BACKGROUND ON ALLINA AND UNITED HOSPITAL Allina Health System ("Allina") is a Minnesota nonprofit corporation which, together with its subsidiaries, delivers health care services to patients in Minnesota and western Wisconsin. With approximately 22,000 full and part-time employees, Allina is one of the largest employers in Minnesota. Allina consolidated revenue for the year ended December 31, 2008 was $2.8 billion. As a mission-driven organization, Allina is committed to improving the health of the communities it serves. As an integrated health system including tertiary metro and regional referral hospitals, emergency, homecare and hospice services, an automated electronic medical record system, and over 1,000 employed physicians, Allina is uniquely positioned as a leader in healthcare in the Minneapolis/St. Paul area. Allina controls and operates ten hospitals and jointly owns and operates one other hospital. These include urban tertiary care, suburban community and rural hospitals. Allina also manages one rural hospital under a management agreement with the hospital s owner. Allina hospital health care services included more than 115,000 inpatient and 1.1 million outpatient admissions during the year ended December 31, 2008. As of December 31, 2008, Allina hospitals had licensed bed capacity of 2,379 acute care beds, 1,735 of which were staffed for inpatient services. Allina provides outpatient services through several owned clinic groups that generated over 5,467,500 work RVU s 1 during the year ended December 31, 2008. Allina's wholly-owned subsidiary, the Allina Medical Clinic ( AMC ), controls and operates 45 physician clinics and three hospitalist programs on the Abbott Northwestern, United, and Unity hospital campuses. The AMC employs approximately 667 provider full time equivalents ( FTE ) and is one of the largest physician groups in the Minneapolis/Saint Paul metropolitan area. Allina Specialty Associates ( ASA ), also known as Minneapolis Cardiology Associates ( MCA ), employs approximately 80 provider FTEs, consisting of cardiologists, cardiothoracic and vascular surgeons. Aspen Medical Group ( Aspen ), a multi-specialty group that operates 12 medical clinics, employs approximately 157 provider FTEs and Quello Clinic Ltd. ( Quello ), which operates five primary care medical clinics, employs approximately 30 provider FTEs. In addition to the AMC, ASA, Aspen, and Quello, Allina hospitals directly employ more than 100 specialty physicians including intensivists/hospitalists, perinatologists, and psychiatrists. The Minneapolis/Saint Paul metropolitan market has experienced stable growth for the past several years. Allina has a leading market share in the metropolitan area, with a 32.0% inpatient market share for the year ended December 31, 2008. 1 Relative Value Unit ( RVU ) is a measure of relative resource utilization. 1
Location of Care Delivery Sites The following map shows the locations of Allina controlled and operated metropolitan and regional hospitals and clinics as of June 30, 2009. 2
MEMBERS OF ALLINA Obligated Group The Allina Obligated Group ( Obligated Group ) was created under the Master Trust Indenture dated as of October 1, 1998, between Allina and Wells Fargo Bank, National Association (the "Master Indenture"). Entities in the Obligated Group are shown in the chart on the following page. Currently, Allina is the only member of the Obligated Group. The Master Indenture provides for a Credit Group, including the Obligated Group, members of which are jointly and severally liable for any debts and/or other obligations of each Obligated Group member and the Obligated Group as a whole. Several other forms of Credit Group membership are available to affiliated entities whose funds are available to satisfy any obligation of the Obligated Group under the Master Trust Indenture. None of these forms of Credit Group Membership are currently in use. Subsidiaries and Affiliates Outside the Obligated Group Allina owns and operates a number of wholly owned direct and indirect subsidiaries outside of the Obligated Group, including AMC, ASA, Aspen and Quello. In aggregate, these subsidiaries represented approximately $573 million or 20% of Allina's consolidated total operating revenue for the year ended December 31, 2008. AMC, a Minnesota nonprofit corporation exempt from taxation under Section 501(c)(3) of the Internal Revenue Code, provides multi-specialty physician services in Minneapolis, St. Paul and surrounding areas. ASA, a Minnesota nonprofit corporation provides inpatient cardiovascular services as well as cardiology outreach services and satellite cardiovascular diagnostics. Aspen, a nonprofit corporation exempt from taxation under Section 501(c)(4), provides multi-specialty physician services in the metropolitan area. Quello, a for-profit taxable organization, provides primary care services in the southern metropolitan area. Allina funds operating losses, if any, of AMC, ASA, Aspen and Quello. Additional subsidiaries of Allina include Accounts Receivables Services, LLC ( ARS ), a limited liability company providing debt collection and other financial services, and six hospital foundations. 3
ORGANIZATIONAL CHART The organizational structure of Allina and its principal subsidiaries is illustrated below. In addition to the relationships documented, Allina holds interests in several smaller subsidiary corporations, joint ventures and partnerships that have been excluded from the chart below because they are deemed to be immaterial. Allina Health System Organization Chart with Percentage of 12/31/2008 Consolidated Net Revenue Abbott Northwestern Hospital United Hospital Buffalo Hospital Unity Hospital Cambridge Medical Center Allina Community Pharmacies Mercy Hospital Allina Medical Laboratories New Ulm Medical Center Allina Medical Transportation Owatonna Hospital Allina Homecare, Hospice and Palliative Care Phillips Eye Institute Home Oxygen & Medical Equipment River Falls Area Hospital System Office 80% of Consolidated Net Revenue OG Allina Medical Clinic Allina Specialty Associates Foundations And Other Quello Aspen Medical Group 14% 1% <1% <1% 3% Accounts Receivable Services < 1% OG Obligated Group Non-Profit Corporation Limited Liability Corporation For- Profit Corporation 4
FACILITIES AND OPERATIONS Hospitals The hospitals controlled and operated by Allina and their locations are described in the following table and shown on the map on page A-2. Acute Care Beds Metropolitan Facilities December 31, 2008 Location Licensed Staffed Abbott Northwestern Minneapolis, MN 952 631 United Hospital Saint Paul, MN 546 449 Mercy Hospital Coon Rapids, MN 271 247 Unity Hospital Fridley, MN 275 214 Phillips Eye Institute Minneapolis, MN 20 9 Total Metropolitan Facilities 2,064 1,550 Regional Facilities Hospital Name St. Francis Regional (1) Shakopee, MN 93 86 New Ulm Medical Center New Ulm, MN 62 35 Cambridge Memorial Hospital Cambridge, MN 86 53 Owatonna Hospital Owatonna, MN 77 43 Buffalo Hospital Buffalo, MN 65 34 River Falls Area Hospital River Falls, WI 25 20 Total Regional Facilities 408 271 Total - All Facilities 2,472 1,821 (1) St. Francis Regional Medical Center is operated with Essentia Community Hospitals & Clinics ("ECHC") and Park Nicollet Health Services ("PNHS") pursuant to a joint membership agreement whereby Allina Health System, ECHC, and PNHS are the joint members of SFRMC. ECHC has retained certain reserved powers over SFRMC to ensure the perpetuation of the religious identity of the hospital, and Allina Health System has certain reserved powers over the hospital to ensure the financial integrity of the hospital and has authority and responsibility for the day-to-day operations. 5
United Hospital United Hospital ( United ), located in downtown St. Paul, is an acute care hospital licensed for 546 beds. As of December 31, 2008, there were 449 staffed beds for inpatient services and United s medical staff consisted of 1,084 members. United provides a full range of inpatient and outpatient acute care services for medical, surgical, obstetric, and psychiatric patients. Specialized units have been developed for cardiac care, medical and surgical intensive care, high-risk maternity care, acute psychiatric care, oncology, epilepsy treatment and physical rehabilitation. The following is a listing of some of United s principal specialty programs: In conjunction with St. Paul Heart Clinic, an independent cardiology practice, United offers a full range of cardiovascular services through the Nasseff Heart Center. Located within United, the Nasseff Heart Center was the first heart hospital within a hospital in the state of Minnesota. United employs perinatology physicians that specialize in high-risk pregnancy care. In conjunction with Children s Hospitals & Clinics- St. Paul, it operates a level-three neonatology unit in The Birth Center. Women from eastern Minnesota and western Wisconsin seek maternity services at The Birth Center. United operates a ten-bed nursing unit as part of a multi-disciplinary effort with the Minnesota Epilepsy Group to treat epilepsy patients. United was re-certified by Joint Commission in 2008 as a Primary Stroke Center. Advanced neuroimaging technology available through United Hospital Medical imaging Department (3.0 Tesla MRI, three multi-slice CT scanners, including a 64-slice scanner) with coverage 24 hours a day, seven days a week. The Jesse E. Edwards Cardiovascular Registry, located on United s campus, is an internationally recognized research laboratory in cardiac pathology. United Family Medicine Residency Program is sponsored by Allina, United and Children s Hospitals & Clinics St. Paul. United Family Medicine Residency Program, located at The Peter J. King Family Health Center, is an accredited program of medical education and training for 18 residency positions (six positions per year). Through affiliations with Children s Hospitals and Clinics of Minnesota- St. Paul, Regions Hospital, the University of Minnesota and Hennepin County Medical Center, United provides the following residency programs: Emergency Medicine, Endocrinology, Family Medicine, Geriatric Psychiatry, Surgery, Obstetrics/Gynecology, Pathology, Podiatry, Colon and Rectal Surgery, Neurophysiology, Therapeutic Radiology and the Nasseff Heart Center Medical Fellowship. United has been consistently recognized for its exceptional quality care: 6
Named a Solucient top 100 U.S. cardiovascular center in 2006 Named a Neuroscience Center of Excellence in the Neuroscience Center of Excellence Survey, 2006 Received the 2006 Innovation of the Year in Patient Care and Best Minnesota Hospital Workplace Awards from the Minnesota Hospital Association United shares its campus with Children s Hospitals & Clinics of Minnesota St. Paul and the organizations have a strategic partnership in the areas of The Birth Center, Emergency Medicine and Day Surgery Center. The two hospitals maintain an Essential Services Agreement whereby United agrees to provide, and Children s St. Paul agrees to share the cost of, certain essential services. United expects to continue this relationship by periodically renewing the agreement. 7