. Entrance into the Obligated Group ........................................................................33 Section 404. Cessation of Status as a Member of the Obligated Group .....................................34 Section 405. General Covenants; Right of Contest ....................................................................35 Section 406. Insurance; Proceeds; Awards .................................................................................37 Section 407. Annual Debt Service Coverage Ratio ....................................................................38 Section 408. Permitted Reorganizations .....................................................................................39 Section 409. Financial Statements, Etc. ......................................................................................41 (i)
TABLE OF CONTENTS
(continued)
Page
Section 410. Section 411. Section 412. Section 413. Section 414. Section 415. Section 416. Section 417. Section 418. Section 419. Permitted Indebtedness ..........................................................................................42 Permitted Dispositions ...........................................................................................45 No Lien on Gross Revenues; Permitted Encumbrances ........................................46 Permitted Releases .................................................................................................46 Indemnity ...............................................................................................................47 Debt Service on Balloon Indebtedness ..................................................................48 Debt Service on Variable Rate Indebtedness .........................................................49 Debt Service on Discount Indebtedness ................................................................49 Debt Service on Guarantees ...................................................................................49 Right to Consent, Etc. ............................................................................................50 ARTICLE V
REMEDIES Section 501. Section 502. Section 503. Section 504. Section 505. Section 506. Section 507. Section 508. Section 509. Section 510. Section 511. Section 512. Section 513. Section 514. Events of Default ...................................................................................................50 Acceleration ...........................................................................................................52 Remedies; Rights of Obligation Holders ...............................................................52 Direction of Proceedings by Holders .....................................................................53 Appointment of Receivers .....................................................................................54 Application of Moneys ..........................................................................................54 Remedies Vested in Master Trustee ......................................................................56 Rights and Remedies of Obligation Holders .........................................................56 Termination of Proceedings ...................................................................................56 Waiver of Events of Default ..................................................................................57 Members’ Rights of Possession and Use of Property ............................................57 Related Bond Trustee or Bondholders Deemed To Be Obligation Holders ..........57 Remedies Subject to Provisions of Law ................................................................58 Notice of Default....................................................................................................58 ARTICLE VI
THE MASTER TRUSTEE Section 601. Section 602. Section 603. Section 604. Section 605. Section 606. Section 607. Section 608. Section 609. Acceptance of the Trusts ........................................................................................58 Fees, Charges and Expenses of Master Trustee .....................................................61 Notice to Obligation Holders if Default Occurs ....................................................61 Intervention by Master Trustee ..............................................................................61 Successor Master Trustee ......................................................................................62 Corporate Master Trustee Required; Eligibility ....................................................62 Resignation by the Master Trustee ........................................................................62 Removal of the Master Trustee ..............................................................................62 Appointment of Successor Master Trustee by the Obligation Holders;
Temporary Master Trustee .....................................................................................62 Section 610. Concerning Any Successor Master Trustee ...........................................................63 Section 611. Master Trustee Protected in Relying Upon Resolutions, Etc. ...............................63 Section 612. Successor Master Trustee as Trustee of Funds and Obligation Registrar .............63 (ii)
TABLE OF CONTENTS
(continued)
Page
Section 613. Maintenance of Records ........................................................................................64 Section 614. List of Obligation Holders .....................................................................................64 Section 615. Master Trustee as Registrar ...................................................................................64 ARTICLE VII
SUPPLEMENTAL INDENTURES Section 701. Section 702. Section 703. Section 704. Supplemental Indentures Not Requiring Consent of Obligation Holders .............64 Supplemental Indentures Requiring Consent of Obligation Holders ....................66 Note and Document Substitution ...........................................................................67 Execution of Supplemental Indentures ..................................................................70 ARTICLE VIII
SATISFACTION OF THE MASTER TRUST INDENTURE Section 801. Defeasance .............................................................................................................70 Section 802. Provision for Payment of a Particular Series of Obligations or Portion Thereof ..71 Section 803. Satisfaction of Related Bonds ................................................................................72 ARTICLE IX
MANNER OF EVIDENCING OWNERSHIP OF OBLIGATIONS Section 901. Proof of Ownership ................................................................................................72 ARTICLE X
MISCELLANEOUS Section 1001. Limitation of Rights ...............................................................................................73 Section 1002. Unclaimed Moneys ................................................................................................73 Section 1003. Severability ............................................................................................................73 Section 1004. Notices ...................................................................................................................74 Section 1005. Instructions to the Master Trustee..........................................................................74 Section 1006. Counterparts ...........................................................................................................74 Section 1007. Applicable Law ......................................................................................................75 Section 1008. Immunity of Officers, Employees and Members ...................................................75 Section 1009. Holidays .................................................................................................................75 Section 1010. No Additional Terms or Restrictions .....................................................................75 Exhibit A — List of Members of the Obligated Group .............................................................. A-1
Exhibit B — List of Designated Affiliates ..................................................................................B-1
Exhibit C — Pre-Existing Liens ..................................................................................................C-1
Exhibit D — Acknowledgement and Authentication of Security Agreement ............................ D-1
(iii)
MASTER TRUST INDENTURE
This MASTER TRUST INDENTURE dated as of April 1, 2017 (this “Master Trust
Indenture”), by and between HACKENSACK MERIDIAN HEALTH, INC., a New Jersey
nonprofit corporation (the “Corporation” or the “Combined Group Agent”), on behalf of itself
and any future members of the Obligated Group (as hereinafter defined), and THE BANK OF
NEW YORK MELLON, a banking corporation organized and existing under the laws of the
State of New York with fiduciary and trust powers in the State of New Jersey, and having a
designated corporate trust office at 385 Rifle Camp Road, Woodland Park, New Jersey 07424, as
master trustee (the “Master Trustee”).
RECITALS:
The Corporation is authorized by law, and deems it necessary and desirable that it and
any other future Members of the Obligated Group be able to issue promissory notes, guarantees
and other evidences of indebtedness or to evidence or secure other financial obligations
(collectively, as defined herein, the “Obligations”) of several series in order to secure the
financing or refinancing of health care and other facilities and for other lawful and proper
corporate purposes of the Members of the Obligated Group and their affiliates.
The Corporation desires to provide in this Master Trust Indenture for other legal entities
in the future to become jointly and severally liable with the Corporation for the payment of the
Obligations and the performance of all covenants contained herein. The Corporation and each
other entity incurring such joint and several liability in accordance with the terms hereof are
hereinafter referred to individually as a “Member of the Obligated Group” and collectively as the
“Members of the Obligated Group” or the “Obligated Group.”
All acts and things necessary to constitute these presents a valid indenture and agreement
according to its terms, have been done and performed, and the execution of this Master Trust
Indenture has in all respects been duly authorized, and the Corporation, in its capacity as the
Combined Group Agent, and in the exercise of the legal right and power vested in it, executes
this Master Trust Indenture, on behalf of itself and any future Member of the Obligated Group,
and the Corporation and any future Member of the Obligated Group may make, execute, issue
and deliver one or more Obligations of various series.
In order to declare the terms and conditions upon which Obligations of each series are
authenticated, issued and delivered, and in consideration of the premises, the purchase and
acceptance of Obligations of each series by the holders thereof and the sum of One Dollar to it
duly paid by the Master Trustee at the execution of these presents, the receipt whereof is hereby
acknowledged, the Corporation and each future Member of the Obligated Group, covenant and
agree with the Master Trustee, for the equal and proportionate benefit of the respective holders
from time to time of Obligations of each series, as follows:
ARTICLE I
DEFINITIONS AND CERTAIN
GENERAL PROVISIONS
Section 101. Definitions. In addition to the words and terms elsewhere defined
in this Master Trust Indenture, the following words and terms as used in this Master Trust
Indenture shall have the following meanings unless the context or use indicates another or
different meaning or intent:
“Accounts” has the meaning set forth in the New Jersey Uniform Commercial Code.
“Affiliate” means a corporation, limited liability company, partnership, joint venture,
association, business trust or similar entity (a) which is controlled directly or indirectly by a
Member of the Obligated Group or any Designated Affiliate; or (b) a majority of the members of
the Directing Body of which are members of the Directing Body of a Member of the Obligated
Group or any Designated Affiliate. For the purposes of this definition, control means with
respect to: (a) a corporation having stock, the ownership, directly or indirectly, of more than
50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of
any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the directors of such corporation; (b) a not for profit corporation not having
stock, having the power to elect or appoint, directly or indirectly, a majority of the members of
the Directing Body of such corporation; or (c) any other entity, the power to direct the
management of such entity through the ownership of at least a majority of its voting securities or
the right to designate or elect at least a majority of the members of its Directing Body, by
contract or otherwise. For the purposes of this definition, “Directing Body” means with respect
to: (a) a corporation having stock, such corporation’s board of directors and the owners, directly
or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act
of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect a majority of the corporation’s directors (both of which groups
shall be considered a Directing Body); (b) a not for profit corporation not having stock, such
corporation’s members if the members have complete discretion or reserved approval rights to
elect the corporation’s directors, or the corporation’s directors or governing board or body if the
corporation’s members do not have such discretion or if the corporation is a non-member
corporation; and (c) any other entity, its governing board or body. For the purposes of this
definition, all references to directors and members shall be deemed to include all entities
performing the function of directors or members however denominated.
“Ancillary Obligation” means an Obligation, expressly identified as an Ancillary
Obligation in such Obligation, in a Supplemental Indenture or in an Officer’s Certificate
delivered to the Master Trustee, as being entered into in order to evidence or secure financial
obligations of a Member of the Obligated Group in an agreement that is ancillary to any direct
Indebtedness, such as a reimbursement agreement, liquidity agreement, standby bond purchase
agreement, bond insurance or credit enhancement agreement, continuing covenants agreement,
bondholder agreement, rate maintenance agreement or similar agreement, unless and until and to
the extent any such agreement constitutes a direct obligation of a Member of the Obligated
Group to repay money borrowed, credit extended or the equivalent thereof, at which time such
Obligation shall be deemed to be a Debt Obligation.
2
“Balloon Indebtedness” means (1) Long-Term Indebtedness, fifteen percent (15%) or
more of the initial principal amount of which Long-Term Indebtedness matures (or is payable at
the option of the holder) in any twelve month period, if such fifteen percent (15%) or more is not
to be amortized to below fifteen percent (15%) by mandatory redemption prior to such twelve
month period, or (2) any portion of an issue of Indebtedness which, if treated as a separate issue
of Long-Term Indebtedness, would meet the test set forth in clause (1) of this definition and
which Indebtedness is designated as Balloon Indebtedness in an Officer’s Certificate stating that
such portion shall be deemed to constitute a separate issue of Balloon Indebtedness.
“Board Resolution” means a copy of a resolution certified by the Secretary or an
Assistant Secretary of a Person to have been duly adopted by the Governing Body of such Person
and to be in full force and effect on the date of such certification, and delivered to the Master
Trustee.
“Bondholder,” “holder of Bonds” or “owner of the Bonds” means the registered owner
of any Related Bond.
“Bond Index” means, at the option of the Combined Group Agent as set forth in an
Officer’s Certificate, either (i) the 30-year Revenue Bond Index published most recently by The
Bond Buyer, or a comparable index if such Revenue Bond Index is not so published, (ii) the
SIFMA Index, or (iii) such other interest rate or interest index as may be certified in writing to
the Master Trustee as appropriate to the situation by the Combined Group Agent.
“Book Value,” when used with respect to Property, means the value of such Property, net
of accumulated depreciation and amortization, as reflected in the most recent consolidated
audited financial statements of the Combined Group or, at the option of the Combined Group
Agent, the System (if permitted by Section 103(b) of this Master Trust Indenture), which have
been prepared in accordance with GAAP, provided that such aggregate value shall be calculated
in such a manner so that no portion of the value of any Property of any System Affiliate or
Member of the Combined Group, as the case may be, is included more than once.
“Business Day” means a day which is not (a) a Saturday, Sunday or legal holiday on
which banking institutions in the State of New Jersey or the State of New York are authorized or
required by law to close or (b) a day on which the New York Stock Exchange is closed.
“Capitalization” means, as of any date of calculation, the sum of all outstanding LongTerm Indebtedness and Unrestricted Net Assets of the Combined Group or, at the option of the
Combined Group Agent, the System (if permitted by Section 103(b) of this Master Trust
Indenture).
“Capitalized Interest” means amounts irrevocably deposited in escrow to pay interest on
Long-Term Indebtedness or Related Bonds and interest earned on amounts irrevocably deposited
in escrow to the extent such interest earned is required to be applied to pay interest on LongTerm Indebtedness or Related Bonds.
“Capitalized Lease” means any lease of real or personal property which, in accordance
with GAAP, is required to be capitalized on the balance sheet of the lessee; provided, however,
that no Capitalized Operating Lease or lease between a Member of the Combined Group and
3
either another Member of the Combined Group or a System Affiliate shall be considered a
Capitalized Lease.
“Capitalized Operating Lease” means any lease of real or personal property entered into
by a Member of the Combined Group or any other Person, as the case may be, which was
initially deemed to be an operating lease in accordance with GAAP, but is subsequently and
retroactively deemed to be a capital operating lease in accordance with GAAP at a later date and
is required to be capitalized on the balance sheet of such Member of the Combined Group or
other Person.
“Capitalized Rentals” means, as of the date of determination, the amount at which the
aggregate Net Rentals due and to become due under a Capitalized Lease under which a Person is
a lessee would be reflected as a liability on a balance sheet of such Person.
“Chattel Paper” has the meaning set forth in the New Jersey Uniform Commercial Code.
“Code” means the Internal Revenue Code of 1986, as amended from time to time. Each
reference to a section of the Code herein shall be deemed to include the United States Treasury
Regulations, including temporary and proposed regulations, relating to such section which are
applicable to the Related Bonds or the use of the proceeds thereof.
“Combined Group” means, collectively, all of the Members of the Combined Group.
“Combined Group Agent” means the Corporation or such other Member of the
Obligated Group as may be designated from time to time pursuant to written notice to the Master
Trustee, executed by an authorized officer of the Corporation or, if the Corporation is no longer a
Member of the Obligated Group, of each Member of the Obligated Group.
“Commodities Accounts” has the meaning set forth in the New Jersey Uniform
Commercial Code.
“Completion Indebtedness” means any Indebtedness incurred for the purpose of
financing the completion of constructing or equipping facilities for the construction or equipping
of which some Indebtedness has theretofore been incurred in accordance with the provisions of
this Master Trust Indenture, to the extent necessary to provide a completed and equipped facility
of the type and scope contemplated at the time, and in accordance with the general plans and
specifications for such facility as originally prepared with only such changes as have been made
in conformity with the documents pursuant to which such Indebtedness was originally incurred,
including funding debt service reserve funds related thereto.
“Consultant” means a professional consulting, financial advisory, accounting,
investment banking or commercial banking firm selected by the Combined Group Agent and not
unacceptable to the Master Trustee, having the skill and experience necessary to render the
particular report required and having a favorable and nationally recognized reputation for such
skill and experience, which firm does not control any Member of the Combined Group or any
Affiliate thereof and is not controlled by or under common control with any Member of the
Combined Group or an Affiliate thereof.
4
“Contract Rights” has the meaning set forth in the New Jersey Uniform Commercial
Code.
“Controlling Member” means the Member of the Obligated Group or the Member of the
Combined Group, as applicable, designated by the Combined Group Agent to establish and
maintain control over a Designated Affiliate as provided by Section 401(C).
“Corporation” means Hackensack Meridian Health, Inc., a New Jersey nonprofit
corporation, and its successors and assigns and any surviving, resulting or transferee corporation.
“Counsel” means an attorney duly admitted to practice law before the highest court of
any state and, without limitation, may include legal counsel for any Member of the Combined
Group or for the Master Trustee.
“Current Assets” means cash and cash equivalent deposits, marketable securities,
accounts receivable, accrued interest receivable and any other assets of a Person ordinarily
considered current assets under GAAP.
“Current Value” means the estimated fair market value of Property as reasonably
determined by the Combined Group Agent, which fair market value shall be evidenced by an
Officer’s Certificate delivered to the Master Trustee.
“Days Cash on Hand” means (a) cash, marketable securities, internally and Governing
Body-designated funds (but excluding donor restricted gifts, grants, bequests, donations or
contributions and any income therefrom and funds held by any Related Bond Trustee for the
payment of the principal of and interest on any Related Bonds or the Master Trustee or any other
trustee for the payment of the principal of and interest on any Obligations) of all Members of the
Combined Group or, at the option of the Combined Group Agent, the System (if permitted by
Section 103(b) of this Master Trust Indenture) at the conclusion of each Fiscal Year of the
Combined Group or the System, as applicable, divided by (b) the amount resulting from dividing
(i) Operating Expenses less non-cash expenses (including, but not limited to, depreciation,
amortization, and any provision for bad debt), as determined in accordance with GAAP, at the
conclusion of such Fiscal Year of the Combined Group or the System, as applicable, by (ii) the
number of days in such Fiscal Year. All securities shall be valued at fair market value for
purposes of this definition.
“Debt Obligation” means an Obligation issued to secure or evidence any Indebtedness,
including but not limited to a Guaranty (other than an Obligation expressly identified as an
Ancillary Obligation or a Hedging Obligation), authorized to be issued by a Member of the
Obligated Group pursuant to this Master Trust Indenture that has been authenticated by the
Master Trustee pursuant to Section 204 hereof.
“Debt Service Requirement” means, when not otherwise specified herein, as the context
requires, either the Historic Debt Service Requirement or the Pro-forma Debt Service
Requirement.
“Debt to Capitalization Ratio” means, as of any date of calculation, the ratio determined
by dividing (i) the Long-Term Indebtedness of the Combined Group or, at the option of the
Combined Group Agent, the System (if permitted by Section 103(b) of this Master Trust
5
Indenture), by (ii) the Capitalization of the Combined Group or, at the option of the Combined
Group Agent, the System (consistent with whether Indebtedness was used for the Combined
Group or the System for purposes of clause (i) of this definition).
“Designated Affiliate” means any Person which has been designated as such in
accordance with Section 401(B) hereof so long as such Person’s status as a Designated Affiliate
has not been terminated as provided in Section 401(B). The Designated Affiliates, as of the date
of this Master Trust Indenture, are listed on Exhibit B hereto. The Combined Group Agent may
from time to time deliver a revised Exhibit B to the Master Trustee, indicating additions or
deletions of Designated Affiliates.
“Discount Indebtedness” means Indebtedness sold to the original purchaser thereof
(other than any underwriter or other similar intermediary) at a discount from the par amount of
such Indebtedness.
“Documents” means all documents, as that term is defined in the New Jersey Uniform
Commercial Code, including, but not limited to, documents of title (as that term is defined in the
New Jersey Uniform Commercial Code) and any and all receipts of the kind described in Article
7 of the New Jersey Uniform Commercial Code.
“Electronic Means” means the following communications methods: e-mail, facsimile
transmission, secure electronic transmission containing applicable authorization codes,
passwords and/or authentication keys issued by the Master Trustee, or another method or system
specified by the Master Trustee as available for use in connection with its services hereunder.
“Escrow Securities” means, (i) with respect to any Obligation which secures a series of
Related Bonds, the securities permitted to be used to refund or advance refund such series of
Related Bonds under the Related Bond Indenture, or (ii) with respect to any other Obligation,
those securities identified as such in the Supplemental Indenture pursuant to which such
Obligations were issued.
“Expenses” means, for any period, the aggregate of all unrestricted expenses calculated
under GAAP, including without limitation any taxes, incurred by the Person or group of Persons
involved during such period, minus or before (or adding back) interest on Long-Term
Indebtedness, depreciation, amortization, and payments on Obligations to the extent such
payments are treated as an expense; provided that no calculation of Expenses shall take into
account: (a) any unrealized loss resulting from changes in the value of, investment securities,
including, but not limited to, any unrealized other-than-temporary impairment loss that is
recognized in accordance with GAAP, (b) extraordinary or nonrecurring expenses or losses
(including without limitation any losses on the sale or other disposition of assets or facilities not
in the ordinary course of business), (c) any losses resulting from discontinued operations or any
reappraisal, revaluation or write-down of any asset, facility or good-will, and any loss or expense
resulting from adjustments to prior periods, (d) any unrealized losses on or related to, including
marking to market, any Hedging Obligations or other hedges or derivatives, (e) any accounting
reserves or losses or expenses or other items that would be considered by the Combined Group
Agent to be non-cash items of the Person or group of Persons in