ProMedica Health System and Subsidiaries

ProMedica Health System and Subsidiaries Consolidated Financial Statements as of and for the Years Ended December 31, 2015 and 2014, Supplemental Consolidating Schedules as of and for the Year Ended December 31, 2015, and Independent Auditors Report

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 2 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014: Balance Sheets 3 4 Statements of Operations 5 Statements of Changes in Net Assets 6 Statements of Cash Flows 7 8 Notes to Consolidated Financial Statements 9 52 Page SUPPLEMENTAL CONSOLIDATING SCHEDULES 53 57

INDEPENDENT AUDITORS REPORT To the Board of Trustees of ProMedica Health System Toledo, Ohio We have audited the accompanying consolidated financial statements of ProMedica Health System and subsidiaries (the System ), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in net assets, and cash flows for the years then ended and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these 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 these 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 the auditor s 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, the auditor considers internal control relevant to the System 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 System 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 the System as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplemental Consolidating Schedules Our audits were conducting the purpose of forming an opinion on the consolidated financial statements as a whole. The additional supplemental consolidating schedules on pages 54 57 are presented for the purpose of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies, and are not a required part of the consolidated financial statements. These supplemental consolidating schedules are the responsibility of the System s management and were derived from and relate directly to the underlying accounting and other records used to prepare the consolidated financial statements. Such schedules have been subjected to the auditing procedures applied in our audits 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, such additional consolidating information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. March 24, 2016-2 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014 (In thousands) ASSETS 2015 2014 CURRENT ASSETS: Cash and cash equivalents $ 363,478 $ 325,723 Marketable securities 162,609 186,745 Assets limited as to use or restricted 2,338 1,936 Accounts receivable net of estimated uncollectible accounts of $104,656 and $142,051 in 2015 and 2014, respectively 257,031 231,883 Estimated third-party payor receivable 11,450 3,491 Supplies 32,814 30,579 Other current assets 84,691 66,233 Total current assets 914,411 846,590 NONCURRENT ASSETS LIMITED AS TO USE OR RESTRICTED Net of amount required to meet current obligations: Restricted funds 114,568 106,895 Bond indenture agreement funds 15,014 185 Professional liability and workers compensation insurance funds 94,838 118,414 Internally designated for capital acquisition 1,547,364 1,400,598 Other segregated investments 253,954 258,373 Total noncurrent assets limited as to use or restricted 2,025,738 1,884,465 PROPERTY AND EQUIPMENT Net 1,092,835 882,141 OTHER ASSETS: Deferred debt issuance costs net of accumulated amortization of $2,436 and $2,080 in 2015 and 2014, respectively 7,717 4,736 Goodwill 39,651 31,132 Intangible assets and other 55,827 21,696 Investments in affiliated companies 57,313 45,077 Total other assets 160,508 102,641 TOTAL $ 4,193,492 $ 3,715,837 (Continued) - 3 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014 (In thousands) LIABILITIES AND NET ASSETS 2015 2014 CURRENT LIABILITIES: Contractual current installments of long-term debt $ 21,875 $ 12,389 Contingent current installments of long-term debt 165,674 90,703 Accounts payable and accrued expenses 175,100 198,638 Accrued compensation and benefits 125,081 104,863 Estimated third-party payor settlements 45,416 54,860 Accrued professional liability and workers compensation 6,340 4,786 Accrued postretirement plans 209 291 Accrued claims expense 87,848 98,424 Other current liabilities 2,894 2,067 Total current liabilities 630,437 567,021 OTHER LIABILITIES: Accrued professional liability and workers compensation less current portion 50,453 54,946 Deferred compensation 36,059 35,741 Pension 127,349 88,325 Accrued postretirement plans less current portion 1,630 2,566 Other 47,047 60,606 Total other liabilities 262,538 242,184 LONG-TERM DEBT Less current installments 730,012 449,634 Total liabilities 1,622,987 1,258,839 NET ASSETS: Unrestricted: Controlling interest 2,445,651 2,341,903 Noncontrolling interest 10,286 8,200 Total unrestricted 2,455,937 2,350,103 Temporarily restricted 78,758 69,546 Permanently restricted 35,810 37,349 Total net assets 2,570,505 2,456,998 TOTAL $ 4,193,492 $ 3,715,837 See notes to consolidated financial statements. (Concluded) - 4 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In thousands) 2015 2014 UNRESTRICTED REVENUES, GAINS, AND OTHER SUPPORT: Patient service revenue net of contractual and other allowances $ 1,770,537 $ 1,617,122 Provision for bad debts (72,533) (90,886) Net patient service revenue, less provision for bad debts 1,698,004 1,526,236 Premium revenue 1,334,581 1,048,975 Net assets released for use in operations 9,360 9,710 Other 64,117 52,969 Total unrestricted revenues, gains, and other support 3,106,062 2,637,890 EXPENSES: Salaries, wages, and employee benefits 1,086,069 948,089 Food and drugs 184,938 155,119 Medical expenses 844,883 665,345 Contracted fees 298,702 235,623 Supplies 235,737 216,501 Insurance 11,999 14,192 Utilities 27,563 24,472 Depreciation and amortization 115,042 98,276 Interest 25,949 24,458 Other 194,306 172,708 Total expenses 3,025,188 2,554,783 OPERATING INCOME 80,874 83,107 OTHER INCOME (LOSS): Inherent contribution of acquired net assets 91,131 26,463 Investment (loss) income (24,137) 66,432 Income tax expense (28,237) (10,436) Other 3,774 1,506 Total other income net 42,531 83,965 EXCESS OF REVENUES OVER EXPENSES 123,405 167,072 NET ASSETS RELEASED FROM RESTRICTIONS FOR FIXED ASSETS 4,793 9,210 NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARIES 2,315 3,299 DISTRIBUTIONS TO NONCONTROLLING INTERESTS (841) (624) PENSION AND OTHER POSTRETIREMENT ADJUSTMENTS (23,838) (57,695) INCREASE IN UNRESTRICTED NET ASSETS $ 105,834 $ 121,262 See notes to consolidated financial statements. - 5 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In thousands) Controlling Noncontrolling Interest Interest Total Temporarily Permanently Unrestricted Unrestricted Unrestricted Restricted Restricted Total NET ASSETS December 31, 2013 $ 2,223,619 $ 5,222 $ 2,228,841 $ 63,891 $ 36,637 $ 2,329,369 Excess of revenues over expenses 166,769 303 167,072 167,072 Restricted investment income - 2,817 375 3,192 Restricted contributions - 17,772 7 17,779 Net assets released from restrictions for operations - (8,924) (8,924) Net assets released from restrictions for fixed assets 9,210 9,210 (9,210) - Noncontrolling interest in consolidated subsidiaries 3,299 3,299 3,299 Distributions to noncontrolling interests (624) (624) (624) Inherent contribution of Memorial net assets - 3,200 330 3,530 Pension and other postretirement adjustments (57,695) (57,695) (57,695) Increase in net assets 118,284 2,978 121,262 5,655 712 127,629 NET ASSETS December 31, 2014 2,341,903 8,200 2,350,103 69,546 37,349 2,456,998 Excess of revenues over expenses 122,793 612 123,405 123,405 Restricted investment loss - (571) (1,545) (2,116) Restricted contributions - 19,747 6 19,753 Net assets released from restrictions for operations - (8,984) (8,984) Net assets released from restrictions for fixed assets 4,793 4,793 (4,793) - Noncontrolling interest in consolidated subsidiaries 2,315 2,315 2,315 Distributions to noncontrolling interests (841) (841) (841) Inherent contribution of Monroe net assets - 3,813 3,813 Pension and other postretirement adjustments (23,838) (23,838) (23,838) Increase (decrease) in net assets 103,748 2,086 105,834 9,212 (1,539) 113,507 NET ASSETS December 31, 2015 $ 2,445,651 $ 10,286 $ 2,455,937 $ 78,758 $ 35,810 $ 2,570,505 See notes to consolidated financial statements. - 6 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In thousands) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Increase in net assets $ 113,507 $ 127,629 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation and amortization 115,042 98,276 Loss (gain) on sale of equipment 1,232 (512) Loss on extinguishment of long-term debt 1,848 Provision for bad debts 72,533 90,886 Asset impairment 2,437 2,588 Inherent contribution of acquired net assets (94,944) (29,993) Noncontrolling interest in consolidated subsidiaries (2,315) (3,299) Investment loss (income) 24,137 (66,432) Distributions from joint ventures 1,728 2,262 Distributions to noncontrolling interests 841 624 Restricted contributions and other (19,753) (17,779) (Increase) decrease net of effect of business combinations, in: Accounts receivable and estimated third-party payor receivable (84,221) (101,849) Supplies and other current assets (1,647) (10,310) Other assets (36,337) 39 Increase (decrease) net of effect of business combinations, in: Accounts payable and accrued liabilities (29,455) 17,721 Estimated third-party payor settlements net (14,212) 3,304 Pension and other postretirement plans 9,728 57,081 Other liabilities (31,401) 68,621 Net cash provided by operating activities 28,748 238,857 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (255,994) (157,868) Proceeds from sale of equipment 4,754 2,843 Payment for business combinations net of cash acquired (13,833) (8,931) Cash contributed in acquisitions 14,041 5,470 Investments in joint ventures (8,500) (1,000) Purchases of investments (1,719,084) (1,441,729) Proceeds from sales of investments 1,579,215 1,460,704 Increase (decrease) in total assets limited as to use or restricted net 79,246 (3,339) Net cash used in investing activities (320,155) (143,850) (Continued) - 7 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In thousands) 2015 2014 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds of long-term debt $ 404,672 $ - Proceeds from qualified community investment loans 14,740 Repayment of long-term debt (13,922) (14,515) Extinguishment of long-term debt (90,350) Payments on capital lease obligations (2,120) Distributions to noncontrolling interests (841) (624) Contingent consideration payments (2,770) (841) Restricted contributions and other 19,753 17,779 Net cash provided by financing activities 329,162 1,799 NET INCREASE IN CASH AND CASH EQUIVALENTS 37,755 96,806 CASH AND CASH EQUIVALENTS Beginning of year 325,723 228,917 CASH AND CASH EQUIVALENTS End of year $ 363,478 $ 325,723 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for taxes $ 29,130 $ 10,585 Cash paid for interest net of amount capitalized $ 24,123 $ 24,458 Acquisition of property through accounts payable $ 11,507 $ 12,705 Fair value of assets acquired net of cash contributed Mercy Memorial Hospital Corporation and related entities $ 195,084 Memorial Hospital and related entities $ 73,023 Liabilities assumed Mercy Memorial Hospital Corporation and related entities $ 114,181 Memorial Hospital and related entities $ 48,500 Inherent contribution net of cash contributed Mercy Memorial Hospital Corporation and related entities $ 80,903 Memorial Hospital and related entities $ 24,523 See notes to consolidated financial statements. (Concluded) - 8 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 1. BASIS OF PRESENTATION AND AFFILIATED ENTITIES ProMedica Health System (the System or ProMedica ) is an Ohio not-for-profit corporation, which serves as a holding company for several corporations providing various types of health care services. The System, its hospitals, and certain subsidiaries have been determined by the Internal Revenue Service IRS ) to be organizations described in Internal Revenue Code ( IRC ) Section 501(c)(3), exempt from taxation under IRC Section 501(a), and qualify for public charity status by meeting the requirements of IRC Section 509(a). Any income not substantially related to the organization s exempt purpose, may be considered unrelated business income ( UBI ) under IRC Section 511 and, as such, is subject to tax at normal corporate rates. Certain subsidiaries of the System are taxable entities. The System is the sole member or parent of the sole member of the following subsidiaries: The Toledo Hospital ( Toledo ), an Ohio not-for-profit corporation, operates a hospital and related health care facilities and engages in medical research. Included in Toledo are the accounts of Toledo Children s Hospital and Wildwood Orthopaedic and Spine Hospital. Flower Hospital ( Flower ), an Ohio not-for-profit corporation, operates as a general acute care hospital in Sylvania, Ohio. Fostoria Hospital Association ( Fostoria ), an Ohio not-for-profit corporation, operates as a general acute care hospital in Fostoria, Ohio. Defiance Hospital, Inc. ( Defiance ), an Ohio not-for-profit corporation, operates as a general acute care hospital in Defiance, Ohio. Bay Park Community Hospital ( Bay Park ), an Ohio not-for-profit corporation, operates as a general acute care hospital in Oregon, Ohio. Emma L. Bixby Medical Center ( Bixby ), a Michigan not-for-profit corporation, operates a general acute care hospital and other health care-related entities in Adrian, Michigan. Herrick Memorial Hospital, Inc. ( Herrick ), a Michigan not-for-profit corporation, operates as a general acute care hospital in Tecumseh, Michigan. St. Luke s Hospital ( St. Luke s ), an Ohio not-for-profit corporation, operates as a general acute care hospital in Maumee, Ohio (see Note 24). Memorial Hospital ( Memorial ), an Ohio not-for-profit corporation, operates as a general acute care hospital in Fremont, Ohio (see Note 21). Mercy Memorial Hospital Corporation ( Monroe ), a Michigan not-for-profit corporation, operates as a general acute care hospital in Monroe, Michigan (see Note 21). Care Enterprises, Inc. ( Care ), an Ohio not-for-profit corporation, operates and manages medical office buildings in Maumee, Ohio. - 9 -

ProMedica Physicians and Continuum Services ( PPCS ), an Ohio not-for-profit corporation, provides physician services for the System. ProMedica Continuing Care Services Corp. ( PCCSC ), an Ohio not-for-profit corporation, provides long-term and skilled nursing services. ProMedica Indemnity Corporation ( Indemnity ), a Vermont not-for-profit corporation, provides medical professional liability and comprehensive general liability insurance for the System. ProMedica Foundation ( Foundation ) an Ohio not-for-profit corporation, operates for the benefit of System supported organizations. St. Luke s Hospital Foundation ( SLH Foundation ) an Ohio not-for-profit corporation, operates for the benefit of St. Luke s Hospital (see Note 24). Paramount Advantage ( Advantage ), an Ohio not-for-profit corporation, provides comprehensive health care services on a prepaid basis for the state of Ohio Medicaid recipients. ProMedica Insurance Corporation ( PIC ), an Ohio not-for-profit corporation, subject to federal income taxes, provides comprehensive health care services on a prepaid basis, operates a health maintenance organization ( HMO ), and provides a full range of health care services to participating members. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the System and its controlled subsidiaries. Investments in entities not controlled by the System are reflected in the accompanying consolidated financial statements on the equity method basis. All significant intercompany transactions have been eliminated in the consolidated financial statements. Under the equity method, the investment is originally recorded at cost and is adjusted to recognize the System s share of the net earnings or losses of the affiliate as they occur. Losses are limited to the extent of the System s investments in, advances to, and guarantees for the entity. At December 31, 2015, the System maintained investments in unconsolidated affiliates with ownership interests ranging from 5% to 61%. The summarized financial position and results of operations for the entities accounted for under the equity method as of and for the years ended December 31, 2015 and 2014, are as follows (in thousands): 2015 2014 Total assets $ 261,671 $ 237,801 Total liabilities 105,202 102,711 Net assets 156,469 135,090 Revenue net 220,556 209,604 Net income 9,566 1,375 Included in the table above is the System s investment in Lima Memorial Hospital that represents approximately 70% and 82% of the total equity method investments as of December 31, 2015 and 2014, respectively. Lima Memorial Hospital operates as a not-for-profit hospital. Cash Equivalents The System considers highly liquid investments with an original maturity of three months or less, exclusive of those whose use is limited or restricted, to be cash equivalents. - 10 -

Investments Marketable securities and assets limited as to use (held by trustees) primarily represent cash equivalents, commercial paper, bank notes, certificates of deposit, governmental securities, real estate, and equity securities. Cash and cash equivalents held by investment custodians are classified as marketable securities. Included in marketable securities as of December 31, 2015 and 2014, are the following (in thousands): 2015 2014 Cash and cash equivalents $ 1,184 $ 12,501 Fixed-income securities 141,081 153,288 Equity securities 20,344 20,956 Total $ 162,609 $ 186,745 Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the consolidated balance sheets. Purchases and sales of investments are accounted for as of the trade date, and sales are accounted for using the first-in, first-out method. Investment income or loss (including realized and unrealized gains and losses on investments, interest, and dividends) is included in the excess of revenues over expenses, unless the income or loss is restricted by donor or law. Based on the System s investment strategy and philosophies, management has elected to classify substantially all of its investments in equity securities with readily determinable fair values and investments in debt securities as trading securities. Investment Risks Investment securities are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in values in the near term could materially affect the amounts reported in the accompanying consolidated balance sheets, consolidated statements of operations, and consolidated statements of changes in net assets. Derivative Financial Instruments The System has limited involvement with derivative financial instruments and uses them only to manage well-defined interest rate risks. In 2004, the System entered into a forward starting interest rate swap agreement with an outstanding notional amount of $62,500,000. The swap originally effectively converted a portion of the Series 2005A auction rate securities to a synthetic fixed rate of 3.643%. The swap converts $62,500,000 of the Series 2008A debt to synthetic fixed and has an expiration date of November 15, 2034. This variable to fixed swap arrangement is not designated as a hedge. - 11 -

The System also has an interest rate swap arrangement that is not designated as a hedge, with outstanding notional amounts of approximately $3,785,000 and $5,370,000 as of December 31, 2015 and 2014, respectively. The interest rate swap matures on January 1, 2019. During the terms of the agreement, the swap in effect converts variable-rate debt to fixed-rate debt. The agreement entitles Toledo, on a monthly basis, to pay a fixed rate of 5.765%, in return for receiving a rate based upon a 30-day commercial paper index (0.39% and 0.10% at December 31, 2015 and 2014, respectively). Amount of Unrealized (Loss) Gain Recognized on Derivatives 2015 2014 $62,500,000 2008A interest rate swap maturing on November 15, 2034 $ (672) $ (9,583) $3,785,000 interest rate swap maturing on January 1, 2019 246 248 Total amount recognized in investment income $ (426) $ (9,335) Fair Value of Derivatives Included in Other Long-Term Liabilities 2015 2014 $62,500,000 2008A interest rate swap maturing on November 15, 2034 $ 17,988 $ 17,316 $3,785,000 interest rate swap maturing on January 1, 2019 351 597 Total $ 18,339 $ 17,913 Assets Limited as to Use or Restricted Assets limited as to use or restricted include the restricted assets of the foundations and other subsidiaries of the System, assets held by trustees under indenture agreements and self-insurance trust arrangements, and assets set aside by the Board of Trustees for future capital improvements and other designated purposes. Fair Value of Financial Instruments The System follows the provisions of Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) Topic 820, Fair Value Measurement. This guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The fair value hierarchy is as follows: Level 1 Quoted (unadjusted) prices for identical assets in active markets Level 2 Other observable inputs, either directly or indirectly, including: Quoted prices for similar assets in active markets Quoted prices for identical or similar assets in nonactive markets (few transactions, limited information, noncurrent prices, high variability over time, etc.) Inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc.) Inputs that are derived principally from or corroborated by other observable market data - 12 -

Level 3 Unobservable inputs that cannot be corroborated by observable market data Fair values of trading securities are based on quoted market prices, where available. The System obtains pricing for each security from investment managers and custodian or a third-party pricing service (the pricing service ), which generally uses Level 1 or Level 2 inputs for the determination of fair value in accordance with the fair value hierarchy. Security prices are normally derived through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discount cash flow analysis, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, nonbinding broker quotes, benchmark-yields, credit spread, default rates, and prepayments spreads. As the System is responsible for the determination of fair value, it performs analyses on the prices received from the pricing service relative to the prices expected by the investment managers to determine whether the prices are reasonable estimates of fair value. As a result of these reviews, the System has not adjusted the prices obtained from the pricing service. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The System s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including consideration of inputs specific to the asset. Pursuant to FASB Accounting Standards Update ( ASU ) No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), adopted by the System as of December 31, 2015, investments in which fair value is measured using the net asset value ( NAV ) per share practical expedient are not categorized within the fair value hierarchy. Concentrations of Credit Risk Financial instruments, which potentially subject the System to concentrations of credit risk, consist principally of cash and cash equivalents, marketable securities, patient accounts receivable, and assets limited as to use or restricted. The System places its cash and cash equivalents with high-quality financial institutions. Concentration of credit risk with respect to marketable securities and assets limited as to use is restricted so that no one investment or group of similar investments, outside of those backed by the U.S. government, creates a significant concentration. Concentration of credit risk relating to patient accounts receivable is limited to some extent by the diversity and number of the System s patients and payors. Patient accounts receivable consist of amounts due from governmental programs, commercial insurance companies, self-pay patients, and other group insurance programs. Excluding governmental programs, no one payor source represents more than 10% of the System s patient accounts receivable. - 13 -

The mix of net receivables from patients and third-party payors as of December 31, 2015 and 2014, is as follows: 2015 2014 Commercial and other payors 51 % 48 % Medicare 25 22 Self-pay 13 20 Medicaid 11 10 Total 100 % 100 % The U.S. Department of Justice and other federal agencies are increasing resources dedicated to regulatory investigations and compliance audits of health care providers. The System is subject to these regulatory efforts. Management is currently unaware of any regulatory matters that may have a material adverse effect on the System s consolidated financial position or results of operations. Supplies Supplies (e.g., drugs, medical and surgical supplies, and food) are stated at the lower of cost (average cost) or market. Property and Equipment Property and equipment acquisitions (including capitalized internal-use software) are recorded at cost. Depreciation is provided over the estimated useful life of each class of depreciable asset and is computed using the straight-line method. Equipment under capital leases is amortized using 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 financial statements. Estimated useful lives for each of the categories of assets are as follows: Land improvements Buildings and improvements Equipment (including capitalized internal-use software) 5 25 years 5 40 years 3 15 years Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Asset Retirement Obligations The fair value of the liability for legal obligations associated with asset retirements is recorded in the period in which it is incurred. When the liability is initially recorded, the cost of the asset retirement obligation is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability, which is included in other long term liabilities, is accreted to its present value, and the associated capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the consolidated statements of operations. Goodwill The excess of purchase price over the fair value of net tangible and intangible assets of an entity acquired in a business combination is recorded as goodwill. The System tests goodwill annually for impairment as of December 31. - 14 -

Intangible Assets Intangible assets that have finite useful lives are amortized over said useful lives on a straight-line basis over periods ranging from one to 50 years. The System tests intangible assets, determined to have an indefinite useful life, annually for impairment as of December 31. Accrued Claims Accrued claims include estimates of the ultimate costs for both reported claims and claims incurred but not reported ( IBNR ). Premium Deficiency Reserves The reserve for premium deficiency, included in accrued claims, and the related expense are recognized when it is probable that expected future health care costs, under a group of existing contracts, will exceed future premiums and stop-loss coverage recoveries anticipated over the remaining term of the contract. The methods for making such estimates and for establishing the resulting reserves are periodically reviewed and updated. Any adjustments resulting therein are reflected in current operations. Estimates in reserves are subject to the impact of changes in the regulatory environment and economic conditions. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts provided. The System had no premium deficiency reserves accrued at December 31, 2015. Reserves accrued at December 31, 2014, amounted to $840,000. Centers for Medicare and Medicaid Services ( CMS ) Payable The System, through its wholly owned subsidiary, PIC, serves as a plan sponsor offering Medicare Part D prescription drug insurance coverage under a contract with CMS. In general, pharmacy benefits under Medicare Part D plans may vary in terms of coverage levels and out-of-pocket costs for beneficiary premiums, deductibles, and coinsurance. However, all Medicare Part D plans must offer either standard coverage or its actuarial equivalent (with out-of-pocket threshold and deductible amounts that do not exceed those of standard coverage). These defined standard benefits represent the minimum level of benefits required under law. Depending on the insurance risk, payments received by PIC for coverage under the Medicare Part D plan are recorded as net premium revenue or accrued claims. In addition to defined standard plans, other prescription drug plans are offered containing benefits in excess of the standard coverage limits, in many cases, for an additional beneficiary premium. Pharmacy benefit costs and administrative costs under the contract are expensed as incurred and are recognized in medical expenses in the consolidated statements of operations. Net Patient Service Revenue and Provision for Bad Debts Net patient service revenue, net of contractual and other allowances, is reported at estimated net realizable amounts from patients, third-party payors, and others for services rendered and includes estimated retroactive revenue adjustments due to future audits and reviews. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits and reviews. The System recognizes patient service revenue associated with services provided to patients who have third-party coverage on the basis of contractual rates for the services rendered and estimated collectibility of deductibles and coinsurance. For uninsured patients that meet certain financial criteria, standard financial assistance discounts are recorded. For uninsured patients that do not qualify for financial assistance, the System recognizes revenue on the basis of discounted rates for services provided. Based on historical experience, trends in health care coverage, and other collection indicators, a significant portion of the System s uninsured patients will be unable or unwilling to pay for the services provided. As a result, the System records a significant provision for uncollectible accounts related to uninsured patients in the period services are provided. The provision for bad debts is presented in the consolidated statements of operations as a component of net patient service revenue. - 15 -

Allowance for Estimated Uncollectible Accounts The System maintains an allowance for estimated uncollectible accounts based on the expected collectibility of patient accounts receivable. The System grants credit without collateral to its patients, most of whom are local residents and are insured under third-party payor agreements. The System assesses collectibility of accounts receivable based on historical and current collection experience, as well as current payor mix and accounts receivable aging trends to estimate the appropriate allowance for estimated uncollectible accounts and provision for bad debts. Management regularly reviews payor data in evaluating the sufficiency of the allowance for estimated uncollectible accounts. For receivables related to services provided to patients insured under third-party payor agreements, the System analyzes contractually due amounts and provides an allowance for estimated uncollectible accounts and a provision for bad debts, if necessary, for expected uncollectible deductibles and copayments on accounts for which the third-party payor has not yet paid, or for payors where realization of the amounts due is unlikely. For self-pay patient receivables, which include uninsured patients as well as coinsurance and deductibles owed by patients with insurance, the System records a significant provision for bad debts in the period of service on the basis of historical collection experience, indicating whether patients are unable or unwilling to pay the amounts for which they are financially responsible. The difference between the standard rates, or discounted rates, if applicable, and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for estimated uncollectible accounts. The System s estimate for uncollectible accounts is substantially all related to self-pay patient receivables and amounted to $104,656,000 and $142,051,000 as of December 31, 2015 and 2014, respectively. The decrease in the allowance for estimated uncollectible accounts is primarily due to a significant decrease in the uninsured population as a result of Medicaid expansion in Ohio and Michigan. Other Operating Revenue Other operating revenue consists of retail pharmacy, cafeteria, and other sales to patients, employees, and visitors, grants, rental income, unrestricted contributions, and other miscellaneous income. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ( GAAP ) requires management of the System to make assumptions, estimates, and judgments that affect the amounts reported in the consolidated financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. The System considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of its consolidated financial statements, including, but not limited to, the following: recognition of net patient service revenue, which includes contractual allowances; provisions for bad debts and charity care; recorded values of investments and goodwill; reserves for losses and expenses related to health care professional and general liability; and risks and assumptions for measurement of pension and retiree medical liabilities. Management relies on historical experience and other assumptions believed to be reasonable in making its judgments and estimates. Actual results could differ materially from those estimates. In addition, laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates could change in the near term. In 2015 and 2014, such changes in estimates increased patient service revenue, net of contractual and other allowances, by approximately $23,264,000 and $5,958,000, respectively. - 16 -

Charity Care The System provides care without charge to patients who meet certain criteria under its financial assistance policy. Because the System does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. Premium Revenue and Medical Expenses The System has certain agreements with various HMOs or through its wholly owned subsidiary, PIC, to provide medical services to subscribing participants. Premiums are recognized as income in the month that subscribing participants and enrollees are eligible to receive health care services. Medical expenses represent expenses incurred under contracts with health care providers; such costs are charged to expense in the month in which the service is rendered. These expenses include liabilities for reported claims and an estimate of IBNR claims using past experience adjusted for current trends. The CMS deploys a risk adjustment model that apportions premiums paid to all health plans according to health severity and certain demographic factors. The CMS risk adjustment model pays more for members whose medical history indicates they have certain medical conditions. Under this risk adjustment methodology, CMS calculates the risk-adjusted premium payment using diagnosis data from hospital inpatient, hospital outpatient, and physician treatment settings. PIC and health care providers collect, capture, and submit the necessary and available diagnosis data to CMS within prescribed deadlines. PIC estimates risk adjustment revenues based upon the diagnosis data submitted and expected to be submitted to CMS. Cost of Borrowing Interest cost incurred on borrowed funds during the period of construction of capital assets, net of applicable interest income for tax-exempt borrowed funds, is capitalized as a component of the costs of acquiring those assets. Net capitalized interest was $5,891,000 and $1,742,000 in 2015 and 2014, respectively. Deferred bond financing costs are amortized over the life of the bonds using the bonds outstanding method. Sick Pay Benefit The System provides a sick time benefit to certain employees of Toledo, Flower, Bay Park, PCCSC, and the System corporate staff. The benefit generally includes a capped payout provision at retirement or after attainment of a specified age or attendance level. The liability is an estimate based on the accrued benefits at year-end, adjusted for expected employee turnover, and a discount rate of 2.25% for 2015 and 2014. At December 31, 2015 and 2014, the System recorded a liability of $3,696,000 and $4,006,000, respectively. Payments made under the program were approximately $293,000 and $1,676,000 for the years ended December 31, 2015 and 2014, respectively. Income Taxes Income taxes for the for-profit entities are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The System is subject to audit by various taxing authorities, and such audits could result in additional taxes. The System may, from time to time, engage in transactions in which the tax consequences are subject to uncertainty. Significant judgment is required in assessing and estimating the tax consequences of any such transactions. The System determines whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The System believes that the tax positions of its entities comply, in all material respects, with applicable tax law, and that they have adequately provided for any reasonably foreseeable outcome related to these matters. - 17 -

Excess of Revenues over Expenses The System s consolidated statements of operations include the performance indicator of excess of revenues over expenses. Changes in unrestricted net assets which are excluded from excess of revenues over expenses, consistent with industry practice, include investment income on restricted funds; pension and other postretirement adjustments; transfers of assets to and from affiliates for other than goods and services; contributions of long-lived assets (including assets acquired using contributions, which, by donor restriction, were to be used for the purposes of acquiring such assets); and changes in noncontrolling interests in consolidated subsidiaries. Donor-Restricted Gifts/Restricted Net Assets Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value at the date the gift 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. Temporarily restricted net assets are those whose use by the System has been limited by donors to a specific entity or purpose. When a donor restriction expires, that is, when a purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statements of operations as net assets released from restrictions. Donor-restricted contributions whose restrictions are met within the same year as received are also reported as net assets released from restrictions. Permanently restricted net assets have been restricted by donors to be maintained by the System in perpetuity. The System occasionally receives unconditional promises to give with payments due in future periods. Pledges receivable are recorded in assets limited as to use or restricted. As of December 31, 2015 and 2014, the System had pledges receivable of $11,871,000 and $5,122,000, respectively, net of an allowance of $373,000 and $529,000, respectively, for uncollectibility and discounted at 3.61%, with amounts due as follows (in thousands): Years Receivable 2016 $ 2,489 2017 2018 2,982 2019 2020 2,509 2021 and thereafter 3,891 Total $ 11,871 Regulatory Risk-Based Capital and Statutory Deposit PIC is subject to minimum risk-based capital and dividend approval requirements that were developed by the National Association of Insurance Commissioners ( NAIC ) and imposed by the Ohio Department of Insurance and the Michigan Department of Insurance and Financial Services. The formulas for determining the amounts of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the System s regulatory total adjusted capital, as defined by the NAIC, to its authorized control-level risk-based capital. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. As of December 31, 2015 and 2014, it is management s opinion that PIC exceeds all required risk-based capital levels. Cash and securities of PIC with a carrying value of $5,487,000 and $5,490,000 were on deposit with regulatory authorities at December 31, 2015 and 2014, respectively, and included in intangible and other assets in the consolidated balance sheets. - 18 -

New Accounting Pronouncements In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This guidance requires a component of an entity or a group of components of an entity to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity s operations and financial results. This guidance also requires additional disclosures for significant components of an entity that are disposed of or held for sale, but that do not meet the discontinued operations criteria. The ASU was effective for fiscal years beginning after December 15, 2014, and the System adopted the standard as of January 1, 2015. Pursuant to ASU No. 2014-08, the pending St. Luke s divestiture, as discussed in Note 24, does not meet the criteria for presentation in discontinued operations and is included in continuing operations in the System consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This guidance requires debt issuance costs to be presented as a direct deduction from the related debt rather than as an asset. The guidance in ASU No. 2015-03 is effective for the System beginning January 1, 2016. As of December 31, 2015, the System expects that the adoption of ASU No. 2015-03 will result in a reduction to total assets and total liabilities in the consolidated balance sheets by approximately $7,717,000. In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This guidance removes the requirement to categorize within the fair value hierarchy all investments for which the fair value is measured using the net asset value per share practical expedient. This guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The System adopted the standard as of December 31, 2015 which resulted in a restatement of the 2014 fair value disclosures in Notes 11 and 17. In May 2015, the FASB issued ASU No. 2015-09, Financial Services Insurance (Topic 944): Disclosures about Short Duration Contracts. This guidance expands the disclosures that an insurance entity must provide about its short-duration insurance contracts. The guidance in ASU No. 2015-09 is effective for the System beginning January 1, 2016. The System is currently evaluating ASU No. 2015-09 and the impact this guidance may have on its consolidated financial statements. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the FASB s revenue standard, ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), by one year for all entities and permits early adoption on a limited basis. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers. After the deferral, the guidance in ASU No. 2014-09 is effective for the System beginning January 1, 2018. The System is currently evaluating the impact this guidance may have on its consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance in ASU No. 2015-16 is effective for the System beginning January 1, 2016, and is not expected to have a material impact on the System s consolidated financial statements. - 19 -

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This guidance requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. The guidance in ASU No. 2015-17 is effective for the System beginning January 1, 2017. The System is currently evaluating ASU No. 2015-17 and the impact this guidance may have on its consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU No. 2016-02 retains a distinction between operating leases and financing leases, and the classification criteria is substantially similar to previous lease guidance. The main change in the new guidance is the requirement for all leases to be recognized on the balance sheet at the present value of lease payments. The System will adopt ASU No. 2016-02 in the reporting period beginning January 1, 2019. The System is currently evaluating the impact on the consolidated financial statements. 3. CHARITY CARE The System maintains records to identify and monitor the level of direct patient charity care it provides. These records include the charges forgone for services and supplies furnished under its charity care policy and equivalent service statistics. During 2015 and 2014, gross charges forgone, based on established rates, approximated $86,427,000 and $95,282,000, respectively. The cost of charity care provided approximated $18,027,000 and $20,336,000 in 2015 and 2014, respectively. The System calculates a cost-to-charge ratio of adjusted total costs to gross charges for each subsidiary to determine the aggregate System cost of charity care. In addition to providing direct patient charity care, the System demonstrates its exempt purpose to benefit the community by operating emergency rooms open to the public 24 hours a day, seven days per week; providing facilities for the education and training of health care professionals; and maintaining research facilities for the study of new patient procedures, drugs, and medical devices that offer the promise of improving health care. The System also provides community health services, such as free or low-cost clinics, including the Hemophilia Clinic and the Congestive Heart Failure Clinic; women s health programs, such as free or low-cost mammograms; and multiple health promotion and wellness programs, such as lectures at local senior centers, free public health and infant mortality screenings; services to combat hunger, including food reclamation and food pharmacy programs; and various community advocacy projects that support organizations providing basic needs of food, clothing, and shelter to our community members. The System also subsidizes necessary health services, including emergency and medically necessary care, Neonatal Intensive Care, Arthritis and Osteoporosis Center, Children s Safe Harbor, the Cystic Fibrosis Center, and Autism Center, as well as diabetes treatment and support services at the ProMedica Mary Ellen Falzone Diabetes Center. - 20 -

4. NET PATIENT SERVICE REVENUE Patient service revenue, net of contractual allowances and discounts (before the provision for bad debts), generated by major payor source, for the years ended December 31, 2015 and 2014, is as follows (in thousands): 2015 2014 Commercial and other payors $ 903,184 $ 851,891 Medicare 648,783 563,971 Medicaid 179,506 137,400 Self-pay 39,064 63,860 Total $ 1,770,537 $ 1,617,122 Certain net patient service revenue amounts within the December 31, 2014 disclosure have been restated to conform with the 2015 presentation. Certain subsidiaries of the System have agreements with third-party payors that provide for payment to the System at amounts different from its established rates. A summary of the payment arrangements with major third-party payors is as follows: Commercial and Other Certain subsidiaries of the System have also entered into payment agreements with certain commercial insurance carriers, HMOs, and preferred provider organizations. The basis for payment under these agreements includes capitation fees, prospectively determined rates per discharge or per diem, and discounts from established charges. Medicare Inpatient acute care, psychiatric, and rehabilitation 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. Critical Access Hospitals (Defiance, Fostoria, and Herrick) and medical education costs are reimbursed at prospective rates, but traditional Medicare payments are later settled during the annual cost reporting process. Outpatient services are paid based upon either the Ambulatory Payment Classification ( APC ) methodology or a prospectively determined fee schedule for therapy and laboratory services. Under APCs, the hospital is paid a prospectively determined rate based on the procedures provided to patients. Traditional Medicare payments for outpatient services at Critical Access Hospitals are paid on an estimated cost basis and later settled on the cost report. Medicaid Inpatient services rendered to Medicaid program beneficiaries are paid at prospectively determined rates per discharge. Outpatient services are reimbursed based upon prospectively determined fee schedules. Program examination of cost reports has been finalized for various facilities with dates ranging from 2011 to 2014 for the Medicare program and with dates ranging from 2007 to 2013 for the Medicaid program. Cost reports for the Blue Cross Blue Shield program (Michigan providers only) have been finalized through 2014. Provisions for estimated reimbursement adjustments have been made in the accompanying consolidated financial statements. System hospitals all participate in various state supplemental payment programs designed to assist hospitals that have a disproportionate amount of uncompensated care. Ohio hospitals (Toledo, Defiance, Fostoria, Bay Park, Flower, St. Luke s and Memorial) participate in the Hospital Care Assurance and - 21 -

Medicaid Supplemental Payments programs. Michigan hospitals (Bixby, Herrick and Monroe) participate in the Disproportionate Share Hospital Payment and Quality Assurance Assessment programs. During 2015 and 2014, the System received distributions, net of assessments, of approximately $37,280,000 and $25,354,000, respectively. The Ohio hospitals are subject to a franchise fee used to fund the Medicaid Supplemental Payments program. Amounts received under these programs are recorded as revenue when received. 5. ASSETS LIMITED AS TO USE OR RESTRICTED As of December 31, 2015 and 2014, restricted assets of the foundations and other subsidiaries of the System, assets held by trustees under indenture agreements and self-insurance trust arrangements, and assets set aside by the Board of Trustees for future capital improvements and other designated purposes consisted of the following (in thousands): 2015 2014 Cash and cash equivalents $ 24,197 $ 11,994 Equity securities 997,398 1,003,933 Fixed-income securities 744,761 658,407 Long-short equity hedge funds 121,436 109,318 Real return strategy funds 87,719 83,656 Real estate 8,017 9,825 Beneficial interest in perpetual trusts 28,165 Other 16,383 9,268 Total $ 2,028,076 $ 1,886,401 In 2014, beneficial interest in perpetual trusts is classified in cash and cash equivalents, equity securities, fixed income securities, and other based on the nature of underlying assets. Assets limited as to use, which are required for obligations classified as current liabilities are reported in current assets. 6. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2015 and 2014, consisted of the following (in thousands): 2015 2014 Land and improvements $ 148,393 $ 138,301 Buildings and improvements 1,212,684 1,101,638 Equipment 754,762 669,730 Construction in progress 184,605 89,446 Total 2,300,444 1,999,115 Less accumulated depreciation and amortization (1,207,609) (1,116,974) Property and equipment net $ 1,092,835 $ 882,141-22 -

Property and equipment includes assets recorded under capital leases of $16,739,000 and $3,971,000 with accumulated amortization for such assets of $1,477,000 and $91,000 as of December 31, 2015 and 2014, respectively. The associated charges to income are recorded in depreciation and amortization expense. Property and equipment also include capitalized internal-use software with net book value of approximately $19,405,000 and $18,568,000 as of December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, construction contracts of $4,192,000 and $18,677,000, respectively, exist for the construction and remodeling of System facilities. 7. GOODWILL AND INTANGIBLE ASSETS Intangibles as of December 31, 2015 and 2014, consisted of the following (in thousands): 2015 2014 Gross Gross Average Carrying Accumulated Carrying Accumulated Life (Years) Amount Amortization Net Amount Amortization Net Amortized intangible assets: Physician charts 10 $ 1,446 $ (789) $ 657 $ 1,446 $ (644) $ 802 Customer relationships 6 50 4,832 (3,779) 1,053 4,697 (2,476) 2,221 Other 1 10 3,083 (1,767) 1,316 3,083 (1,223) 1,860 Total $ 9,361 $ (6,335) $ 3,026 $ 9,226 $ (4,343) $ 4,883 2015 2014 Carrying amount of intangible assets not subject to amortization: Goodwill $ 39,651 $ 31,132 Other 1,548 718 Total $ 41,199 $ 31,850 Aggregate amortization expense for the years ended December 31, 2015 and 2014, was $1,329,000 and $1,243,000, respectively. Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands): Years Ending December 31 2016 $ 785 2017 650 2018 341 2019 267 2020 68 Thereafter 915 Total $ 3,026-23 -

8. DEBT Long-term debt as of December 31, 2015 and 2014, consisted of the following (in thousands): 2015 2014 Taxable Bonds Series 2015A, interest at 4.98% payable semiannually $ 273,000 $ - Hospital Revenue Bonds Series 2015B, interest at 4.00% payable semiannually 45,591 Taxable Hospital Refunding Revenue Bonds Series 2015C, based on the 30-day London InterBank Offered Rate (LIBOR) index and interest payable monthly (0.95% as of December 31, 2015) 28,140 Taxable Hospital Revenue Bonds Series 2015D, based on the 30-day LIBOR index and interest payable monthly (1.05% as of December 31, 2015) 5,000 Taxable Bonds Series 2015E, based on the 30-day LIBOR index and interest payable monthly (1.00% as of December 31, 2015) 38,885 Hospital Revenue Bonds Series 2011A, interest at 3.13% to 6.50% payable semiannually 180,048 180,147 Hospital Refunding Revenue Bonds Series 2011B, interest at 3.25% to 6.00% payable semiannually 16,958 17,005 Hospital Revenue Refunding Bonds Series 2011C, based on the 30-day LIBOR index and interest payable monthly (0.76% as of December 31, 2015) 16,975 20,745 Hospital Refunding Revenue Bonds Series 2011D, interest at 3.00% to 5.25% payable semiannually 137,712 139,188 Hospital Refunding Revenue Bonds Series 2011E, interest at 3.00% to 4.63% payable semiannually 7,974 8,504 Hospital Refunding Revenue Bonds Series 2010, extinguished September 2015, based on the 30-day LIBOR index and interest payable monthly (1.68% as of December 31, 2014) 19,840 Hospital Revenue Bonds Series 2008A, based on the 30-day LIBOR index and interest payable monthly (0.68% as of December 31, 2015) 62,500 62,500 Hospital Revenue Bonds Series 2008D, interest at 5.25% to 5.29% payable semiannually 51,635 51,580 Hospital Refunding Revenue Bonds Series 2005B, extinguished November 2015, interest of 5% payable semi-annually 29,273 Adjustable Rate Taxable Loan 2014, based on the 30-day LIBOR index and interest payable monthly (0.84% as of December 31, 2015) 1,840 2,180 Adjustable Rate Taxable Securities Series 1998, interest at the rate established weekly based on the 30-day commercial paper index and interest payable monthly (0.35% as of December 31, 2015) 4,390 5,452 Adjustable Rate Loan 2012, based on the 30-day LIBOR index and interest payable monthly (0.84% as of December 31, 2015) 6,845 7,275 Qualified Low-Income Community Investment Loans 2015, interest at 1.00% to 2.58%, payable quarterly (see Note 23) 14,740 Capital lease obligations 18,550 6,614 Other 6,778 2,423 Total 917,561 552,726 Less contractual current installments of long-term debt 21,875 12,389 Less contingent current installments of long-term debt 165,674 90,703 Total $ 730,012 $ 449,634-24 -

Certain subsidiaries of the System are participants in a Master Trust Indenture ( Indenture ), amended and restated as of June 15, 2011, pursuant to which the System s revenue bonds are general obligations of the ProMedica Healthcare Obligated Group ( Obligated Group ). The Obligated Group consists of the following subsidiaries: Toledo, Flower, St. Luke s, Bay Park, Defiance, Fostoria, Bixby, Herrick, Memorial, Monroe, PCCSC, and Lenawee Long Term Care. The bonds were issued by the County of Lucas, Ohio ( Lucas County ) and the County of Lenawee, Michigan and are payable solely pursuant to related loan agreements or leases between the borrowing subsidiaries and the issuing authority. The Indenture and related loan agreements and leases require compliance with certain financial covenants each year, by the Obligated Group. The Obligated Group has complied with the requirements of the financial covenants each year. In connection with the issuance of the revenue bonds through Lucas County, the Ohio members of the Obligated Group have entered into a lease agreement ( Lease ) to lease its hospital facilities to, and lease back its hospital facilities from, Lucas County. Pursuant to the Lease, the Obligated Group agrees to make payments of basic rent in amounts sufficient to pay the principal and interest on the Lucas County revenue bonds issued for the benefit of the Obligated Group. Taxable Bonds Series 2015A, with an outstanding principal of $273,000,000 at December 31, 2015, were issued in September 2015. The taxable fixed rate bonds mature on November 15, 2045 and are subject to optional redemption prior to maturity. The proceeds of the Series 2015A bonds were used for authorized corporate purposes of the System s subsidiaries, including financing or refinancing capital expenditures and paying current operating expenditures. Hospital Revenue Bonds Series 2015B, with an outstanding principal of $45,591,000 at December 31, 2015, were issued in September 2015 and consists of $46,755,000 of tax-exempt fixed rate bonds and include an unamortized bond discount of $1,164,000. The bonds mature on November 15, 2045 and are subject to optional redemption prior to maturity. The proceeds of the Series 2015B bonds were used for acquiring and improving health care facilities in Ohio. Taxable Hospital Revenue Refunding Bonds Series 2015C, with an outstanding principal of $28,140,000 at December 31, 2015, were issued in November 2015 as a taxable directly placed bank loan with a base term of six years. Principal payments are due annually and range from $4,425,000 due on November 15, 2016 to $4,960,000 in 2021. The contractual current portion of the Series 2015C bonds is $4,425,000 at December 31, 2015 with the remaining $23,715,000 included in contingent current installments of long-term debt based on certain subjective acceleration definitions within the agreement. The proceeds of the Series 2015C bonds were used to extinguish the Hospital Refunding Revenue Bonds Series 2005B. Taxable Hospital Revenue Bonds Series 2015D, with an outstanding principal of $5,000,000 at December 31, 2015, were issued in November 2015 as a taxable directly placed bank loan with a base term of 10 years. Principal payments of $1,250,000 are due annually beginning on November 15, 2022 with the final payment due in 2025. The Series 2015D bonds are included in contingent current installments of long-term debt as of December 31, 2015 based on certain subjective acceleration definitions within the agreement. The proceeds of the Series 2015D bonds were used for authorized corporate purposes of the System s subsidiaries, including financing or refinancing capital expenditures and paying current operating expenditures. Taxable Bonds Series 2015E, with an outstanding principal of $38,885,000 as of December 31, 2015, were issued in November 2015 as a taxable directly placed bank loan with a base term of 10 years. Principal payments range from $1,940,000 on November 15, 2016 to $21,385,000 in 2025. The - 25 -

contractual current portion of the Series 2015E bonds is $1,940,000 at December 31, 2015, with the remaining $36,945,000 included in contingent current installments of long-term debt based on certain subjective acceleration definitions within the agreement. The proceeds of the Series 2015E bonds were used to pay off a temporary bank line of credit that was used to extinguish the Monroe Hospital Finance Authority 2006 Revenue and Refunding bonds. Hospital Revenue Bonds Series 2011A, with outstanding principal of $180,048,000 at December 31, 2015, consists of $7,785,000 in outstanding serial bonds, which mature in increasing amounts from $220,000 on November 15, 2016, to $1,700,000 in 2023; $22,645,000 term bonds due November 15, 2031, $56,065,000 term bonds due November 15, 2037, $520,000 term bonds due November 15, 2041, and $94,220,000 term bonds due November 15, 2041. Balances reported at December 31, 2015 and 2014, include unamortized bond discount of $1,187,000 and $1,263,000, respectively. In February 2011, the Obligated Group issued $181,410,000 in fixed-rate bonds through Lucas County. A portion of the proceeds from the Series 2011A Bonds was used to extinguish Series 2008B variable rate demand bonds with the remainder used to finance the cost of acquiring, constructing, renovating, and equipping certain health care facilities of the Obligated Group located in Ohio. Hospital Refunding Revenue Bonds Series 2011B, with outstanding principal of $16,958,000 at December 31, 2015, consists of $285,000 of outstanding serial bonds, which mature in increasing amounts from $60,000 on November 15, 2016, to $95,000 in 2019 and $17,160,000 term bonds due November 15, 2035. Balances reported at December 31, 2015 and 2014, include unamortized bond discount of $487,000 and $440,000, respectively. In February 2011, the Obligated Group issued $17,445,000 in fixed-rate bonds through the County of Lenawee Hospital Finance Authority. The proceeds from the Series 2011B Bonds were used to extinguish Series 2008C variable rate demand bonds. Hospital Revenue Refunding Bonds Series 2011C, with outstanding principal of $16,975,000 at December 31, 2015, consists of principal payments totaling the outstanding par in increasing amounts over the term of the loan ranging from $3,855,000 due November 15, 2016, to $4,615,000 due November 15, 2019. The contractual current portion of the Series 2011C bonds is $3,855,000 at December 31, 2015 with the remaining $13,120,000 included in contingent current installments of longterm debt based on certain subjective acceleration definitions within the agreement. In May 2011, the Obligated Group refinanced a portion of Series 1999 Hospital Revenue Bonds with the Series 2011C bonds, which were directly placed via a bank loan with a base term of eight years. Hospital Refunding Revenue Bonds Series 2011D, with outstanding principal of $137,712,000 at December 31, 2015, consists of $132,395,000 in serial bonds, which mature in varying amounts from $970,000 on November 15, 2016, to $880,000 in 2030. Balances reported at December 31, 2015 and 2014, include unamortized bond premium of $5,317,000 and $5,848,000, respectively. In December 2011, the Obligated Group issued $135,145,000 in fixed-rate bonds through Lucas County. The proceeds from the Series 2011D Bonds were used to extinguish the remaining maturities of Series 1999 Hospital Revenue Bonds that were not refunded with Series 2011C issuance. Hospital Refunding Revenue Bonds Series 2011E, with outstanding principal of $7,974,000 at December 31, 2015, consists of $4,465,000 in outstanding serial bonds, which mature in increasing amounts from $500,000 on November 15, 2016, to $625,000 in 2023, and $3,575,000 term bonds due November 15, 2028. Balances reported at December 31, 2015 and 2014, include unamortized bond discount of approximately $66,000 and $21,000, respectively. In December 2011, the Obligated Group issued $9,455,000 in fixed-rate bonds through the County of Lenawee Hospital Finance Authority. The proceeds from the Series 2011E Bonds were used to extinguish Series 1999A Hospital Revenue and Refunding Bonds. - 26 -

Hospital Refunding Revenue Bonds Series 2010, acquired as part of the Memorial affiliation, were extinguished in September 2015 using the proceeds from a temporary bank line of credit that was subsequently paid off with the issuance of the Series 2015A bonds. Hospital Revenue Bonds Series 2008A, with outstanding principal of $62,500,000 at December 31, 2015, consists of variable rate demand bonds issued through Lucas County and refinanced in March 2011 with a direct placement bank loan with a base term of seven years. The Series 2008A bond direct loan is included in contingent current installments of long-term debt at December 31, 2015 and 2014, based on certain subjective acceleration definitions within the agreement. The final stated maturity on the Series 2008A bonds is November 15, 2034. There are no scheduled principal maturities during the loan term, with interest-only payments to the bondholders. Hospital Revenue Bonds Series 2008D, with outstanding principal of $51,635,000 at December 31, 2015, consists of $53,000,000 of fixed-rate term bonds, due in amounts of $34,980,000 in 2038 and $18,020,000 in 2040, respectively. Balances reported at December 31, 2015 and 2014, include unamortized bond discount of $1,365,000 and $1,420,000, respectively. The proceeds from the bonds were used to extinguish a portion of Series 2005A auction rate bonds with the remainder used to finance the cost of acquiring, constructing, renovating, and equipping certain health care facilities located in Ohio. Hospital Refunding Revenue Bonds Series 2005B, were extinguished in November, 2015 using proceeds from the Series 2015C bonds. Balances reported at December 31, 2014, include unamortized bond premium of $198,000. The proceeds from the Series 2005B bonds were used to refund the Hospital Improvement and Refunding Revenue Bonds 1993 Series. Adjustable Rate Taxable Loan The 2014 loan, with an outstanding principal of $1,840,000 at December 31, 2015, consists of a six-year taxable term loan with an original principal of $2,420,000. Principal payments under the loan are due in annual amounts of $360,000 in 2016 to $450,000 in 2019, with the final maturity of the loan in April, 2020. The proceeds of the loan were used to extinguish the Adjustable Rate Taxable Notes Series 2000. Adjustable Rate Taxable Securities Series 1998, with an outstanding principal amount of $4,390,000 at December 31, 2015, mature on various dates between 2016 and 2019, are callable at par, and were issued to finance the acquisition and construction of Wildwood Health Pavilion and Surgery Center. As a condition of the issuance of the bonds, the System delivered to the trustee a letter of credit, in which the trustee is entitled to draw on an amount not exceeding $3,832,000 at December 31, 2015. The letter of credit secures payment of the principal, plus 45 days of accrued interest. The letter of credit expires on January 1, 2019, unless terminated sooner or otherwise extended. The contractual current portion of the Series 1998 bonds is $1,151,000 at December 31, 2015, with the remaining $3,239,000 included in contingent current installments of long-term debt. Adjustable Rate Loan The 2012 loan, with an outstanding principal of $6,845,000 at December 31, 2015, maturing in 2019, was issued to finance the acquisition of real estate by the System. The loan, secured by a mortgage on a medical office building, requires annual principal payments of $430,000 through June 2018. The remaining balance of the outstanding principal, $5,555,000, is due at maturity in June 2019. The contractual current portion of the loan is $430,000 at December 31, 2015, with the remaining $6,415,000 included in contingent current installments of long-term debt. Qualified Low-Income Community Investment (QLICI) Loans The 2015 loans, with an outstanding principal balance of $14,740,000 at December 31, 2015, mature in December, 2045, and were issued to finance the acquisition and rehabilitation of the System s corporate headquarters. The - 27 -

loans require quarterly interest-only payments through December, 2022, with principal and interest payments beginning thereafter until the loans mature. The loans are included in contingent current installments of long-term debt based on certain subjective acceleration definitions within the loan agreement. Capital Lease Capital lease obligations primarily consist of property, equipment, and information technology leases. Other Other long-term debt consists of equipment loans, mortgages on several facilities, and notes payable. The table below indicates the future maturities on long-term debt at December 31, 2015. While presentation in the consolidated balance sheets of current maturities of long-term debt includes certain amounts contingently payable, the schedule below has been prepared based on contractual maturities of the debt outstanding at December 31, 2015. Accordingly, if covenants are violated, debt repayments may become more accelerated than presented below (in thousands). Years Ending December 31 2016 $ 21,875 2017 18,171 2018 18,283 2019 23,460 2020 28,927 Thereafter 806,845 Total $ 917,561 9. ESTIMATED SELF-INSURANCE COSTS Certain subsidiaries of the System are self-insured or are insured by Indemnity up to certain amounts for the purpose of providing for workers compensation, medical malpractice claims, and property coverage. There are known claims and incidents that may result in the assertion of additional claims, as well as claims from unknown incidents. Professional insurance consultants have been retained to determine appropriate funding requirements and medical malpractice and workers compensation liabilities. The amounts funded have been placed in self-insurance fund accounts, which are reported in assets limited as to use or restricted in the accompanying consolidated balance sheets. The System has recorded a medical malpractice liability of $34,747,000 and $39,100,000 at December 31, 2015 and 2014, respectively. The workers compensation liability was $5,931,000 and $6,365,000 in 2015 and 2014, respectively. The recorded liability for workers compensation and medical malpractice represents anticipated losses stated at their present value. The interest rate assumptions used for medical malpractice and workers compensation was 4.5% in 2015 and 2014. The System is self-insured for the purpose of providing medical health insurance benefits for certain employees. An accrual of $9,277,000 and $6,984,000 has been recorded for claims that have been incurred, but not yet received, at December 31, 2015 and 2014, respectively, and is included in accounts payable and accrued expenses in the consolidated balance sheets. It is the opinion of management that estimated self-insurance costs accrued as of December 31, 2015 and 2014, are adequate to provide for potential losses resulting from pending or threatened litigation. - 28 -

10. ACCRUED CLAIMS PIC contracts with various health care providers for the provision of certain medical care related to its members. PIC compensates those providers on a variety of bases, including capitation, fixed fee for service, and discounted charges. Medical expenses include all amounts incurred by PIC under membership contracts with individual members and employer groups. Contracts with providers for medical services are executed between the providers and PIC. Cost of medical claims represents expenses incurred under contracts with health care providers; such costs are charged to expense in the month in which the service is rendered. These expenses include liabilities for incurred and reported claims, and an estimate of incurred, but not reported, claims using past experience adjusted for current trends. Activity in the accrued claims expense for the years ended December 31, 2015 and 2014, is summarized as follows (in thousands): 2015 2014 Balance beginning of year $ 98,424 $ 48,464 Incurred related to: Current year 861,930 665,040 Prior years (16,212) (168) Total incurred 845,718 664,872 Paid related to: Current year 773,265 569,548 Prior years 83,029 45,364 Total paid 856,294 614,912 Balance end of year $ 87,848 $ 98,424 PIC estimates the amount of the accrued claims liability costs IBNR in accordance with GAAP and using standard actuarial developmental methodologies based upon historical data, including the period between the date services are rendered and the date claims are received and paid, denied claim activity, expected medical cost inflation, seasonality patterns, and changes in membership, among other things. PIC s IBNR best estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. This provision for adverse deviation is intended to capture the potential adverse development from factors, such as changes in current payment patterns versus historical payment patterns, potential unknown high cost cases, increased usage of higher cost services, accelerated utilization of services, and/or exceptional situations that require judgmental adjustments in setting the reserves for claims. The System considered the expected medical expense developed by the Ohio Department of Medicaid in establishing the reserves for the Medicaid population added in 2014. PIC consistently applies the IBNR estimation methodology from period to period. The IBNR best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior-period estimates are included in the current period. As additional information becomes known, assumptions are adjusted accordingly to change the estimate of IBNR. The degree of uncertainty in the - 29 -

estimates of incurred claims is greater for the most recent months incurred services. Revised estimates for prior periods are determined in each year based on the most recent updates of paid claims for prior periods. Estimates for service costs IBNR are subject to the impact of changes in the regulatory environment, economic conditions, changes in claims trends, and numerous other factors. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts estimated. Management believes that the liability for accrued claims expenses is adequate to cover the ultimate net cost of medical expenses. 11. PENSION AND OTHER POSTRETIREMENT PLANS Noncontributory Defined Benefit Pension Plans ( Pension Plans ) The System sponsors a noncontributory qualified defined benefit pension plan, which covers certain full-time and part-time employees of the System who have more than 1,000 hours of service during the year. Benefits are based on each employee s compensation and length of service. The System makes contributions to the plan required to satisfy the Employee Retirement Income Security Act of 1974 ( ERISA ) funding standards. The System is not required to make a plan contribution in 2016 and reserves the right to make contributions that exceed ERISA funding standards. During 2014, the System amended the plan, effective January 1, 2015, to limit participation and reduce certain benefits resulting in an $8.5 million decrease in the benefit obligation. The System also has a noncontributory qualified defined benefit pension plan, which covers certain fulltime and part-time employees of St. Luke s. Effective December 31, 2009, St. Luke s froze all benefit accruals and plan participation, which remained in effect through 2015. The System is not required to make a plan contribution in 2016 and reserves the right to make contributions that exceed ERISA funding standards. Through its acquisition of Monroe, the System assumed a noncontributory qualified defined benefit pension plan, which covers certain eligible employees of Monroe. Monroe froze plan participation effective June 30, 2005 and benefit accruals effective September 30, 2009, which remained in effect through 2015. The System is not required to make a plan contribution in 2016 and reserves the right to make contributions that exceed ERISA funding standards. The System also participates in a supplemental defined benefit plan ( supplemental plan ) for a small group of retirees. Participation in the supplemental plan and determination of benefits are at the discretion of the System. The pension costs for this plan are not prefunded. During 2013, the System offered an early retirement incentive to a specific class of employees who met certain age and service requirements. The special termination benefits included one-time pension additions, severance pay, and medical benefits. As a result of this incentive, as of December 31, 2014, the System s benefit obligation decreased $58,300,000 related to total benefits paid and the System recognized a settlement cost of $13,900,000 in its consolidated statements of operations and changes in net assets. During 2014, the System amended the plan, effective January 1, 2015, to limit participation and reduce certain benefits resulting in an $8.5 million decrease in the benefit obligation. During 2015, the Society of Actuaries ( SOA ) issued a new mortality improvement scale that adjusted future life expectancies from the improvement scales that were released in 2014 and as a result decreased the amount of expected aggregate benefit payments to plan participants. As of December 31, 2015, the System incorporated the new SOA mortality improvement scale into the measurement of plan benefit obligations. The change in the assumptions decreased the pension and postretirement benefit obligations by $7,365,000 as of December 31, 2015. - 30 -

During 2014, the SOA issued new mortality and mortality improvement tables that raised life expectancies and thereby increased the amount of expected aggregate benefit payments to plan participants. As of December 31, 2014, the System incorporated the new SOA mortality and mortality improvement tables into the measurement of plan benefit obligations. The change in the assumptions increased the pension and postretirement benefit obligations by $26,900,000 as of December 31, 2014. Defined Contribution Benefits The System sponsors defined contribution pension plans established under Section 401(k) and Section 403(b) of the IRC, which covers certain full-time and part-time employees. Employer contributions are based upon each employee s deferrals. The pension expense under these plans for 2015 and 2014 was approximately $18,741,000 and $15,169,000, respectively. St. Luke s sponsors a defined contribution plan, established under Section 403(b) of the IRC, covering certain eligible employees. Employer contributions are based on a percentage of employee compensation, age, and years of service. The pension expense under this plan for 2015 and 2014 was approximately $2,900,000 and $2,708,000, respectively. Deferred Compensation The System sponsors deferred compensation plans established under Section 457 of the IRC. The System s liability under the plans is primarily funded with assets held in a grantor trust and by an insurance company. The System has nonqualified deferred compensation plans that permit eligible employees to defer a portion of their compensation. The deferred amounts are distributable in cash based on completion of length of service requirements, retirement, or termination of employment. At December 31, 2015 and 2014, the assets and liabilities under these plans totaled $36,059,000 and $35,741,000, respectively. Postretirement Health Care Benefit Plans ( Postretirement Plans ) The System provides certain health care benefits for current contributing retirees and certain active full-time employees who meet established vesting criteria. The benefit costs for these plans are not prefunded. - 31 -

The changes in projected benefit obligations, accumulated postretirement obligations, changes in plan assets, and funded status for both pension and postretirement plans for the years ended December 31, 2015 and 2014, are as follows (in thousands): Pension Plans Postretirement Plans 2015 2014 2015 2014 Changes in benefit obligation: Benefit obligation beginning of year $ 643,180 $ 616,327 $ 2,857 $ 2,836 Benefit obligation assumed from Monroe acquisition 92,432 Service cost 17,477 16,695 Interest cost 25,813 23,710 82 92 Actuarial loss (gain) (20,551) 69,597 (898) 262 Participant contributions 57 65 Benefits paid (33,641) (16,336) (259) (398) Plan amendments (8,547) Settlements (58,266) Benefit obligation end of year 724,710 643,180 1,839 2,857 Changes in plan assets: Fair value of plan assets beginning of year 554,783 584,990 Fair value of plan assets assumed from Monroe acquisition 64,155 Actual return on plan assets (8,982) 24,320 Employer contributions 20,974 20,075 202 333 Participant contributions 57 65 Benefits paid (33,641) (16,336) (259) (398) Settlements (58,266) Fair value of plan assets end of year 597,289 554,783 - - Funded status (127,421) (88,397) (1,839) (2,857) Net liability recognized $ (127,421) $ (88,397) $ (1,839) $ (2,857) Amounts recognized in the consolidated balance sheets: Other liabilities current $ (72) $ (72) $ - $ - Other liabilities long term (127,349) (88,325) Accrued postretirement plans current (209) (291) Accrued postretirement plans long term (1,630) (2,566) Net liability (127,421) (88,397) (1,839) (2,857) Amounts recognized in unrestricted net assets 183,219 158,444 (1,653) (831) Net amount recognized $ 55,798 $ 70,047 $ (3,492) $ (3,688) - 32 -

Amounts recognized in unrestricted net assets as of December 31, 2015 and 2014, consist of the following (in thousands): Pension Plans Postretirement Plans 2015 2014 2015 2014 Beginning balance $ 158,444 $ 100,809 $ (831) $ (1,230) Recognized in net periodic benefit cost: Amortization of net (gain) loss (10,648) (6,515) 77 137 Amortization of prior service credit 1,720 1,008 Settlement cost (13,948) Plan amendment prior service credit (8,547) Net loss (gain) 33,703 85,637 (899) 262 Ending balance $ 183,219 $ 158,444 $ (1,653) $ (831) Amount included in unrestricted net assets under FASB ASC Topic 715 consists of: Prior service credit $ (15,898) $ (17,618) $ - $ - Net actuarial loss (gain) 199,117 176,062 (1,653) (831) Total amount recognized $ 183,219 $ 158,444 $ (1,653) $ (831) Components of net periodic benefit cost for the years ended December 31, 2015 and 2014, consisted of the following (in thousands): Pension Plans Postretirement Plans 2015 2014 2015 2014 Service cost $ 17,477 $ 16,695 $ - $ - Interest cost 25,813 23,710 82 92 Expected return on plan assets (45,272) (40,359) Amortization of prior service credit (1,720) (1,008) Recognized net actuarial loss (gain) 10,648 6,514 (77) (137) Net benefit cost (credit) $ 6,946 $ 5,552 $ 5 $ (45) The estimated amounts to be amortized from unrestricted net assets into net periodic benefit cost during 2016 are as follows (in thousands): Pension Plans Postretirement Plans Prior service credit $ (1,720) $ - Net actuarial loss (gain) 10,498 (211) Total $ 8,778 $ (211) - 33 -

Pension Plans Postretirement Plans 2015 2014 2015 2014 Benefit obligations: Discount rate 3.75% 4.25% 3.50% 3.75% 3.00% 3.25% 3.00% Rate of compensation increase 3.50% 3.50% N/A N/A Net periodic benefit cost: Discount rate 3.50% 3.75% 4.25% 4.75% 3.00% 3.25% 3.50% Expected long-term return on plan assets 7.50% 7.75% N/A N/A Rate of compensation increase 3.50% 3.50% N/A N/A For 2015 and 2014, the System assumed a long-term asset rate of 7.50% and 7.75%, respectively. In developing the expected long-term rate of return assumption, the System evaluated input from investment advisers, including a review of asset class return expectations based on historical 15-year compounded returns for such asset classes. For the years ended December 31, 2015 and 2014, the total accumulated benefit obligation for all pension and postretirement plans was $699,150,000 and $619,112,000, respectively. Health Care Trend Rate Postretirement Plans Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement plans. The postretirement benefit obligation includes assumed health care trend rates as follows: 2015 2014 Health care cost trend rate 7.50 % 8.00 % Ultimate trend rate 5.50 % 5.50 % Year the rate reaches ultimate rate 2020 2020 A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 31, 2015 (in thousands): One-Percentage- Point Increase One-Percentage- Point Decrease Effect on total service cost and interest cost components $ 9 $ (8) Effect on accumulated postretirement benefit obligation 136 (125) Plan Assets Assets of the defined benefit plans, which consist primarily of U.S. government and corporate obligations, listed common stocks, and money market funds, are held in a separate trust with investment management provided by various outside managers. The System invests the assets of the plans in a diversified portfolio consisting of an array of asset classes that attempt to maximize returns while minimizing volatility. The System targets to hold one to three years of beneficiary payments in short-term securities with the balance in a longer duration allocation. The System s overall investment strategy is to maximize total return while providing for expected retirement payments over a three-year horizon utilizing a wide diversification of asset types, fund strategies, and fund managers. The target allocations for plan assets are 68.5% equity securities, 25% fixed-income securities, and 6.5% to real return strategy funds. Equity securities primarily include investments in large-cap and mid-cap companies, located in the United States as well as global and - 34 -

international strategies, and a long-short equity manager. Fixed-income securities include investment-grade corporate bonds of companies from diversified industries, and U.S. Treasuries and agencies. Real return strategy funds include all asset mutual funds and a private capital investment. The fair values of the System s pension plan assets as of December 31, 2015 and 2014, by asset category are as follows (in thousands): 2015 Plan Assets Fair Value Measurements Quoted Prices in Active Markets for Significant Significant Identical Observable Unobservable Assets Inputs Inputs Asset Category Total (Level 1) (Level 2) (Level 3) Cash and cash equivalents $ 21,540 $ 1,156 $ 20,384 $ - U.S. equity securities marketable equity securities 150,314 150,314 International equity securities: International equity mutual fund 23,907 23,907 Marketable international securities 58,477 58,477 Fixed-income securities: U.S. Treasuries and agencies 75,067 75,067 Corporate obligations 69,686 69,686 Domestic fixed-income mutual funds 26,341 26,341 International fixed-income mutual funds 9,236 9,236 Real return strategy funds: All asset mutual funds 25,181 25,181 Private capital 6,224 6,224 Investments measured at net asset value: International equity commingled fund 89,707 Long-short equity hedge funds 41,609 Total $ 597,289 465,973 $ 294,612 $ 165,137 $ 6,224-35 -

2014 Plan Assets Fair Value Measurements Quoted Prices in Active Markets for Significant Significant Identical Observable Unobservable Assets Inputs Inputs Asset Category Total (Level 1) (Level 2) (Level 3) Cash and cash equivalents $ 15,597 $ 1,052 $ 14,545 $ - U.S. equity securities marketable equity securities 137,811 137,811 International equity securities: International equity mutual fund 24,890 24,890 Marketable international securities 55,118 55,118 Fixed-income securities: U.S. Treasuries and agencies 77,112 77,112 Corporate obligations 64,873 64,873 Domestic fixed-income mutual funds 26,068 26,068 International fixed-income mutual funds 9,085 9,085 Real return strategy funds: All asset mutual funds 25,324 25,324 Private capital 3,272 3,272 Investments measured at net asset value: International equity commingled fund 78,906 Long-short equity hedge funds 36,727 Total $ 554,783 439,150 $ 279,348 $ 156,530 $ 3,272 Cash Flows Expected Contributions The System expects to contribute $21,572,000 to its pension plans and $209,000 to its postretirement plans to pay anticipated benefit payments in 2016. The System may elect to make additional contributions. Expected Benefit Payments The System expects to pay the following for pension benefits, which reflect expected future service, as appropriate, and expected postretirement benefits, net of participant contributions (in thousands): Years Ending Pension Postretirement December 31 Plans Plans 2016 $ 36,647 $ 209 2017 40,829 206 2018 42,750 200 2019 45,753 191 2020 47,173 181 2021 2025 254,887 702-36 -

12. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS As of December 31, 2015 and 2014, temporarily restricted net assets relate to the following (in thousands): 2015 2014 Research $ 24,714 $ 15,145 Health care services 54,044 54,401 Total $ 78,758 $ 69,546 Permanently restricted net assets of $35,810,000 and $37,349,000 as of December 31, 2015 and 2014, respectively, relate to investments held in perpetuity, the income from which is expendable to support health care services. All endowed assets are included within the permanently restricted net asset class; therefore, no distributions from permanently restricted net assets are permitted in order to maintain the endowed corpus. Certain permanently restricted net asset investments are included with the System s pooled investments, following the same investment policies and objectives. System Endowment Funds The System s endowments consist of funds established for a variety of purposes. Its endowments include both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds, including funds designated by the board to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The System considers various factors in making a determination to appropriate or accumulate donor-restricted endowment funds. The System employs a diversified investment approach in order to minimize risk and maximize returns, utilizing both intermediate and long-term portfolios. The System s asset allocation objective for the long-term portfolio is to maximize total return while preserving capital values. The short-term portfolio is intended to preserve the principal of the fund and to meet current liquidity requirements. The System can appropriate each year all available earnings in accordance with donor restrictions. The endowment corpus is to be maintained in perpetuity. Certain donor-restricted endowments require a portion of annual earnings to be maintained in perpetuity along with the corpus. Only amounts exceeding the amounts required to be maintained in perpetuity are expended. Endowment net asset composition by type of fund as of December 31, 2015, is as follows (in thousands): Permanently Unrestricted Restricted Net Assets Net Assets Total Donor-restricted endowment funds $ - $ 35,270 $ 35,270 Board-designated quasi-endowment funds 13,970 540 14,510 Total endowment funds $ 13,970 $ 35,810 $ 49,780-37 -

Endowment net asset composition by type of fund as of December 31, 2014, is as follows (in thousands): Temporarily Permanently Unrestricted Restricted Restricted Net Assets Net Assets Net Assets Total Donor-restricted endowment funds $ - $ - $ 36,810 $ 36,810 Board-designated quasi-endowment funds 14,802 147 539 15,488 Total endowment funds $ 14,802 $ 147 $ 37,349 $ 52,298 Changes in endowment net assets for the fiscal years ended December 31, 2015 and 2014, are as follows (in thousands): Temporarily Permanently Unrestricted Restricted Restricted Net Assets Net Assets Net Assets Total Endowment net assets December 31, 2013 $ 13,672 $ - $ 36,637 $ 50,309 Investment income 486 26 375 887 Contributions 644 7 651 Inherent contribution of Memorial net assets 121 330 451 Endowment net assets December 31, 2014 14,802 147 37,349 52,298 Investment loss (195) (3) (1,545) (1,743) Contributions 10 6 16 Termination of board designated endowments (637) (154) (791) Endowment net assets December 31, 2015 $ 13,970 $ - $ 35,810 $ 49,780 The endowment amounts classified as permanently restricted net assets as of December 31, 2015 and 2014, are as follows (in thousands): 2015 2014 Permanently restricted net assets: Hospital operations support $ 11,614 $ 12,068 Medical program support 16,466 17,161 Scholarship funds 362 362 Research funds 1,587 1,742 Community service funds 3,550 3,784 Other funds 2,231 2,232 Total endowment funds classified as permanently restricted $ 35,810 $ 37,349 Funds with Deficiencies Periodically, the fair value of assets associated with the individual donor-restricted endowment funds may fall below the level that the donor requires the System to retain as a fund of perpetual duration. Deficiencies of this nature would be reported in unrestricted net assets. These deficiencies could result from unfavorable market fluctuations and/or continued appropriation for certain programs that were deemed prudent by the System. As of December 31, 2015 and 2014, the System did not have funds with deficiencies. - 38 -

13. RELATED-PARTY TRANSACTIONS Certain board members of the System serve as management of corporations that provide services to the System. The System believes that transactions with related parties are entered into only upon terms comparable to those that would be available from unaffiliated third parties. 14. INCOME TAXES Certain entities of the System are for-profit entities and are subject to federal income taxes. The provision for income taxes on income for the years ended December 31, 2015 and 2014, consisted of the following (in thousands): 2015 2014 Current income tax expense $ 18,019 $ 18,677 Deferred income tax expense (benefit) 10,218 (8,241) Income tax expense $ 28,237 $ 10,436 The actual effective tax rate differs from the federal statutory rate due to certain System entities that are exempt from income tax. As of December 31, 2015, the net deferred tax liability includes $14,000 in intangible assets and other, $179,000 in other current liabilities, and $461,000 in other liabilities in the consolidated balance sheets. As of December 31, 2014, the net deferred tax asset included $1,059,000 in other current assets, $8,609,000 in intangible and other assets, and $76,000 in other liabilities in the consolidated balance sheets. The components of the net deferred tax assets and liabilities as of December 31, 2015 and 2014, are as follows (in thousands): 2015 2014 Deferred tax assets and liabilities: Reserves and accrued liabilities $ 2,363 $ 12,898 Unrealized gain on marketable securities (1,329) (2,443) Depreciation and amortization (1,660) (863) Net deferred tax (liability) asset $ (626) $ 9,592 Except as noted below, it is the System s policy to classify the expense related to interest and penalties to be paid on underpayments of income taxes within general and administrative expenses. Listed below are the tax years that remain subject to examination by major tax jurisdiction: United States 2012 2015 Ohio 2012 2015 Michigan 2011 2015-39 -

In 2015, PIC applied for federal tax exempt status under IRC Section 501(c)(3) for its Medicaid insurance subsidiary, Paramount Advantage ( Advantage ). As of October 1, 2015, Advantage is no longer subject to federal income tax. As a result of the change in tax status, Advantage incurred a one-time additional federal tax expense related to the conversion to a tax-exempt entity amounting to $6,100,000. Income tax expense reported in the 2015 System consolidated statement of operations includes the conversion tax expense and nine months of federal income tax for Advantage. Except as noted below, the System did not have any material uncertain tax positions at December 31, 2015 and 2014. For the year ended December 31, 2015, the System s wholly owned subsidiary, PIC, did not recognize a liability for uncertain tax positions. For the year ended December 31, 2014, PIC recognized a liability for uncertain tax positions of $9,027,000. PIC recognized interest and penalties related to unrecognized tax benefits of $169,000 and $1,000 as of December 31, 2015 and 2014, respectively. Related to the unrecognized tax benefits noted above, PIC s accrued liability for penalties and interest amounts to $340,000 and $171,000 for the years ended December 31, 2015 and 2014, respectively. Accrued interest and penalties are included within the related liability lines in the consolidated balance sheets. PIC believes it is possible that the uncertain tax position could increase or decrease within the next 12 months. However, PIC cannot currently quantify the range of potential change in unrecognized tax positions. PIC believes it is no longer subject to income tax examinations for years prior to 2011. 15. FUNCTIONAL EXPENSES The System provides general health care services to residents within its geographic locations, including medical/surgical, pediatric, critical, and emergency care. Expenses relating to providing these services for the years ended December 31, 2015 and 2014 are as follows (in thousands): 2015 2014 Health care services $ 2,506,579 $ 2,130,263 General and administrative 518,609 424,520 Total $ 3,025,188 $ 2,554,783 16. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the System in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and Accrued Expenses The carrying amounts reported in the consolidated balance sheets approximate their fair value. Marketable Securities The fair values for marketable debt and equity securities are based on quoted market prices. Assets Limited as to Use or Restricted The amounts recorded for assets limited as to use or restricted approximate fair value based on quoted market prices, except for real estate that is based on market appraisals and long-short hedge funds and private capital that are based on valuations provided by the fund administrator. - 40 -

Derivatives The System s interest rate swaps are recorded at fair value in the consolidated balance sheets, based on proprietary valuation models. Long-Term Debt The fair values of the System s long-term debt are estimated based on the System s quoted market prices for similar issues available to the System for debt of the same maturities. All long-term debt is considered Level 3 as not all inputs can be corroborated by observable market data. The carrying amounts and fair values of the financial instruments as of December 31, 2015 and 2014, are as follows (in thousands): 2015 2014 Carrying Carrying Amount Fair Value Amount Fair Value Cash and cash equivalents $ 363,478 $ 363,478 $ 325,723 $ 325,723 Accounts receivable 257,031 257,031 231,883 231,883 Accounts payable and accrued expenses 175,100 175,100 198,638 198,638 Marketable securities 162,609 162,609 186,745 186,745 Assets limited as to use or restricted 2,028,076 2,028,076 1,886,401 1,886,401 Derivatives 18,339 18,339 17,913 17,913 Long-term debt 917,561 984,557 552,726 582,751 17. FAIR VALUE MEASUREMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments in accordance with FASB ASC Topic 820, Fair Value Measurement: Cash Equivalents The carrying value of cash equivalents approximates fair value as maturities are less than three months. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2. Equity and Fixed-Income Securities The estimated fair values of debt securities are based on quoted market prices and/or other market data for the same or comparable instruments and transactions in establishing the prices. Fair values of debt securities that do not trade on a regular basis in active markets are classified as Level 2. Fair value estimates for publicly traded equity securities are based on quoted market prices and/or other market data for the same or comparable instruments and transactions in establishing the prices. Exchange Traded/Mutual Funds Exchange traded funds are valued at the closing price reported on the applicable exchange on which the fund is traded, or estimated using quoted market prices for similar securities. Mutual funds are valued using the NAV based on the value of the underlying assets owned by the funds, minus liabilities, divided by the number of shares outstanding, and multiplied by the number of shares owned. Commingled Funds Commingled funds are for investment by institutional investors only and therefore do not require registration with the Securities and Exchange Commission. Commingled funds are recorded at fair value, based on the underlying investments having a readily determinable market value, or, based on NAV, which is calculated using the most recent fund financial statements. - 41 -

Hedge Funds Hedge fund utilizes a fund-of-funds approach resulting in diversified multistrategy, multimanager investment. Underlying investments in these funds are equity securities. These funds are valued at net asset value, which is calculated using the most recent financial statements. Real Estate Held for Investment The estimated fair market value of real estate held for investment is obtained using fair market appraisals. Derivatives Fair values of the System s interest rate swaps are estimated utilizing the terms of the swaps and publicly available market yield curves. Because the swaps are unique and are not actively traded, the fair values are classified as Level 2 estimates. Private Capital Private capital is invested in discounted loans and structured credit tied to residential and commercial real estate markets in the United States and Europe. Management s estimates of the fair value of this investment are provided by the third-party administrator and the fund manager/general partner. Management obtains and considers the audited financial statements of this investment when evaluating the overall reasonableness of the fair value. In addition to a review of external information provided, management s internal procedures include reviews of returns against benchmarks and discussions with fund managers of performance, change in personnel or process, and evaluations of current market conditions for these investments. Investment managers also meet with System management on a periodic basis. Because of the inherent uncertainty, valuations may differ materially from those obtained had an active market existed. The investment is a closed-end fund and has significant redemption restrictions that prohibit redemptions during the fund s life, which has an initial term of five years with two optional one and one-half year extension options exercisable at the sole discretion of the general partner. As of December 31, 2015 and 2014, unfunded capital commitments totaled $4,000,000 and $11,500,000, respectively. Beneficial Interests in Perpetual Trusts Beneficial interests in perpetual trusts are valued using the net asset value of the underlying assets multiplied by the System s percentage share in the applicable trust. - 42 -

The following tables present information about the fair value of the System s financial instruments as of December 31, 2015 and 2014, according to the valuation techniques used by the System. The assets are included in marketable securities and assets limited as to use current and noncurrent (in thousands). Quoted Prices in Active Markets for Significant Significant Identical Observable Unobservable Assets Inputs Inputs 2015 Total (Level 1) (Level 2) (Level 3) Assets: Cash and cash equivalents $ 81,455 $ 25,389 $ 56,066 $ - U.S. equity securities: U.S. equity mutual funds 21,552 21,552 Marketable equity securities 454,735 454,735 International equity securities: International equity mutual funds 78,070 78,070 Marketable international equity securities 181,993 181,993 Fixed-income securities: U.S. Treasuries and agencies 307,042 307,042 Corporate, municipal, and other governmental bonds 428,604 428,604 Domestic fixed-income mutual funds 90,637 90,637 International fixed-income mutual funds 28,214 28,214 Real return strategy funds: All asset mutual funds 69,935 69,935 Private capital 17,783 17,783 Other 22,217 22,217 Beneficial interests in perpetual trusts 28,165 28,165 Domestic real estate 8,015 8,015 Investments measured at net asset value: International equity commingled funds 250,832 Long-short equity hedge funds 121,436 Total assets limited as to use and marketable securities $ 2,190,685 1,818,417 $ 972,742 $ 791,712 $ 53,963 Liabilities: Derivatives $ 18,339 $ - $ 18,339 $ - - 43 -

Quoted Prices in Active Markets for Significant Significant Identical Observable Unobservable Assets Inputs Inputs 2014 Total (Level 1) (Level 2) (Level 3) Assets: Cash and cash equivalents $ 66,280 $ 23,545 $ 42,735 $ - U.S. equity securities: U.S. equity mutual funds 23,084 23,084 Marketable equity securities 455,315 455,315 International equity securities: International equity mutual funds 81,788 81,788 Marketable international equity securities 177,214 177,214 Fixed-income securities: U.S. Treasuries and agencies 324,428 324,428 Corporate, municipal, and other governmental bonds 338,137 338,137 Domestic fixed-income mutual funds 93,280 93,280 International fixed-income mutual funds 30,680 30,680 Real return strategy funds: All asset mutual funds 74,306 74,306 Private capital 9,350 9,350 Other 13,303 13,303 Beneficial interests in perpetual trusts 29,668 29,668 Domestic real estate 9,825 9,825 Investments measured at net asset value: International equity commingled funds 237,170 Long-short equity hedge funds 109,318 Total assets limited as to use and marketable securities $ 2,073,146 1,726,658 $ 972,515 $ 705,300 $ 48,843 Liabilities: Derivatives $ 17,913 $ - $ 17,913 $ - The following is a summary of the fair value of System investments with a reported NAV per share as of December 31, 2015 and 2014 (in thousands): Fair Unfunded Redemption Redemption 2015 Value Commitment Frequency Notice Period International equity commingled funds $ 250,832 $ - Daily/monthly 0 6 days Long-short equity hedge funds 121,436 Monthly/quarterly 60 90 days Total $ 372,268 $ - Fair Unfunded Redemption Redemption 2014 Value Commitment Frequency Notice Period International equity commingled funds $ 237,170 $ - Daily/monthly 0 6 days Long-short equity hedge funds 109,318 Monthly/quarterly 60 90 days Total $ 346,488 $ - - 44 -

International Equity Commingled Funds Composed of shares or units in commingled funds that are not publicly traded. Underlying assets in these funds primarily include publicly traded equity securities that are valued at their NAV calculated by the fund manager and have daily liquidity. Long-Short Equity Hedge Funds Composed of investments in a hedge fund that invest both in long and short US and international equities. Management of the hedge fund has the ability to shift investments from value-to-growth strategies, from small-to-large capitalization stocks, and from a net long position to a net short position. The fair value of investments in this class has been estimated using the NAV per share of the investments. The System s policy is to recognize transfers between all levels as of the beginning of the reporting period. Transfers to Level 3 in the prior year consist of the System s beneficial interests in perpetual trusts. The following table summarizes the changes in Level 3 assets for the years ended December 31, 2015 and 2014 (in thousands): 2015 2014 Balance beginning of year $ 48,843 $ 10,356 Transfers to Level 3 29,668 Realized loss (54) Unrealized (loss) gain on market value adjustment recognized in investment income (2,380) 319 Purchases 7,500 8,554 Balance end of year $ 53,963 $ 48,843 The amortized cost and estimated fair value of bonds, notes, and other securities held by PIC as of December 31, 2015 and 2014, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands). Amortized Fair 2015 Cost Value Due in one year or less $ 4,493 $ 4,487 Due after one year through five years 106,496 106,284 Due after five years through 10 years 10,550 10,698 Due after 10 years 12,259 12,318 Total $ 133,798 $ 133,787 Amortized Fair 2014 Cost Value Due in one year or less $ 4,490 $ 4,490 Due after one year through five years 93,103 93,113 Due after five years through 10 years 21,523 21,902 Due after 10 years 13,772 14,037 Total $ 132,888 $ 133,542-45 -

18. COMMITMENTS AND CONTINGENCIES Operating Leases The System leases various equipment and facilities under operating leases. Total rental expense in 2015 and 2014 for all operating leases was approximately $24,292,000 and $22,417,000, respectively. The following is a schedule by year of future minimum lease payments under operating leases as of December 31, 2015, that have initial or remaining lease terms in excess of one year (in thousands): Years Ending December 31 2016 $ 15,989 2017 7,633 2018 4,620 2019 2,465 2020 1,532 Thereafter 2,703 Total $ 34,942 Litigation The System is involved in litigation and regulatory investigations arising in the course of business. Based in part on consultation with legal counsel, management believes that these matters will be resolved without material adverse effect on the System s consolidated financial position or results of operations. 19. ASSET RETIREMENT OBLIGATIONS FASB ASC Topic 410, Asset Retirement and Environmental Obligations, requires that the fair value of the liability for an asset retirement obligation be recognized in the period in which it is incurred and the settlement date is estimable and capitalized as part of the carrying amount of the related tangible long-lived asset. The liability is recorded at fair value, and the capitalized cost is depreciated over the remaining useful life of the related asset. The System determined it has legal obligations to perform certain asset retirement activities associated with asbestos encapsulation as a result of planned and estimated demolition and remediation activities at various hospitals, long-term care facilities, medical office buildings, and other facilities. During 2015 and 2014, changes to the asset retirement obligation are as follows (in thousands): 2015 2014 Balance January 1 $ 17,527 $ 14,803 Additions 1,620 2,732 Accretion expense 89 187 Settlements (172) (195) Balance December 31 $ 19,064 $ 17,527-46 -

20. LEASING REVENUE ACTIVITY The System leases space to tenants under various operating lease agreements. These agreements, without giving effect to renewal options, have expiration dates ranging from 2016 to 2032. The rental revenue for the years ended December 31, 2015 and 2014 were $7,318,000 and $6,973,000, respectively. As of December 31, 2015, the aggregate future minimum base rental payments to the System under noncancelable operating leases by year are as follows (in thousands): Years Ending December 31 2016 $ 5,261 2017 3,887 2018 3,651 2019 3,236 2020 3,032 Thereafter 3,989 Total $ 23,056 21. BUSINESS COMBINATIONS The System acquired Mercy Memorial Hospital Corporation in Monroe, Michigan as of January 1, 2015 and Memorial Hospital in Fremont, Ohio as of January 1, 2014. Pursuant to FASB ASC Topic 958, Not-for-Profit Entities: Business Combinations, the transactions were accounted for as acquisitions and no consideration was paid by the System in connection with the affiliations. An inherent contribution which is the excess of the net of the identifiable assets acquired and the liabilities assumed, stated at fair value as of the acquisition date, over the fair value of the consideration transferred is recorded in the System s consolidated financial statements at the respective date of affiliation. The inherent contribution associated with the unrestricted net assets is included in the excess of revenues over expenses in the System s consolidated statements of operations. The inherent contribution resulting from temporarily and permanently restricted net assets is included in the System s consolidated statements of changes in net assets. These affiliations are within the System s primary service area and management believes that the affiliations will benefit the hospitals, and the community that each serves, through higher quality of care, greater access, and lower health care costs. The affiliations will also place Monroe and Memorial, and the System, in a better position to respond to changes in the health care environment. Acquisition of Mercy Memorial Hospital Corporation Monroe On January 1, 2015, the System completed an affiliation with Mercy Memorial Hospital Corporation and affiliated entities (collectively Monroe ), a 238 licensed-bed hospital located in Monroe, Michigan, wherein the System became the sole corporate member. - 47 -

The inherent contribution recorded in the System s consolidated financial statements as of January 1, 2015, is summarized in the following table (in thousands): Cash and cash equivalents $ 14,041 Accounts receivable net 21,208 Other current assets 10,697 Noncurrent assets limited as to use 81,053 Property and equipment net 80,197 Other assets 1,929 Total assets acquired $ 209,125 Contractual current installments of long-term debt $ 2,454 Accounts payable and accrued expenses 13,512 Accrued compensation and benefits 9,998 Estimated third-party payor settlements 4,767 Accrued professional liability 6,744 Pension 28,277 Other liabilities 1,500 Long-term debt 46,929 Total liabilities assumed $ 114,181 Unrestricted net assets acquired $ 91,131 Temporarily restricted net assets acquired 3,813 Total net assets acquired $ 94,944 Monroe s results of operations are included in the System s consolidated statements of operations beginning on January 1, 2015. For comparative purposes, the pro forma financial information presented below summarizes the results of operations of the System as though the companies had been combined as of January 1, 2014. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the affiliation had taken place as of January 1, 2014, nor is it indicative of future results (in thousands): Unaudited Combined Pro Forma Financial Information for the Year Ended December 31, 2014 Total unrestricted revenues, gains, and other support $ 2,791,826 Excess of revenues over expenses $ 171,700 Acquisition of Memorial Hospital Fremont On January 1, 2014, the System completed an affiliation with Memorial Hospital and affiliated entities (collectively Memorial ), a 186 licensed-bed hospital located in Fremont, Ohio, wherein the System became the sole corporate member. - 48 -

The inherent contribution recorded in the System s consolidated financial statements as of January 1, 2014, is summarized in the following table (in thousands): Cash and cash equivalents $ 5,470 Marketable securities 14,185 Accounts receivable net 8,798 Other current assets 651 Noncurrent assets limited as to use 10,999 Property and equipment net 34,396 Other assets 3,994 Total assets acquired $ 78,493 Accounts payable and accrued expenses $ 13,866 Accrued compensation and benefits 2,897 Estimated third-party payor settlements 1,483 Accrued professional liability 29 Other liabilities 2,506 Long-term debt 27,719 Total liabilities assumed $ 48,500 Unrestricted net assets acquired $ 26,463 Temporarily restricted net assets acquired 3,200 Permanently restricted net assets acquired 330 Total net assets acquired $ 29,993 22. UNIVERSITY OF TOLEDO COLLEGE OF MEDICINE AND LIFE SCIENCES AFFILIATION Effective August 26, 2015, ProMedica and the University of Toledo finalized a 50 year Academic Affiliation Agreement ( Agreement ) to support the academic programs of the College of Medicine and Life Sciences (including research, education of medical students and residency programs) which is anticipated to develop Toledo Hospital and Toledo Children s Hospital into a premier academic medical center and preeminent quaternary center. The mission is to enhance the education and training of the next generation of healthcare providers for the communities ProMedica serves, through engaging in targeted, cutting edge research, and providing outstanding, high quality and cost effective patient care. The University of Toledo Medical Center ( UTMC ) is not part of this transaction and the University of Toledo will retain total control of UTMC facilities. The Agreement includes a financial commitment by ProMedica to provide academic support to The University of Toledo through payments for certain defined services, research, branding rights, and other related services for value and benefits to ProMedica. ProMedica made an initial payment of $22,000,000 in 2015 and will make payments during the transition period, beginning with $17,300,000 in 2016, and increasing annually thereafter to $47,500,000 in 2020. Beginning in 2021, through 2065, annual support payments will be at least $50,000,000 and calculated based on the aggregate of: (i) 3% of base year 2015 net patient service revenue; plus, (ii) 2% of the difference in the then-current year net patient service revenue, excluding net patient service revenue generated from facilities acquired by ProMedica after 2015, and the base year of 2015; plus, (iii) one-quarter of 1% of net patient service revenue generated from facilities acquired by ProMedica after 2015. The amount of annual support payments will be reassessed every five years, starting in the academic year 2030. - 49 -

In addition, ProMedica also committed $250 million to construct and renovate certain lab and teaching space on The University of Toledo and Toledo Hospital campuses, with $100 million to be spent by 2027, and the remaining $150 million to be spent by 2040. Management has evaluated the expected future benefits to be received under the Agreement in relation to future payments. Initial payments made in 2015 through 2017 will be deferred and amortized over thirty years to match the expense with the estimated years of benefit realization. It is expected that future payments beyond 2017 will be expensed as incurred and will approximate the annual benefits received. The 2015 initial payment is included in intangible assets and other at December 31, 2015. 23. NEW MARKET AND HISTORIC TAX CREDITS TRANSACTION In December 2015, the System entered into a tax credit financing transaction with U.S. Bank National Association ( U.S. Bank ) for the acquisition and rehabilitation of the historic Toledo Traction Company Power Station ( Steam Plant ) to be used as its corporate headquarters facility in downtown Toledo, Ohio. The transaction utilizes a combination of federal and State of Ohio New Market Tax Credits ( NMTC ). In addition, the Steam Plant project qualifies for federal and State of Ohio historic tax credits ( HTC ). The NMTC program permits investor taxpayers to claim federal and state tax credits up to 39% of qualified equity investments in community development entities ( CDE ). The CDE receives federal and state NMTC allocations and passes the tax credits through a subsidiary entity ( sub-cde ) to the investor taxpayer. Federal and State of HTCs are generated by making qualified rehabilitation expenditures ( QRE ) for certified historic structures and are available to the investor taxpayer once the structure is complete and placed into service. Federal HTCs are 20% of QRE and State of Ohio HTCs are 25% of QRE. U.S. Bank is entitled to substantially all of the benefits derived from the NMTC and the HTC. To facilitate the transaction, ProMedica Manager Member, LLC ( Manager ), a wholly-owned subsidiary of the System, was organized to serve as the managing member of ProMedica Downtown Campus Landlord, LLC ( Landlord ) and ProMedica Master Tenant, LLC ( Master Tenant ). Manager has a 90% and 1% interest in Landlord and Master Tenant, respectively. U.S. Bank holds a 99% investor member non-controlling interest in Master Tenant; and Master Tenant holds a 10% interest in Landlord. Landlord is a qualified active low-income community business and will acquire and rehabilitate the Steam Plant and master lease it to Master Tenant, who in turn, will sublease the Steam Plant to the System. In accordance with FASB ASC 810, Consolidation, the System includes the financial statements of Manager, Landlord, and Master Tenant in its consolidated financial statements as of December 31, 2015. The System loaned $9,759,000 ( leveraged loan ) to Twain Investment Fund, LLC ( Twain ), a whollyowned subsidiary of U.S. Bank. The leveraged loan, with an interest rate of 1.79% and maturing in December, 2045, is included in intangible assets and other in the System s consolidated financial statements as of December 31, 2015. Twain used the leveraged loan and a $5,523,000 equity investment from U.S. Bank to make qualified equity investments in three sub-cde s. The sub-cde s in turn made qualified low-income community investment ( QLICI ) loans, net of fees, of $14,740,000 to Landlord to partially fund the Steam Plant project. The QLICI loans have interest rates ranging from 1.00% to 2.58% and mature in December, 2045. The QLICI loans are included in contingent current installments of long-term debt in the System s consolidated financial statements as of December 31, 2015 based on certain acceleration definitions with the loan agreement. Costs incurred for obtaining the financing are deferred and will be amortized over the life of the loans. - 50 -

The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. The System is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, require the System to indemnify the investor member for any loss or recapture of NMTC related to the financing until such time as the obligation to deliver tax benefits is relieved. The System does not anticipate any tax credit recapture will be required in connection with the NMTC arrangement. Master Tenant will lease the Steam Plant from Landlord pursuant to a 19-year lease and in turn sublease the property to the System under a 15-year lease. Landlord has agreed to pass-through, to the Master Tenant, the HTC during the five year HTC tax compliance period. Landlord must comply with various HTC requirements, and the federal HTC are subject to recapture if the Steam Plant is disposed of within five years after placed into service. The System is subject to a put/call agreement whereby the System is obligated or entitled to purchase U.S. Bank s interest in Twain at the end of the NMTC compliance period. The put price is $1,000 and the call price is the greater of the fair value of U.S. Bank s interest or the put price. In addition, Manager is subject to a put agreement whereby Manager is obligated to purchase U.S. Bank s interest in Master Tenant at the end of the HTC compliance period for the lesser of fair market value of the investor member interest or 3% of the aggregate capital contributions of the investor member. The System believes that U.S. Bank will exercise both put options, which are not material to the System s consolidated financial statements. 24. ST. LUKE S DIVESTITURE ProMedica closed an affiliation with OhioCare Health System Inc., the corporate parent of St. Luke s Hospital and St. Luke s Foundation on September 1, 2010. ProMedica was not required to notify the Federal Trade Commission ( FTC ) before completing the joinder. The FTC, however, opted to review the joinder, as it is doing nationwide for similar types of transactions. On December 5, 2011, the FTC Administrative Law Judge ( ALJ ) issued an initial decision and ordered ProMedica to restore competition as it existed before the acquisition and divest St. Luke s Hospital which ProMedica appealed to the Sixth United States Circuit Court of Appeals and was eventually denied. ProMedica filed a petition for writ of certiorari with the United States Supreme Court on December 22, 2014, asking the Court to accept the case for review. On May 4, 2015 the United States Supreme Court denied ProMedica s petition. As a result, the FTC s divestiture order dated March 22, 2012 became final and effective and legal divestiture should have occurred within 180 days, October 31, 2015. On October 23, 2015, ProMedica filed a Request for Extension of Time to Comply with Final Order with the Federal Trade Commission, requesting that the time to complete divestiture be extended until March 31, 2016. ProMedica and St. Luke s are currently in the process of developing a divestiture plan to be approved by the FTC. Until the final effective date of divestiture, St. Luke s will continue to remain a member of ProMedica. St. Luke s operating results will continue to be included in continuing operations in the System consolidated financial statements as the divestiture does not meet the criteria for presentation in discontinued operations. Management believes that the divestiture of St. Luke s would not have a material adverse impact on the operations, financial, or otherwise of the System. - 51 -

25. SUBSEQUENT EVENTS Management has evaluated all events subsequent to the balance sheet date of December 31, 2015, through March 24, 2016, the date the consolidated financial statements were issued, and has determined that there are no subsequent events, that require disclosure under FASB ASC Topic 855, Subsequent Events. ****** - 52 -

SUPPLEMENTAL CONSOLIDATING SCHEDULES - 53 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES BALANCE SHEET CONSOLIDATING INFORMATION AS OF DECEMBER 31, 2015 (In thousands) ASSETS Consolidated Defiance Monroe ProMedica Consolidating ProMedica The Regional Bay Park ProMedica ProMedica Provincial Fostoria Fremont Mercy Continuing Total Adjustments Health System Toledo Flower St. Luke s Medical Community Bixby Herrick House Community Memorial Memorial Care Svcs. Obligated Non-Obligated and and Subsidiaries Hospital Hospital Hospital Center Hospital Hospital Hospital of Adrian Hospital Hospital Hospital Corp. Eliminations Group Group Eliminations Total CURRENT ASSETS: Cash and cash equivalents $ 6,088 $ 4,949 $ 17,951 $ 1,954 $ 3,724 $ 12,689 $ 3,130 $ 2,960 $ 1,562 $ 2,951 $ 5,063 $ (5,649) $ - $ 57,372 $ 306,106 $ - $ 363,478 Marketable securities 1,746 1,277 1,420 1,764 1,520 2,751 258 1,827 12,563 150,046 162,609 Assets limited as to use or restricted - 2,338 2,338 Accounts receivable net 129,542 32,428 25,578 10,118 10,300 10,463 3,995 1,967 4,909 10,820 16,669 3,043 259,832 33,935 (36,736) 257,031 Intercompany accounts receivable 106,592 372 2,586 10 52 927 68 820 14 180 2,399 11,319 (3,492) 121,847 83,874 (205,721) - Estimated third-party payor receivable 832 1,319 1,784 584 577 1,352 816 2,624 1,448 11,336 114 11,450 Supplies 10,130 3,982 1,408 624 1,605 956 437 1,085 732 2,960 23,919 8,895 32,814 Other current assets 4,727 1,702 4,656 189 518 466 119 708 588 5,158 92 18,923 110,993 (45,225) 84,691 Total current assets 259,657 46,029 53,963 14,899 18,540 27,021 11,852 6,005 10,921 17,895 33,697 8,805 (3,492) 505,792 696,301 (287,682) 914,411 NONCURRENT ASSETS LIMITED AS TO USE OR RESTRICTED Net of amount required to meet current obligations: Restricted funds 1,510 224 (5) 1 74 39 12 632 2,487 111,119 962 114,568 Bond indenture agreement funds 15,008 1 2 3 15,014 15,014 Professional liability and workers compensation insurance funds - 94,838 94,838 Internally designated for capital acquisition 449,715 433,167 76,120 196,011 59,217 64,819 52,067 8,987 69,595 23,655 76,116 485 1,509,954 37,410 1,547,364 Other segregated investments 9,777 2 4,160 5 1 (74) (39) (11) 85 37 31 13,974 238,650 1,330 253,954 Total noncurrent assets limited as to use or restricted 476,010 433,394 80,280 196,013 59,222 64,819 52,067 8,987 69,596 23,740 76,153 1,148-1,541,429 482,017 2,292 2,025,738 PROPERTY AND EQUIPMENT Net 496,218 65,798 85,477 28,791 52,684 24,065 17,332 1,442 20,268 39,147 74,854 3,287 909,363 183,472 1,092,835 OTHER ASSETS: Deferred debt issuance costs net 5,628 283 303 448 109 115 20 73 196 130 18 7,323 394 7,717 Goodwill 17,958 105 283 18,346 21,305 39,651 Intangible assets and other 332 125 482 85 1,024 54,803 55,827 Investments in affiliated companies 4,794 341 742 156 496 14 306 1,275 655 8,779 2,381,261 (2,332,727) 57,313 Total other assets 28,712 624 847 586 604 605 115 20 212 984 1,490 673-35,472 2,457,763 (2,332,727) 160,508 TOTAL $ 1,260,597 $ 545,845 $ 220,567 $ 240,289 $ 131,050 $ 116,510 $ 81,366 $ 16,454 $ 100,997 $ 81,766 $ 186,194 $ 13,913 $ (3,492) $ 2,992,056 $ 3,819,553 $ (2,618,117) $ 4,193,492 Note: Entities included in the consolidated financial statements of ProMedica Health System and Subsidiaries that are not members of the Obligated Group are reported in the Non-Obligated Group column. (Continued) - 54 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES BALANCE SHEET CONSOLIDATING INFORMATION AS OF DECEMBER 31, 2015 (In thousands) LIABILITIES AND NET ASSETS Consolidated Defiance Monroe ProMedica Consolidating Promedica The Regional Bay Park ProMedica ProMedica Provincial Fostoria Fremont Mercy Continuing Total Adjustments Health System Toledo Flower St. Luke s Medical Community Bixby Herrick House Community Memorial Memorial Care Svcs. Obligated Non-Obligated and and Subsidiaries Hospital Hospital Hospital Center Hospital Hospital Hospital of Adrian Hospital Hospital Hospital Corp. Eliminations Group Group Eliminations Total CURRENT LIABILITIES: Contractual current installments of long-term debt $ 9,494 $ 700 $ 30,000 $ 1,059 $ 1,291 $ 439 $ 114 $ 7 $ 81 $ 1,103 $ 5,633 $ 1 $ - $ 49,922 $ 6,953 $ (35,000) $ 21,875 Contingent current installments of long-term debt 98,169 3,842 4,227 5,261 2,466 36,945 150,910 14,764 165,674 Accounts payable and accrued expenses 41,093 8,781 7,054 1,980 3,474 2,591 380 90 1,281 4,523 4,678 4,512 80,437 98,805 (4,142) 175,100 Intercompany accounts payable 11,948 8,387 6,632 1,778 2,390 2,131 1,768 467 1,797 2,025 2,875 1,945 (3,492) 40,651 165,074 (205,725) - Accrued compensation and benefits 26,355 7,538 7,187 1,619 2,165 3,415 996 388 922 3,004 10,047 2,291 65,927 55,821 3,333 125,081 Estimated third-party payor settlements 11,827 4,287 6,827 2,031 1,710 4,326 5,523 356 1,803 1,816 4,434 234 45,174 242 45,416 Accrued professional liability and workers compensation 97 127 74 298 6,043 (1) 6,340 Accrued postretirement plans 116 40 53 209 209 Accrued claims expense - 87,848 87,848 Other current liabilities 72 72 48,968 (46,146) 2,894 Total current liabilities 199,074 33,535 57,797 12,694 16,291 12,942 8,834 1,435 8,350 12,545 64,612 8,983 (3,492) 433,600 484,518 (287,681) 630,437 OTHER LIABILITIES: Accrued professional liabilities and workers compensation less current portion 4,302 121 50 1,073 5,546 44,907 50,453 Deferred compensation 8,277 8,277 27,782 36,059 Pension 403 53,028 26,280 79,711 47,638 127,349 Accrued postretirement plans less current portion 1,002 206 421 1,629 1 1,630 Other 24,704 2,792 346 470 546 1,578 946 195 1,934 2,272 1,500 762 38,045 9,002 47,047 Total other liabilities 34,386 2,792 57,676 470 546 1,905 1,417 195 1,934 2,272 28,853 762-133,208 129,329 1 262,538 LONG-TERM DEBT Less current installments 550,706 32,325 32,658 47,381 10,691 11,671 2,009 7,489 26,157 1,328 2,030 724,445 5,567 730,012 Total liabilities 784,166 68,652 115,473 45,822 64,218 25,538 21,922 3,639 17,773 40,974 94,793 11,775 (3,492) 1,291,253 619,414 (287,680) 1,622,987 NET ASSETS: Unrestricted: Controlling interest 474,921 476,969 105,094 194,472 66,831 90,898 59,405 12,815 83,212 40,792 91,401 1,506 1,698,316 3,085,082 (2,337,747) 2,445,651 Noncontrolling interest - 5,266 5,020 10,286 Total unrestricted 474,921 476,969 105,094 194,472 66,831 90,898 59,405 12,815 83,212 40,792 91,401 1,506-1,698,316 3,090,348 (2,332,727) 2,455,937 Temporarily restricted 1,510 224 (5) 1 74 39 12 632 2,487 73,981 2,290 78,758 Permanently restricted - 35,810 35,810 Total net assets 476,431 477,193 105,094 194,467 66,832 90,972 59,444 12,815 83,224 40,792 91,401 2,138-1,700,803 3,200,139 (2,330,437) 2,570,505 TOTAL $ 1,260,597 $ 545,845 $ 220,567 $ 240,289 $ 131,050 $ 116,510 $ 81,366 $ 16,454 $ 100,997 $ 81,766 $ 186,194 $ 13,913 $ (3,492) $ 2,992,056 $ 3,819,553 $ (2,618,117) $ 4,193,492 Note: Entities included in the consolidated financial statements of ProMedica Health System and Subsidiaries that are not members of the Obligated Group are reported in the Non-Obligated Group column. (Concluded) - 55 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES STATEMENT OF OPERATIONS CONSOLIDATING INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2015 (In thousands) Consolidated Defiance Monroe ProMedica Consolidating Promedica The Regional Bay Park ProMedica ProMedica Provincial Fostoria Fremont Mercy Continuing Total Adjustments Health System Toledo Flower St. Luke s Medical Community Bixby Herrick House Community Memorial Memorial Care Svcs. Obligated Non-Obligated and and Subsidiaries Hospital Hospital Hospital Center Hospital Hospital Hospital of Adrian Hospital Hospital Hospital Corp. Eliminations Group Group Eliminations Total UNRESTRICTED REVENUES, GAINS, AND OTHER SUPPORT: Patient service revenue net of contractual and other allowances $ 787,205 $ 226,213 $ 194,721 $ 63,159 $ 78,148 $ 83,554 $ 35,059 $ 10,840 $ 34,782 $ 53,252 $ 151,258 $ 35,185 $ (25,704) $ 1,727,672 $ 311,523 $ (268,658) $ 1,770,537 Provision for bad debts (26,063) (8,192) (6,334) (2,691) (3,700) (4,299) (1,799) (569) (1,983) (1,718) (5,925) (1,597) (64,870) (7,663) (72,533) Net patient service revenue less provision for bad debts 761,142 218,021 188,387 60,468 74,448 79,255 33,260 10,271 32,799 51,534 145,333 33,588 (25,704) 1,662,802 303,860 (268,658) 1,698,004 Premium revenue - 1,341,103 (6,522) 1,334,581 Net assets released for use in operations 6,240 564 248 206 3 64 71 133 78 420 122 8,149 10,676 (9,465) 9,360 Other 20,497 7,768 3,530 397 1,540 1,914 730 18 2,774 7,829 9,446 158 (4,499) 52,102 26,583 (14,568) 64,117 Total unrestricted revenues, gains, and other support 787,879 226,353 192,165 61,071 75,991 81,233 34,061 10,289 35,706 59,441 155,199 33,868 (30,203) 1,723,053 1,682,222 (299,213) 3,106,062 EXPENSES: Salaries, wages, and employee benefits 297,335 86,724 74,382 19,491 29,570 35,700 13,121 5,862 11,617 22,385 88,868 24,331 (30,203) 679,183 448,421 (41,535) 1,086,069 Food and drugs 54,708 32,677 9,476 3,790 3,267 5,368 1,207 773 4,668 2,129 11,920 2,420 132,403 52,535 184,938 Medical expenses - 1,080,214 (235,331) 844,883 Contracted fees 61,591 14,728 20,866 3,694 5,489 5,289 4,948 772 4,336 11,617 21,784 5,380 160,494 138,734 (526) 298,702 Supplies 121,299 18,601 27,867 4,289 9,407 7,397 2,454 285 2,623 4,934 16,450 919 216,525 19,304 (92) 235,737 Insurance 5,794 1,786 629 486 705 1,221 682 276 108 2,868 377 14,932 8,859 (11,792) 11,999 Utilities 7,908 2,091 1,876 787 929 1,209 615 203 658 1,110 2,359 553 20,298 7,265 27,563 Depreciation and amortization 40,829 8,776 9,441 3,860 4,934 3,417 2,006 211 1,953 4,069 8,745 709 88,950 26,092 115,042 Interest 16,543 1,761 (13) 1,592 2,392 437 703 126 537 664 2,026 120 26,888 (939) 25,949 Other 190,607 45,487 29,611 14,516 19,399 17,140 7,038 900 8,407 13,882 4,810 8,686 360,483 (165,705) (472) 194,306 Total expenses 796,614 212,631 174,135 52,505 76,092 77,178 32,774 9,132 35,075 60,898 159,830 43,495 (30,203) 1,700,156 1,614,780 (289,748) 3,025,188 OPERATING INCOME (LOSS) (8,735) 13,722 18,030 8,566 (101) 4,055 1,287 1,157 631 (1,457) (4,631) (9,627) - 22,897 67,442 (9,465) 80,874 OTHER INCOME (LOSS): Inherent contribution of acquired net assets 86,828 86,828 4,303 91,131 Investment (loss) income (6,951) (6,259) (387) (2,946) (462) (489) (674) 164 (1,161) (143) (533) (19) (19,860) (3,240) (1,037) (24,137) Income tax expense (28,237) (28,237) Other (956) 357 133 83 163 (388) 120 (9) (266) (1,879) 684 (1,958) 8,901 (3,169) 3,774 Total other income (loss) net (7,907) (5,902) (254) (2,863) (299) (877) (554) 164 (1,170) (409) 84,416 665-65,010 (18,273) (4,206) 42,531 Note: Entities included in the consolidated financial statements of ProMedica Health System and Subsidiaries that are not members of the Obligated Group are reported in the Non-Obligated Group column. (Continued) - 56 -

PROMEDICA HEALTH SYSTEM AND SUBSIDIARIES STATEMENT OF OPERATIONS CONSOLIDATING INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2015 (In thousands) Consolidated Defiance Monroe ProMedica Consolidating Promedica The Regional Bay Park ProMedica ProMedica Provincial Fostoria Fremont Mercy Continuing Total Adjustments Health System Toledo Flower St. Luke s Medical Community Bixby Herrick House Community Memorial Memorial Care Svcs. Obligated Non-Obligated and and Subsidiaries Hospital Hospital Hospital Center Hospital Hospital Hospital of Adrian Hospital Hospital Hospital Corp. Eliminations Group Group Eliminations Total EXCESS (DEFICIENCY) OF REVENUES OVER EXPENSES $ (16,642) $ 7,820 $ 17,776 $ 5,703 $ (400) $ 3,178 $ 733 $ 1,321 $ (539) $ (1,866) $ 79,785 $ (8,962) $ - $ 87,907 $ 49,169 $ (13,671) $ 123,405 NET ASSETS RELEASED FROM RESTRICTIONS FOR FIXED ASSETS 3,737 685 68 153 63 182 197 12 5,097 1,515 (1,819) 4,793 NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARIES - 2,315 2,315 TRANSFERS (TO) FROM AFFILIATED ENTITIES Net (50,521) (15,532) (30,140) (3,923) (970) (1,737) (1,325) (836) (299) 12,977 7,793 (84,513) 73,109 11,404 - DISTRIBUTIONS TO NONCONTROLLING INTERESTS - (67) (774) (841) PENSION AND OTHER POSTRETIREMENT ADJUSTMENTS 811 8,694 34 92 (1,361) 8,270 (32,108) (23,838) INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS $ (62,615) $ (7,027) $ (3,602) $ 1,780 $ (1,217) $ 1,538 $ (318) $ 1,321 $ (1,375) $ (1,968) $ 91,401 $ (1,157) $ - $ 16,761 $ 93,933 $ (4,860) $ 105,834 Note: Entities included in the consolidated financial statements of ProMedica Health System and Subsidiaries that are not members of the Obligated Group are reported in the Non-Obligated Group column. (Concluded) - 57 -