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Home My WebLink About20154120.tiff NCMC BOARD OF TRUSTEES Regular Session Meeting Monday, December 14, 2015 Attachment 1 Minutes of Regular Session of November 30, 2015 * * - Action Required NCMC Board of Trustees Regular Session Minutes Monday, November 30, 2015 12:00 Noon The Board of Trustees of North Colorado Medical Center met in Regular Session on Monday, November 30, 2015, in the Richard Stenner Boardroom located at North Colorado Medical Center. Mr. Houtchens declared a quorum and called the meeting to order at 12:00 p.m. ATTENDANCE REPORT NCMC Board of Trustees: Dr. Susan Carter, Catherine Davis, Brandon Houtchens, Mark Lawley, Michael Simone, Brian Underwood,Jason Yeater, and Sean Conway (Commissioner, non-voting member) Banner Health: Rick Sutton (NCMC CEO) and Wendy Sparks (NCMC COO) Staff: Ken Schultz (Board Executive) Recording Clerk: Esther Gesick (Weld County Clerk to the Board) PUBLIC COMMENT There was no public comment. APPROVAL OF MINUTES It was MSC [Simone/Davis] to approve the minutes from the October 26, 2015, Regular Session meeting. NEW BUSINESS None CEO REPORT or COO REPORT NCMC COO, Wendy Sparks, gave the following report: . Employees - The Holiday Buffet is scheduled for Wednesday, December 2, 2015, in the new Bistro, so there is a lot of planning in preparation for that. Secondly, the Managers are still working on their Action Plans to increase employee engagement. . Patient Satisfaction - October had fantastic results and November is looking good. Year-to-Date (YTD) target is being met on three of the eight dimensions; however, they are hitting all eight targets on the rolling three months, so they are seeing great progress. . Quality-Target is still being met on the two quality initiatives of Total Joint Care and Heart Failure Care. . Financials - The Greeley Community had an operating loss of $1 million; however, YTD there is an operating gain of$12.2 million, so the facility remains ahead of budget. She explained the operating loss was due to BMG Provider fees that had to be paid to the state. The NOCO area is showing an operating gain of$4.3 million YTD. In response to Page 1 of 3 November 30,2015 NCMC Board of Trustees Mark Lawley, Rick Sutton stated they are in good standing in comparison to last year. Brandon questioned whether there are any unusual initiatives for next year, to which Wendy stated there is a nation-wide push to do advanced directives. The goal is to get 10% of the employees on the Banner insurance plan to fill out their own advanced directives to better equip them to promote the concept to others. Brandon commented the standard form generally takes two physicians to make several determinations and from a legal standpoint he encourages people to do it for the benefit of family knowledge, versus just so the doctors know what to do. Wendy stated the standard form and the necessary criteria is still under review. VISITATION REPORTS BLOOD DONATION DEPARTMENT Mike Simone reviewed his report, dated October 26, 2015. A written copy of the visitation report is attached as a part of these minutes. There was discussion concerning the profit aspect of the blood donations, versus NCMC having to purchase supply from Bonfils. CULINARY SERVICES [SKYLIGHT BISTRO] Brian Underwood reviewed his report, dated November, 2015. A written copy of the visitation report is attached as a part of these minutes. MED EVAC DEPARTMENT Jason Yeater reviewed his report, dated November, 2015. A written copy of the visitation report is attached as a part of these minutes, There was some discussion concerning the two emergency response radio communications systems which run parallel and how they are coordinated. There was additional discussion regarding the annual number of flights, a third of which do not actually transport patients for various reasons. VISITATIONS FOR DECEMBER Catherine Davis Brandon Houtchens NCMC, INC. REPORT Ken Schultz distributed copies of the Third Quarter Covenant Ratio Analysis, as well as the Ratings from Standard and Poor, and Fitch, which he reviewed for the Trustees. He also gave a brief overview of the four Covenants: 1) Liquidity - Unrestricted Cash and Investments-to- Days of Operating Expense, 2) Leverage - Total Indebtedness-to-Capitalization, 3) Debt Coverage - Net Income Available for Debt Service-to-MADS (Maximum Annual Debt Service), and 4) Debt Coverage - Unrestricted Cash and Investments to MADS. He emphasized NCMC Inc. is in the unique position of condensing its debt to 13 years, consistent with the term of the current Board, rather than obligating future boards. All of the Covenants have been satisfied despite a very challenging financial market. He further stated the Pension Plan is fully funded. Page 2 of 3 November 30,2015 NCMC Board of Trustees COMMISSIONER'S REPORT Commissioner Conway stated the Board of Commissioners had a great ceremony for the opening of County Road 49 and they are starting Phase 2 of the project heading south. He promoted Bright Futures Day on December 1st, stating the County has been receiving some substantial donations. All program information is available at BrightFutures.com, and online applications will be available beginning in January. He stated the purpose of the program is to build a better workforce. Lastly, he stated he is hoping to conduct interviews and fill Brandon's term-limited vacancy prior to the annual meeting in January, 2016. There was also discussion concerning the timing of the annual meeting following Brandon's term ending as of January 11, 2016, and the request to extend his term to the end of January to allow him to participate in the annual meeting of the NCMC Inc. Board and the Finance Committee. Additionally, Mark Lawley and Catherine Davis indicated they will be unable to attend the Annual Trustee meeting and everyone indicated they would be available to meet January 25th or would be willing to table the action items to the regular February meeting when a full quorum would be present to appoint the new officers. Commissioner Conway committed to discuss the request and timing issues with the Board of Commissioners. PLANNING SESSION No discussion was held on scheduling a future planning session. ADJOURN There being no further business to come before the Board, it was MSC [Yeater/Davis] to adjourn the meeting at 1:26 p.m. Respectfully submitted, Esther Gesick Page 3 of 3 November 30,2015 NCMC Board of Trustees Blood Donation Department Visit October 26. 2015 Mike Simone Department Histgry: The department manager, Dee Gribble, was off the day of my visit so I met with the second in command, Blue Bond. Matt Halley, who oversees the lab, joined us a little later. The department has been in operation for more than 20 years and underwent significant change during optimization. History of contact: Mr. Bond has been a phlebotomist for about eight years, five at NCMC. He was trained as an EMT but then became a welder—before becoming a phlebotomist. Services Provided Whole blood (red blood cells—good for about 42 days and plasma--which can be frozen)—and platelets—which only last about five days. Platelets are very expensive due to their short shelf life. Number of St fa f: fell-time and part-time and what All personnel are phlebotomists. there are four full-time and three or four part-time. There are two volunteers who help with administrative duties Revenues/Budgets If Relc.ant: They make a profit. It costs about$100 to process one unit of whole blood and it costs about $300 per unit to buy. Luckily, the blood bank is able to collect enough red blood cells, platelets, and plasma for their needs and often has extra they can transfer to McKee. Successes: Outside purchases have decreased even with the overall decrease in time available for donors, due to optimization. Challenges/Obstacles; Recruitment of donors—even though they are meeting or exceeding their current needs. Only 10— 15% of eligible donors donate. Older people donate more. A consequence of optimization was that they lost a person whose primary job was to recruit donors. The current community liaison does help fill that void. There is an open position to oversee the transfusion and blood donor departments. They've had trouble finding someone to fill the position. Matt mentioned they may alter the chain of command/organizational chart and hire a person to fill a new modified position. Matt mentioned again the potential problems that may result from the attrition of medical technologists in his labs—something I mentioned in my last report. He said 32% are over 60. Qepartmental Needs/RequeetjThe mobile unit is old and needs to be replaced. 50% of their blood donations come from the mobile unit. What ;No* The Department Manacer/Director Like NCMC Trustees To Know: Matt—NCMC has the most collaborative leadership cultural he's seen. Mr. Bond—he said the people in his department were superheroes because they save people's lives and his co workers and leaders are the "best". NCMC Board of Trustees Report—November 2015 Visit conducted by Brian Underwood Department—Culinary Services (Skylight Bistro) NCMC/Banner Personnel—Justin Latham (NOCO Director);Jeanne Pruett (Sr Mgr) The Skylight Bistro recently opened: - 215 seat cafeteria/restaurant for employees, guests, community in general - Beautiful facility, modern - Salad bar, deli, short order items, daily specials et.al. - Innovative, relaxing atmosphere, bright (skylight), will have outdoor seating too - All foods are provided with dietary information - All menu items are part of an "approved menu" supporting all Banner facilities - Round the clock service Profits from Skylight Bistro used to offset overall costs of food services provided throughout NCMC (Bistro will add $250,000 increase in sales over past year) ALL TRUSTEES SHOULD CHECK OUT THE SKYLIGHT BISTRO The Culinary Services Department consists of: - Bistro - Coffee Place (main level)—generates$25K in sales/month (up from $10k/mo a year ago) - Catering (special dinners (i.e.- Board meals), Weld County Connect, Spirit of Women, et.al)— over$500,000 in catering annually - Physician Lounge (same menu items served through Bistro) - Patient Services There is a Banner Health System approach to Culinary Services. And NCMC functions as a center of services for Northern Colorado. Through the NCMC department, Registered Dietician services are provided to Northern Colorado facilities plus additional community hospitals such as Yuma and Holyoke NCMC is also a center for patient food services for NOCO Banner hospitals(Ft Collins, McKee, NCMC). All patient orders are received at the NCMC call center(interfaces with Cerner). Orders are dispatched and tracked through the call center for all patients. Dietary compliance is meticulously managed. Use a system-wide menu. Benchmarks are tracked for food temperature at delivery and timely service. The benchmark from the time a patient orders a meal until delivery is 45 minutes. NCMC typically achieves of delivery time of 23—28 minutes. I was totally impressed by this visit. Culinary Services is a very sophisticated department lead by culinary arts professionals. It is part of a Banner—system wide—approach that strives to provide excellent service, outstanding foods(freshly made), efficient(time and cost), while meeting a wide range of dietary standards (even for employees). Very impressive! And Justin and Jeanne love to tell their story and show what they are doing day in and day out. NCMC Board of Trustees Report Jason Yeater November 2015 Med Evac DEPARTMENT CONTACT Dan Beckle DEPARTMENT HISTORY Air life began its service at NCMC in 1982, and at the time was the only helicopter flying outside of Denver. The helicopter itself was initially owned by Air Methods and was leased back to the hospital.By 2004, Air Life was flying 700 flights a year and had flown over 1.5 million miles since its inception in 1982. In 2008,Air Life evolved into Med Evac with the addition of a second helicopter and a new partnership between Banner Health and Med Trans Group that is formed through a hybrid contract in which Med Evac is a pass-through-company along with Med Trans Group.Med Trans handles all billing and assumes all liability for any profit and loss within the company. It is the responsibility of Banner Health to provide staffing and medical equipment within the helicopter itself. In 2014, a third helicopter was added to the roster and stationed at the Akron Regional Airport. NCMC and Med Trans Group agreed to split all costs for the third helicopter,with limitations up to the 200th flight. Med Trans Group would then reimburse NCMC $2,200 per flight for any additional flights over the yearly quota. Today,Med Evac operates three helicopters stationed in Boulder at the Foothills Medical Campus,Akron at the Regional Airport,and in Greeley at NCMC. It flies around 3,000 flights a year with around 1,000 of those flights requiring patient transport to a facility.Med Evac operates with 10 dispatchers, 12 pilots, 5 mechanics, a flight crew of 37, and 8 on-call high risk obstetrician nurses.These crews rotate amongst the three locations. Because there are multiple locations,the addition of a third helicopter has drastically reduced the response time it takes for a critical patient to receive care. SERVICES PROVIDED Med Evac encompasses all responsibilities included within an emergency room setting,ranging from spinal cord injuries,head trauma,burn trauma, limb reattachments, and a high risk obstetrician team that provides care to the mother and fetus while in route.When Med Evac transport is not needed,the medical staff provides a multitude of services from a safety net for hospitals when they are overwhelmed and are in need of extra staff, safety training at fire houses and other similar facilities, in addition to offering public relations events to educate the community. ACCOMPLISHMENTS Since 1982,Med Evac has flown over 18,000 flights without a single incident; safety is a prime concern. Med Evac has a policy that all three crew members must give the go-ahead to take flight, and if one crew member does not agree(reasons vary from intuition to poor conditions),the helicopter does not take flight. 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T., C T W = I Vee W • in C C Z' all A y 4 y a u > E a s C .C Q J C W C w e 'a� O c 3 +v v g c °�2 0 $' u a F C c ay � ur 4) a p° aE -0 7 N F C VD V E ^J F C 00 U 4 L C y0� E1 } n 00 D .ii IC a C Ol } 1E N 14 p 3 7 W N 4 V 2 Q 0 c Q J o 1L I- G 40, McGRAW HILL FINANCIAL Colorado Health Facilities Authority North Colorado Medical Center; Hospital Primary Credit Analyst: Kenneth T Gacka,Centennial(1)303-721-4829;kenneth.gacka@standardandpoors,com Secondary Contact: Allison Bretz,Centennial(303)721-4119;allison.bretz@standardandpoors.com Table Of Contents Rationale Outlook Enterprise Profile Financial Profile Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30,2015 1 1473591 1302443362 Colorado Health Facilities Authority North Colorado Medical Center; Hospital -ctedlinii,p442 Colorado Hlth Fac Auth,Colorado North Colorado Med Ctr,Colorado Colorado Hlth Fac Auth(North Colorado Medical Center) Unenhanced Rating A+(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. Rationale Standard&Poor's Ratings Services affirmed its'A+'underlying rating(SPUR)on the Colorado Health Facilities Authority's existing revenue bonds,issued for North Colorado Medical Center(NCMC).The outlook is stable. We assessed NCMC's enterprise profile as strong,reflecting its leading market share in a somewhat small,but rapidly growing,primary service area(PSA)and its solid medical staff profile that is well aligned through the Banner Medical Group(BMG)—Colorado.We also assessed NCMC's financial profile as strong,which incorporates the organization's abundant days'cash on hand and its excellent margins,which have been driven in part by management's ongoing optimization plan. Combined,the strong enterprise profile and strong financial profile lead to an indicative rating of'a'. As our criteria indicate,the final rating can be within one notch of the indicative rating In our view,the'A+'rating on the bonds better reflects our holistic view of the credit,including the inherent strengths of NCMC's relationship with Banner,which lends it additional benefits of being a part of a large health system that are not always present in similarly sized community hospitals,including economies of scale and better strategic capabilities. More specifically,the rating reflects our view of the following credit strengths: • Leading market share in a competitive service area; • Excellent operating performance,which has improved in fiscal 2014 and has continued at a high level through the third quarter of fiscal 2015; • Robust unrestricted reserves from a days'cash on hand standpoint; • High clinical quality indicators;and • The 15-year operating agreement with Banner Health,which was renewed in July 2012 and provides NCMC benefits through access to Banner's management expertise, as well as benefits of Banner's scale that are leveraged at NCMC. Partly offsetting the preceding credit strengths is our opinion of NCMC's: • Debt-related balance sheet metrics that are not as robust as those of comparably rated credits,most notably unrestricted reserves to debt and debt to capitalization,which are well below rating medians; • Maximum annual debt service(MADS)coverage that is ample,but not particularly strong,for an'A+'rated hospital --we recognize that this is in part due to a shorter-than-average amortization schedule;and WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30,2015 2 14735911 302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital • Debt structure with a high percentage of contingent liability debt,with 66%of long-term debt in the form of direct placement debt. A gross revenue pledge of the facility secures the bonds.The operating agreement also guarantees that Banner Health makes annual principal and interest payments up to the amount of the annual lease payments. However,Banner is not obligated to pay any amounts that become due in the event of acceleration of principal under NCMC's master trust indenture.Also,we understand that the guarantee ceases in the event that the operating agreement with Banner is terminated. The'A+'rating is based on our view of NCMC's group credit profile and the obligated group's core status.Accordingly, the bonds are rated at the same level as the group credit profile and all numbers cited in this report refer to the consolidated entity. NCMC is a 282-staffed-bed hospital about 60 miles north of Denver, Outlook The stable outlook reflects our expectation that NCMC will maintain its leading market position in its PSA by growth and further alignment in the BMG clinics and by leveraging its regionalization strategy across NCMC and the two owned Banner facilities in the region.The stable outlook also incorporates our anticipation that NCMC will continue to generate very healthy margins and cash flow in line with recent history to support capital investment and MADS coverage appropriate for the rating. Upside scenario We consider a higher rating unlikely in the outlook period as we think it will take time for the overall financial profile to grow to a level in line with'AA-'levels. However,we could consider a positive outlook over time with further success in NCMC's growth and regionalization strategy combined with a strengthening of key balance sheet metrics. Downside scenario In our opinion,NCMC has some flexibility at the'A+'rating,so we do not believe that a lower rating is likely in the two-year outlook period.However,given our view that certain debt metrics such as unrestricted reserves to debt and MADS coverage aren't particularly robust compared to those of comparable credits,a significant increase in debt could be a risk that would cause us to consider a negative outlook or lower rating. Similarly,a material decline in market share that weakens our assessment of the enterprise profile could prompt a negative outlook.Lastly,we expect that NCMC and Banner Health will maintain the operating agreement with the current terms.However,any unwinding of the agreement would trigger a review of the rating,but we believe such an unwinding is unlikely,given the long-standing relationship between the two organizations. Enterprise Profile Industry risk Industry risk addresses the health care sector's overall cyclicality and competitive risk and growth by applying various WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30,2015 3 1473591 1302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital stress scenarios and evaluating barriers to entry;the level and trend of industry profit margins;risk from secular change and substitution of products,services,and technologies;and risk in growth trends.We believe the health care services industry represents an intermediate credit risk when compared with other industries and sectors. Economic fundamentals NCMC defines its PSA as the six-ZIP-code area within Weld County from which it derives approximately 75%of its inpatient admissions.Based on our criteria,the economic fundamentals of the PSA are somewhat constrained by virtue of a relatively small population base that is less than 150,000.However,our overall view of the economic fundamentals is strengthened by the strong growth trends of this region of Northern Colorado.Specifically,historical population growth has been quite healthy and is projected to grow at a rate of more than 2x the projected growth rate of the US. Employment growth is also projected to be more than twice that of US.projections.We view these as attributes that favorably impact the assessment of the economic fundamentals and offer good growth opportunities for NCMC. Market position As Weld County's sole provider,the hospital enjoys a leading 55%market share in its PSA.We do recognize that this has declined from 58%,which we believe is due to the impact of competitive forces as well as the impact of NCMC experiencing a shift from inpatient to observation cases.NCMC offers a wide range of tertiary services--including level II trauma,cardiology, oncology, and air-life helicopter--and outmigration to Denver has lessened over the years as service lines have been expanded.Banner also owns and operates McKee Loveland(115 beds)and Banner Ft. Collins,a currently small, 24-bed facility that opened in April 2015. The NCMC,McKee,and Ft.Collins facilities operate under the same CEO and CFO,both of whom are Banner employees.Under this common management,the organization is implementing a regionalization strategy to grow and efficiently leverage resources and services across the hospitals in the region. The Northern Colorado market is dominated by the Banner facilities and the University of Colorado Health.We consider this a competitive market as both organizations seek growth in this growing service area.The UC-Health facilities include Poudre Valley Hospital, 30 miles northwest,and the Medical Center of the Rockies,20 miles to the west.We understand that UC-Health has continued to seek growth in this region as well through new freestanding emergency departments and physician acquisitions.We expect that the competitive nature of the market will continue, but believe that the growing market can support both competitors at this time. NCMC's position in the market is augmented by a solid employed physician model,BMG-Colorado.The active medical staff includes 286 physicians,approximately 150 of whom are employed through BMG-Colorado. Growth in BMG-Colorado was successful and was a crucial strategy for NCMC when the Greeley Clinic was acquired by Poudre Valley Health System in 2009—Greeley Clinic previously accounted for a large portion of NCMC's admissions. NCMC has successfully built BMG-Colorado, though,largely offsetting these lost volumes. In our view,the physician group provides a good foundation for developing growth strategies and leveraging best practices and clinical protocols.We also note that NCMC has high clinical quality metrics,which favorably impacts our assessment of the enterprise profile. WWW.STANDARDANDPOORS.COMfRATINGSDIRECT OCTOBER 30,2015 4 1473591 1302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital Operating agreement NCMC maintains an operating agreement with Banner Health. Banner operates the medical center,which,from a credit perspective,we believe helps NCMC from an operating standpoint and provides a predictable revenue stream from Banner--NCMC owns all the assets.Under the terms of the current operating agreement,which terminates in 2027,Banner operates the medical center and provides NCMC with lease payments equal to the depreciation expense of the medical center plus 8%of the net book value of such assets.This results in a stable and predictable revenue stream.Banner provides a general obligation to make rental payments rather than solely providing the revenue derived from the medical center. The operating agreement extends through 2027,but Banner can cancel the agreement due to bankruptcy or insolvency proceedings;we currently view this as unlikely based on Banner's current operations and strategy.The Colorado region, along with Arizona,remains one of the two key service areas for Banner Health,with the medical center serving as the centerpiece of Banner's hub-and-spoke Colorado health care delivery system.Banner's Colorado region includes the medical center and eight smaller hospitals in northern Colorado,southeastern Wyoming, southwestern Nebraska, and northwestern Kansas;members of this regional network include facilities that are both owned and leased by Banner. Under the operating agreement,Banner subleases the medical center from NCMC in exchange for a monthly rental payment while requiring NCMC to reinvest in the medical center at a minimum predetermined level.As part of the agreement between Banner and NCMC,Banner's rental payments will decrease by$5 million annually to partly cover the cost of indigent care.The agreement also shifted a portion of rental payments to 2012-2016 from 2006-2008.In addition,there will be a reconciliation period every five years during which Banner will pay NCMC 50%of operating income in excess of a cumulative 5%operating margin and NCMC will pay Banner 50%of any cumulative operating loss during the five-year period.No settlement payments were necessary between Banner and NCMC after the first two five-year periods beginning in 2003.The next settlement is to be calculated in 2017,and management indicates in its audited financials that it anticipates a settlement due to NCMC,based on historical and projected performance over this term.The operating agreement also obligates NCMC to make capital investments at the medical center.We do not anticipate any near-term changes to the operating agreement. Management Banner Health operates NCMC,and current executives are experienced individuals who have been employees of Banner for a lengthy period.The CEO has been with Banner since 2001 and has served as the CEO of NCMC since 2008 and was previously the CEO of McKee.Also,the CFO has been with Banner for more than 25 years. Following a consolidation of leadership across Banner's three northern Colorado hospitals, NCMC's CEO and CFO serve as the executive leaders over McKee and Ft. Collins in addition to NCMC.We believe this coordinated leadership approach for the hospitals in the region position the team to leverage the scale of Banner's operations in the region. In our opinion, NCMC's management team has demonstrated a strong operational capability, as evidenced by an established track record of strong and consistent financial results. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30,2015 5 14735911 302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital Table 1 1117�111�If�ll h's;r{ �t_.I iii Il-I],::' :�.ln ll{��r;�.f,i=;J111 A.1v_yij _ _ _ _ _ _ _ _ - _ _ - Fiscal year ended Dec.31, Nine-month interim ended Sept.30,2015 2014 2013 Enterprise profile PSA population NA. 147,228 145,311 PSA market share% N.A. 55.1 59.1 Inpatient admissions 8,444 11,941 12,677 Equivalent inpatient admissions 17,042 25.189 25,951 Emergency visits 45,105 58,034 53,933 Inpatient surgeries 2,236 3,179 3,323 Outpatient surgeries 4,088 5.204 4,967 Medicare case mix index 1.7800 1,7210 1.6850 FTE employees 2,038 2,034 2,016 Active physicians 295 233 269 Top 10 physicians admissions% N/A N/A N/A Based on net/gross revenues Net Net Net Medicare% 24.0 24.8 24.1 Medicaid% 9.8 8.4 8.2 Commercial/blues% 45.4 50.0 50.2 N/A--Not applicable.NA.—Not available.Inpatient admissions exclude Newborns,Psychiatric,and Rehabilitation admissions. Financial Profile Financial policies The financial policies assessment is neutral,reflecting our opinion that,while there may be some areas of risk,the organization's overall financial policies are not likely to negatively affect its future ability to pay debt service. Our analysis of financial policies includes a review of the organization's financial reporting and disclosure,investment allocation and liquidity,debt profile, contingent liabilities,and legal structure and a comparison of these policies to comparable providers. Financial performance In our view,NCMC's financial performance has been exceedingly strong since fiscal 2014,as demonstrated by excellent operating margins. In the fiscal year ended Dec.31, 2014,NCMC reported a$34.6 million gain from operations, or an 8.2%margin,more than double what it had earned in the previous fiscal year. Management attributes the improved results to its focus on the revenue cycle and expense control initiatives.Management is concluding a three-year plan to reduce its cost structure by$30 million,which has included a full-time-equivalent reduction,process changes,and standardization of supplies and equipment during the past year.Management indicates that it expects the full$30 million target will be met by the end of fiscal 2015.The momentum continued into fiscal 2015,as operating margins remain at a high level.Through the end of the third quarter,NCMC is ahead of budget,with a nearly 9% operating margin. WWW.STANDARDANDPOORS.COM/BATINOSDIRECT OCTOBER 30,2015 1473591 1302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital In parallel with the improved operating margins,cash flaw has also strengthened considerably since 2014.Despite the high level of cash flow that NCMC has generated,MADS coverage has historically trailed that of comparably rated hospitals.Through the year-to-date period and in fiscal 2014,MADS coverage was sound,but well below median levels, at 3.8x and 4.6x,respectively. MADS is$19.3 million and remains at about$19 million through 2026 then declines.We do note that NCMC's debt has a relatively short amortization. Liquidity and financial flexibility In 2012,NCMC began a sizable master campus plan,which has resulted in increased capital spending during the past few years.Approximately$60 million worth of projects included a$10 million expansion of its oncology department,a new pharmacy, and a new cafeteria,among other projects.The projects are expected to be completed in fiscal 2016. NCMC is committed to continuous investment in the plant,and as part of the agreement with Banner,it is expected that NCMC will invest$192 million of capital expenditures through Dec. 31, 2027.The continuous investment shows in an attractive,up-to-date facility. Despite some decline in unrestricted reserves to fund part of the recent capital projects,NCMC's unrestricted reserves remain robust from a days'cash on hand standpoint.As of the Sept. 30,2015,balance sheet,NCMC had 255 days' cash on hand.While NCMC has robust days'cash,unrestricted reserves to debt is less favorable,but still sound,at 145%.Management indicates that it has no plans for additional long-term debt in the next two years,so we anticipate that this figure should gradually improve as the debt amortizes and as cash flow continues to be healthy. Debt and contingent liabilities NCMC has contingent liability risk exposures from financial instruments with payment provisions that change upon the occurrence of certain events;however,we consider the risk manageable at the current rating level. NCMC's contingent liabilities include two series of direct placement debt,which extend through the end of the Banner contract in 2027. NCMC's contingent liability debt is higher than average,with 66%of the debt outstanding consisting of direct placements.We believe this is mitigated by NCMC's unrestricted reserves,which totaled$298 million at Dec. 31, 2014, $270 million of which was accessible daily. Overall,we consider NCMC's debt load somewhat elevated from both a debt burden and debt to capitalization standpoint(4.4%debt burden and 39.1%debt to capitalization at Sept. 30, 2015). Following its 2012 direct purchase, NCMC entered into another direct purchase agreement with Compass Bank in 2013 to refinance its series 2008AB and 2009 variable-rate demand bonds with another direct purchase($82 million). Covenants for the direct-purchase agreements are based on those in the master trust indenture,including the maintenance of 100 days'cash on hand,leverage of less than 65%, 2x debt service coverage of unrestricted reserves, and at least 2x debt service coverage. If NCMC breaches certain covenants under the direct-placement agreement, it has 30 days to cure the breach. If it does not cure the breach in that period,Compass has the right to accelerate the bonds. NCMC has three floating to fixed rate swaps,with a total notional value of$132 million with two counterparties, Citibank and BBVA Compass.The mark to market was approximately negative$9 million,and there is no collateral posting. WWW.STANDARDANDPOORS.COM/RATINCSDIRECT OCTOBER 30,2015 7 1473591 1302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital Table 2 JI,iiw'i lip, .�u,.,:iot'u�:a�i:ri'tiilliti>k-l;�{rat f 1i-�'t',�_�'1;4t.._1N ' — - ., J � i - r -- I -_ 'i 4 Fiscal year ended Dec. 31, Medians Nine-month interim Stand-alone Stand-alone ended Sept.30,2015 2014 2013 hospital A+2014 hospital A 2014 Financial profile Financial performance Net patient revenue($000s) 316,756 408,424 399,527 483,641 339,869 Total operating revenue($0005) 327,015 423,058 415,051 MNR MNR Total operating expenses($000s) 297.754 388,413 399.708 MNR MNR Operating income($000s) 29,261 34,645 15,343 MNR MNR — — — Operating margin(%) 8.95 8.19 3.7 4,3 2.5 Net nonoperating income($000s) 2.860 22.331 17,854 MNR MNR Excess income($000s) 32,121 56,976 33,197 MNR MNR Excess margin(%) 9.74 12.79 7,67 7.8 5.8 Operating EBIDA margin(%) 15.86 15.48 10.71 12 9.9 EBIDA margin(%) 16.59 19.72 14.4 15.4 12.9 Net available for debt service($000s) 54,714 87,816 62,318 81,798 47,534 Maximum annual debt service($000s) 19,296 19,296 19,296 MNR MNR Maximum annual debt service coverage 3.78 4.55 3.23 5.7 4.8 (x) Operating lease-adjusted coverage(x) 3.78 4.55 3.23 4.7 3.7 Liquidity and financial flexibility Unrestricted reserves($0008) 262,787 297,976 295,330 439,585 251,776 - Unrestricted days'cash on hand 255.3 296.9 285.2 316 273.1 Unrestricted reserves/total long-term 145.4 152.3 142.4 221.7 187.2 debt(%) Unrestricted reserves/contingent 221.1 236 217.7 MNR MNR liabilities(%) Average age of plant(years) 12.6 11.5 11.6 10.1 10.9 Capital expenditures/depreciation and 180.3 155.5 101.5 105.9 104.7 amortization(%) Debt and liabilities Total long-term debt($000s) 180,724 195,642 207,412 MNR MNR Long-term debt/capitalization(%) 39.1 39.7 40.8 24.5 28.8 Contingent liabilities($000s) 118,855 126,243 135,880 MNR MNR Contingent liabilities/total long-term 65.8 64.5 65.4 MNR MNR debt(%) Debt burden(%) 4.39 4.33 4.46 2.6 2.7 Defined benefit plan funded status(%) N.A. 98.1 75.32 84.6 80.9 NA—Not available.MNR—Median not reported. W"WW.STANDARDANDPOORS.COM/RAT1NGSD1RECT OCTOBER 30,2013 8 1473591 1302443362 Colorado Health Facilities Authority North Colorado Medical Center;Hospital Related Criteria And Research Related Criteria • USPF Criteria:US. Not-For-Profit Acute-Care Stand-Alone Hospitals,Dec. 15,2014 • General Criteria:Group Rating Methodology,Nov. 19,2013 • USPF Criteria:Contingent Liquidity Risks,March 5,2012 • General Criteria:Methodology: Industry Risk,Nov. 20, 2013 • USPF Criteria:Assigning Issue Credit Ratings Of Operating Entities, May 20,2015 • Criteria:Use of CreditWatch And Outlooks,Sept. 14,2009 Related Research • Glossary:Not-For-Profit Health Care Ratios,Oct. 26,2011 • U.S.Not-For-Profit Health Care Sector Outlook Revised To Stable From Negative,Though Uncertainties Persist, Sept. 9,2015 • US. Not-For-Profit Health Care Stand-Alone Ratios Signal Continued Stability Through Next Year Despite Industry Pressures, Sept. 1, 2015 • Health Care Providers And Insurers Pursue Value Initiatives Despite Reform Uncertainties,May 9, 2013 • Standard&Poor's Assigns Industry Risk Assessments To 38 Nonfinancial Corporate Industries,Nov 20,2013 • Alternative Financing:Disclosure Is Critical To Credit Analysis In Public Finance,Feb. 18, 2014 • Health Care Organizations See Integration And Greater Transparency As Prescriptions For Success,May 19, 2014 • The Growing And Evolving Role Of Provider-Sponsored Health Plans In U.S. Health Care,June 8,2015 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30,2015 9 1473591 1302443362 Copyright©2015 Standard&Poor's Financial Services LLC,a part of McGraw Hill Financial.All rights reserved. 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WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30,2015 10 1473591 X302443362 Fitch Ratings FITCH AFFIRMS NORTH COLORADO MEDICAL CENTER REVS AT 'A+'; OUTLOOK STABLE Fitch Ratings-San Francisco-16 June 2015:Fitch Ratings has affirmed the'A+'rating on the following Colorado Health Facilities Authority bonds issued on behalf of North Colorado Medical Center (NCMC): --$80 million hospital revenue bond series 2003A&B. The Rating Outlook is Stable. SECURITY The bonds are secured by a pledge of the gross receipts of NCMC in the form of the rental payments from Banner Health (Banner; revenue bonds rated 'AA-'/Stable Outlook by Fitch) for as long as the operating agreement is in effect. Banner's limited guaranty of the annual principal and interest payments is an unsecured general obligation of the system. Additionally,the bonds are enhanced by Assured Guaranty Municipal Corp.,which is not rated by Fitch. KEY RATING DRIVERS CLOSE RELATIONSHIP WITH BANNER HEALTH: Dating back to 1995, NCMC and Banner have had a close relationship,which is highlighted by the operating agreement that has a termination date of Dec. 31, 2027 (most recently renewed in 2012). The relationship with Banner gives NCMC access to the effective business practices, management support, and strong operational guidance of a successful regional system. Fitch views the close relationship between both organizations as a primary credit strength. LEADING MARKET POSITION: NCMC maintains a leading market share of approximately 63% in 2014 in a relatively competitive service area.NCMC's overall market position has slightly eroded from a 66%share in 2012. HIGH DEBT BURDEN: Maximum annual debt service (MADS) of approximately $19.3 million represented 4.6%of total revenues in fiscal 2014(Dec. 31;audited),which is high compared against Fitch's median of 3.1%. Over the past four fiscal years,MADS coverage by EBITDA and operating EBITDA have averaged 3.3x and 2.6x,respectively,which were below Fitch's 'A' category medians of 3.8x and 3.1x and indicative of the organization's higher leverage. IMPROVED PROFITABILITY: In fiscal 2014, NCMC earned $36.8 million in operating income, which more than doubled fiscal 2013's income of $17.6 million. NCMC's operating margin and operating EBITDA margin of 8.7% and 15.5% both compared favorably against Fitch's medians. Further,three months through fiscal 2015 (March 31,2015;unaudited)NCMC recorded$9.9 million in operating income and expects to meet and/or exceed its year-end budgeted goal gain of $21 million,which Fitch believes is achievable.Fitch believes it's important for NCMC to generate solid profitability from operations in order to adequately service its debt obligations. SOUND BALANCE SHEET: At March 31, 2015 (unaudited) NCMC had an absolute unrestricted cash balance of approximately $308.7 million, which translated into 307.1 days cash on hand, I6x cushion ratio, and 151.2% cash to debt position,which Fitch believes is sound for the rating level. RATING SENSITIVITIES HIGH DEBT BURDEN:Fitch believes North Colorado Medical Center's debt burden is high for the 'A+'rating level,which is highlighted by relatively lower debt service coverage metrics and adequate liquidity to leverage metrics(cushion ratio and cash to debt specifically).Although unanticipated any significant additional debt to the current financial profile would be viewed unfavorably. CREDIT PROFILE NCMC owns the North Colorado Medical Center, a 378 licensed bed hospital in Greely, Colorado. NCMC had$423 million in total revenues in fiscal 2014.The'A+'rating continues to be supported by NCMC's close relationship with Banner, leading market position, good and improved profitability, and sound liquidity metrics. Fitch's main credit concerns continue to be the organization's high debt burden and relatively competitive service area. RELATIONSHIP WITH BANNER HEALTH NCMC has had a contractual relationship with Banner Health since 1995. The most recent agreement was executed in Jan. 1, 2012 and terminates in 2027. Under the agreement, NCMC in conjunction with the hospital's medical staff operates within the western region operating unit for Banner Health. Banner makes rent/use payments of approximately$30 million annually.Banner has full operational responsibility to operate the hospital under the agreement,though NCMC as owner of the facility has responsibility for maintaining the physical plant. The relationship with Banner gives NCMC access to the effective business practices and strong operational support of a successful regional system. Overall, Fitch views NCMC's close relationship with Banner as a key credit strength. LEADING MARKET POSITION In part due to its strong relationship with Banner, NCMC has been able to hold its leading market position in the service area with an approximate 63%share in 2014, which has slightly eroded from 66% in 2012. NCMC is the only hospital in its primary service area of Weld County and receives approximately 75% of its admissions from its primary service area. Additionally, NCMC operates as a regional provider of tertiary services, which Fitch views favorably. However, despite NCMC's market dominance the organization is located in a relatively competitive service area,approximately 64 miles north of the Denver metropolitan area and 31 miles east of Fort Collins,CO,which are both home to several healthcare providers. Management believes the competitive market has led to some of NCMC's more recent market share erosion. IMPROVED FINANCIAL PROFILE TEMPERED BY HIGH DEBT BURDEN NCMC's financial profile is characterized by sound liquidity, good and improved profitability, and a high debt burden. At Dec. 31, 2014 (audited year-end)NCMC had 299 days cash on hand, 15.4x cushion ratio, and 143.7% cash to debt, which mostly compared consistently against Fitch's 'A' category medians of 199.2 days, 17x,and 131.2%. On an absolute basis,NCMC's cash has increased by approximately 42.5%to $297.9 million in 2014 from $209 million in fiscal 2009. Overall, Fitch views NCMC's liquidity position as sound for the rating level. In fiscal 2014, NCMC earned $36.8 million in operating income, which more than doubled fiscal 2013's income of$17.6 million.NCMC's operating margin and operating EBITDA margin of 8.7% and 15.5%both compared favorably against Fitch's medians.NCMC's profitability ratios compared favorably against Fitch's medians, which is an additional credit strength. Management attributes NCMC's significant profitability increase to increased volumes (outpatient surgeries, emergency department and clinic visits)and continued cost containment initiatives. Fitch's main credit concern is the organization's relatively high debt burden measured by 4.6%MADS as a percentage of revenue in addition to historically lower debt service coverage metrics for the rating level. Fitch believes it's important for NCMC to generate solid profitability from operations in order to adequately service its debt obligations.NCMC's MADS is amortized primarily over 15 years,which is in conjunction with the length of the operating lease agreement, and thus results in a higher MADS figure. DEBT PROFILE In total, NCMC has approximately $208 million in outstanding debt. The series 2003A&B bonds are traditional fixed rate bonds. The series 2012 bonds are directly placed in a fixed rate mode, while the series 2013 bonds arc variable-rate. Both series of direct placement bonds are with BBVA Compass Bank(rated 'BBB+/F2'/Stable Outlook by Fitch)that have a scheduled maturity in 2027, which coincides with the termination date of the operating agreement between NCMC and Banner. Additionally, NCMC has two outstanding variable-to-fixed interest rate swap agreements with Citibank (rated 'A+/F 1'/ Stable Outlook). As of Dec. 31, 2014 the aggregate market-to-market valuation of the two swaps was negative $9.8 million. Although the thresholds have been exceeded from time to time($10 million), no collateral has ever been posted. DISCLOSURE NCMC covenants to provide annual and quarterly financial information through the Municipal Securities Rulemaking Board EMMA website including the balance sheet, income statement, cash flow statements and utilization data. Contact: Primary Analyst Michael Burger Director +1-415-659-5470 Fitch Ratings, Inc. 650 California Street,Fourth Floor San Francisco, CA 94108 Secondary Analyst Eva Theirs Senior Director +1-212-908-0674 Committee Chairperson Jim LeBuhn Senior Director +1-312-368-2059 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available at'www.fitchratings.com'. Applicable Criteria Revenue-Supported Rating Criteria(pub. 16 Jun 2014) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012 U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/ UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'W WW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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