summa health and subsidiaries

Summa Health and Subsidiaries Consolidated Financial Report December 31, 2019

Contents

Independent Auditor's Report 1-2

Financial Statements Consolidated Statements of Financial Position 3-4 Consolidated Statements of Operations 5 Consolidated Statements of Changes in Net Assets 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8-44

Supplementary Information Consolidating Statement of Financial Position – 2019 45-46 Consolidating Statement of Operations – 2019 47 Consolidating Statement of Financial Position – 2018 48-49 Consolidating Statement of Operations – 2018 50

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Independent Auditor's Report Board of Directors Summa Health and Subsidiaries Report on the Financial Statements We have audited the accompanying consolidated financial statements of Summa Health and Subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2019 and 2018, 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 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. Auditor’s 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 entity’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 entity’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 Summa Health and Subsidiaries as of December 31, 2019 and 2018, and their operations, changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

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Other Matters Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary consolidating information is presented for purposes of additional analysis rather than to present the financial position and results of operations of the individual companies and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the 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, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

Cleveland, Ohio March 20, 2020

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Summa Health and Subsidiaries

Consolidated Statements of Financial Position December 31, 2019 and 2018(Dollars in Thousands)

Assets 2019 2018Current assets:

Cash and cash equivalents 148,489 $ 203,649 $ Assets whose use is limited 10,471 14,395 Investments 18,988 22,779 Patient accounts receivable 123,067 118,933 Premiums receivable 671 660 Other receivables 34,565 32,155 Inventories 17,292 15,214 Due from third-party payors 1,058 2,899 Prepaid expenses and other 13,631 10,320

Total current assets 368,232 421,004

Assets whose use is limited:Under bond indenture and other agreements 20,381 78,373 Under self-insurance funding requirements 40,422 43,786 Restricted by donors 44,668 36,866

Total assets whose use is limited 105,471 159,025 Less: assets whose use is limited - required for current liabilities 10,471 14,395

Noncurrent assets whose use is limited 95,000 144,630

Contributions receivable, net 5,185 6,206 Property and equipment, net 663,305 591,549 Operating lease - right of use assets, net 25,732 - Investments 838,798 730,518 Investments in ventures 10 10 Other assets 35,405 27,313

1,568,435 1,355,596

Total assets 2,031,667 $ 1,921,230 $

See notes to consolidated financial statements.

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Liabilities and Net Assets 2019 2018Current liabilities:

Current portion of long-term debt 10,672 $ 9,417 $ Current portion of operating lease obligation 8,757 - Current portion of finance lease obligation 643 - Current portion of capital lease obligation - 1,320 Accounts payable 58,295 72,300 Accrued salaries, wages and benefits 54,963 46,954 Medical claims payable 25,590 33,193 Unearned premium revenue 8,286 7,943 Current portion of malpractice liability 10,471 14,395 Due to third-party payors 2,145 2,006 Other current liabilities 20,274 25,343

Total current liabilities 200,096 212,871

Noncurrent liabilities:Accrued pension 21,898 16,205 Malpractice liability, net of current portion 34,679 27,902 Long-term debt, net of current portion 576,391 586,182 Operating lease obligation, net of current portion 16,975 - Finance lease obligation, net of current portion 23,283 - Capital lease obligation, net of current portion - 26,418 Accrued postretirement benefits 644 685 Due to third-party payors - 9,580 Other noncurrent liabilities 27,282 23,859

701,152 690,831 Total liabilities 901,248 903,702

Net assets:Without donor restrictions 1,073,215 969,827 Noncontrolling ownership interest in subsidiaries 5,859 4,626 With donor restrictions 51,345 43,075

Total net assets 1,130,419 1,017,528

Total liabilities and net assets 2,031,667 $ 1,921,230 $

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Consolidated Statements of Operations Years Ended December 31, 2019 and 2018(Dollars in Thousands)

2019 2018

Revenues, gains, and other support:Patient service revenue 958,224 $ 889,931 $ Premiums earned 391,685 428,204 Other operating revenue 68,735 50,890 Net assets released from restrictions 6,586 5,884

Total revenues, gains, and other support 1,425,230 1,374,909

Expenses:Salaries and wages 528,003 488,367 Employee benefits 76,089 73,698 Health care claims 260,129 291,206 Materials and supplies 282,726 261,220 Contracts and professional fees 183,185 152,545 Depreciation and amortization 60,473 60,657 Interest 21,806 22,898

Total expenses 1,412,411 1,350,591

Operating income 12,819 24,318

Other income (expense):Investment income 34,412 32,433 Unrealized gain (loss) on trading investments 68,169 (48,075) Derivative instrument (loss) gain, net (398) 1,375 Benefit (provision) for income tax 266 (372) Loss on extinguishment of debt (520) - Net periodic benefit income other than service cost 25 - Venture loss (1) (5,142)

Total other income (expense) 101,953 (19,781)

Excess of revenues over expenses 114,772 4,537

Less: amounts attributable to noncontrolling interest in subsidiaries (5,050) (4,461)

Excess of revenues over expenses attributable to Summa Health and Subsidiaries 109,722 $ 76 $


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Consolidated Statements of Changes in Net Assets Years Ended December 31, 2019 and 2018(Dollars in Thousands)

2019 2018

Net assets without donor restrictions:Excess of revenues over expenses 109,722 $ 76 $ Change in net unrealized gain on other-than-trading investments 904 (227) Pension adjustment (5,117) (4,995) Postretirement benefit adjustment (192) (190) Net assets released from restrictions for capital 276 767 Other (2,205) (364)

Increase (decrease) in net assets without donor restrictions 103,388 (4,933)

Noncontrolling interest in subsidiaries:Increase in interest in subsidiaries 1,233 2,750

Net assets with donor restrictions: Income (loss) on investments, including unrealized gains and losses 3,754 (478) Contributions, grants, and other 10,317 4,559 Change in trust value 1,061 (677) Net assets released from restrictions (6,862) (6,651)

Increase (decrease) in net assets with donor restrictions 8,270 (3,247)

Increase (decrease) in net assets 112,891 (5,430)

Net assets at beginning of year 1,017,528 1,022,958

Net assets at end of year 1,130,419 $ 1,017,528 $


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Consolidated Statements of Cash FlowsYears Ended December 31, 2019 and 2018(Dollars in Thousands)

2019 2018Cash flows from operating activities:

Increase (decrease) in net assets 112,891 $ (5,430) $ Adjustments to reconcile increase (decrease) in net assets to net cash

provided by operating activities:Net realized and unrealized (gain) loss on investments (85,213) 36,980 Undistributed equity loss - 5,142 Depreciation and amortization 60,473 60,657 Amortization of operating lease right of use assets 8,562 - Cash paid for operating leases (8,562) - Net (gain) loss on disposal of property and equipment (626) 406 Gain on termination of finance lease (862) - Amortization of bond issue costs, premium and original issue discount 12 38 Pension adjustment 5,117 4,995 Postretirement benefit adjustment 192 190 Change in value of derivative instruments (982) (2,701) Loss on extinguishment of debt 520 - Restricted contributions and other (276) (767) Distributions to noncontrolling interest 4,082 3,413 Changes in operating assets and liabilities:

Patient accounts receivable (4,134) 992 Premiums receivable (11) 1,944 Other receivables (2,410) (11,195) Prepaid and other assets (7,740) 17,119 Accounts payable 3,561 1,257 Medical claims payable (7,603) (4,753) Due from/to third-party payors (7,600) (3,128) Unearned premium revenue 343 (1,022) Other current liabilities (984) 12,441 Other noncurrent liabilities 6,805 (1,250)

Net cash provided by operating activities 75,555 115,328

Cash flows from investing activities:Expenditures for property and equipment (150,755) (169,790) Proceeds on sale of joint venture - 3,431 Proceeds on sale of investments 167,946 230,851 Purchases of investments (191,660) (218,677)

Net cash used in investing activities (174,469) (154,185)

Cash flows from financing activities:Repayments of debt and capital leases (for 2018) (8,482) (9,456) Cash paid for debt issuance costs (586) Repayments of finance lease obligation (1,364) - Distributions to noncontrolling interest (4,082) (3,413) Restricted contributions and other 276 767

Net cash used in financing activities (14,238) (12,102)

Net decrease in cash, cash equivalents and restricted cash (113,152) (50,959)

Cash, cash equivalents and restricted cash:

Beginning, (2018 restated) 282,022 332,981

Ending 168,870 $ 282,022 $

Supplemental disclosures of cash flow information:Cash paid during the year for interest, net of amounts capitalized 17,005 $ 18,424 $

Included in accounts payable at December 31, 2019 and 2018 is $2,251 and $11,034, respectively, of invoices related to unpaid property and equipment acquisitions

Reconciliation of cash, cash equivalents and restricted cash to the consolidatedstatements of financial position:

Cash and cash equivalents 148,489 $ 203,649 $ Restricted cash included in cash and investmentswhose use is limited - under bond indenture and other agreements 20,381 78,373

Total cash, cash equivalents and restricted cash 168,870 $ 282,022 $


Summa Health and Subsidiaries Notes to Consolidated Financial Statements (Dollars in Thousands)

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Note 1. Summary of Significant Accounting Policies

Organization: Summa Health and Subsidiaries (collectively, Summa), located in Akron, Ohio, is a nonprofit integrated health care delivery system and is a provider of health services and health insurance to communities in northeast Ohio. Summa Health serves as the parent of Summa Health System (SHS) (f/k/a Summa Akron City and St. Thomas Hospitals, Summa Barberton Hospital (SBH), and Summa Wadsworth Rittman Hospital (SWH)), SummaCare and Subsidiaries (collectively, SC), Summa Health Network (SHN), Summa Physicians d/b/a Summa Health Medical Group (SHMG), Middlebury Assurance Company (MAC), Summa Foundation (Foundation), Summa Insurance Agency (SIA), Summa Integrated Services Organization (SISO), Summa Management Services Organization (SMSO), and Summa Health System Corporation and Subsidiaries (collectively, SHSC). SHSC is the parent of an affiliated group of for-profit corporations, including SC. Summa has a wholly owned, nonprofit, federally taxable subsidiary, Summa Accountable Care Organization (d/b/a NewHealth Collaborative (NHC)). NHC integrates and aligns health care providers to simultaneously improve quality, satisfaction, and efficiency and reduce the total cost of care. Summa has an 80% ownership interest in Ohio Health Choice, Inc. (OHC). Summa has a 52% ownership interest in a for-profit rehabilitation hospital, Summa Rehab Hospital, LLC (SRH). Summa has a 60% ownership interest in a for-profit Medicare-certified home health and hospice agency, Summa Home Health and Hospice, LLC (SHHAH). Summa controls OHC, SRH, and SHHAH and thus these entities are included on a consolidated basis, with noncontrolling interests considered. Basis of presentation: The consolidated financial statements include the accounts of Summa as described above. All significant intercompany balances and transactions have been eliminated in consolidation. Income taxes: Summa and most of its subsidiaries are not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Code (the Code) and are exempt from federal income taxes pursuant to Section 501(a) of the Code. Summa also has certain subsidiaries that are taxable for federal income tax purposes. SC, together with affiliates of SHSC, files a consolidated federal income tax return in accordance with a tax-sharing agreement dated January 1, 2010. The entities utilize a consolidated approach to the allocation of federal income taxes, whereas SHSC’s tax-sharing agreement with its subsidiaries allows it to make certain Code elections in its consolidated federal tax return. In the event such Code elections are made, any benefit or liability is the responsibility of SHSC and is accrued and paid by the participating subsidiaries. SC is not subject to state income taxes as it is licensed as a health insurance company under Chapter 1751 of the Ohio Revised Code. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the 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. Summa recognizes interest income, interest expense, and penalties related to uncertain tax positions within the provision for income tax.


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Note 1. Summary of Significant Accounting Policies (Continued)

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Cash and cash equivalents: Summa considers all highly liquid investments purchased with original maturities of three months or less, excluding amounts limited as to use by donor or board designation or other arrangements under various trust agreements, to be cash equivalents. Investments in ventures: Summa has various joint ventures accounted for under the equity method of accounting. Summa’s policy is to record the income or loss on investments in its health care-related ventures as other operating revenue in the consolidated statements of operations. The income or loss on investments in non-health care-related ventures is recorded as venture income (loss) in the consolidated statements of operations. Investments and investment income: Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the accompanying consolidated statements of financial position. Investment income, including interest, dividends, and unrealized and realized gains and losses on investments as well as alternative investments, are reported as other income (expense) in the accompanying consolidated statements of operations, unless designated by donor restrictions in which case the amounts are classified as increases or decreases in net assets with donor restrictions in the accompanying consolidated statements of changes in net assets. Realized gains and losses are determined by comparing the actual cost to the proceeds at the time of disposition. Realized gains and losses are recognized using the average cost method. Unrealized gains and losses on fixed income (and in 2018, equity) securities considered to be other-than-trading investments are excluded from the determination of excess of revenues over expenses unless the unrealized losses are considered other-than-temporary. Earnings on endowment investments are recorded as investment income in net assets with donor restrictions and subsequently used in accordance with the donor's designation. Management regularly reviews its investment portfolio to evaluate the necessity of recording other-than-temporary impairments for declines in the fair value of other-than-trading investments. A number of criteria are considered during this process, including, but not limited to, the current fair value as compared to amortized cost or cost, as appropriate, of the investment, the length of time the investment's fair value has been below amortized cost or cost, as appropriate, and by how much, specific credit issues related to the issuer, current economic conditions and management's ability and intent to hold the securities until maturity or recovery. Impairments are included in realized gains and losses in investment income. Alternative investments: Alternative investments include private equity funds that invest in funds of funds and real estate. Summa’s alternative investments are reported using the equity method of accounting based on net asset value provided by the respective partnership. Generally, the equity method investment balance of Summa’s holding in alternative investments reflects net contributions to the partnerships and Summa’s share of the realized and unrealized investment income and expenses. The equity value of Summa’s alternative investments are not readily determinable and may include short sales on securities and trading in future contracts, options, foreign currency contracts, other derivative instruments and private equity investments. The recorded value is based on valuations provided by the general partner and are based on historical cost, appraisals or other valuation estimates that require varying degrees of judgment. Because these investments are not readily marketable, their estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for such investments existed. Summa’s risk is limited to its carrying value.


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Fair value measurements: Fair value measurements are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The framework for measuring fair value is comprised of a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Inventories: Inventories, consisting principally of pharmaceuticals and medical and surgical supplies, are stated at the lower of cost and net realizable value. Assets whose use is limited: Assets whose use is limited include assets designated for bond indenture and other agreements, self-insurance and assets restricted by donors. Amounts required to meet current liabilities of Summa have been classified as current assets in the accompanying consolidated statements of financial position. Cash held under bond indenture and other agreements are considered to be restricted cash on the statement of cash flows. Balances associated with assets held under self-insurance funding requirements and restricted by donors are not considered to be maintained in restricted cash accounts. Property and equipment: Property and equipment are reported at cost if purchased or fair value at date received if donated. Maintenance and repairs are charged to expense as incurred. Renewals and betterments, which extend the useful lives of assets, are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost thereof and the accumulated depreciation are adjusted, and any profit or loss on disposition is credited or charged to operations. Depreciation, including amortization of capital leased assets, of property and equipment is provided on the straight-line basis. Depreciation is based on the estimated useful lives of the assets. Building and improvements are depreciated over estimated useful lives ranging generally from 5 to 40 years. Estimated useful lives of equipment vary generally from 3 to 15 years. Amortization of equipment capitalized under lease obligations is based on the term of the lease or estimated useful life of the asset, whichever is shorter. Interest cost incurred on borrowed funds during the period of construction of a long-lived asset is capitalized as a component of the cost of constructing or acquiring those assets. Summa recorded $4,489 and $4,080 of capitalized interest during 2019 and 2018, respectively.


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Impairment of long-lived assets: Summa evaluates the recoverability of long-lived assets and the related estimated remaining lives at each consolidated statement of financial position date. Summa records an impairment charge on long-lived assets whenever events or changes in circumstances indicate that the amount may not be recoverable or the useful life has changed. Summa recorded an impairment charge on land held for sale as a component of depreciation and amortization in the accompanying 2018 consolidated statement of operations in the amount of $1,500. No impairment charge was recorded in 2019. Asset retirement obligations: The fair value of legal obligations to perform asset retirement activities are estimated and recorded. Summa recognizes a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. Bond issuance costs: Financing and issuance costs related to long-term debt are recorded as a reduction of long-term debt in the accompanying consolidated statements of financial position and amortized over the period during which the debt is outstanding using the straight-line method, which approximates the effective interest method. Malpractice costs: Summa manages its professional and general liability insurance program through a captive insurance arrangement. In the ordinary course of business, professional and general liability claims have been asserted against Summa by various claimants. These claims are in various stages of processing or, in certain instances, are in litigation. In addition, there are known incidents, and there also may be unknown incidents, which may result in the assertion of additional claims. Summa has accrued its best undiscounted estimate of both asserted and unasserted claims based on actuarially determined amounts. These estimates are subject to the effects of trends in loss severity and frequency, and the ultimate settlement of professional and general liability claims may vary significantly from the estimated amounts. Summa owns MAC, a wholly owned captive insurance subsidiary, to cover the majority of its professional and general liability. MAC was incorporated as an exempted company under the Companies Law of the Cayman Islands on February 26, 2003, and holds an Unrestricted Class B Insurer's license under Section 4(2) of the Cayman Islands Insurance Law. This license allows MAC to transact insurance business other than domestic business from within the Cayman Islands. Summa purchases excess professional and general liability insurance coverage from a third-party insurer for $50,000 over the self-insurance amount of $8,000 per occurrence and $20,000 in aggregate. The excess coverage does not provide coverage for claims for punitive damages; therefore, Summa remains fully liable for such potential losses. Annual costs associated with estimated malpractice costs are charged to operations based upon actual and estimated claims. The portion estimated to be paid during the next year is included in current liabilities. The estimate for incurred but not reported self-insured claims is based on actuarial projections of costs using historical claims paid data. Estimates are continually monitored and reviewed and, as settlements are made or estimates adjusted, differences are reflected in current operations. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts provided. While the ultimate payments for self-insured claims depend on future developments, management is of the opinion that the reserve for self-insured risks is adequate.


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Patient service revenue: Patient service revenue is reported at the amount that reflects the consideration to which Summa expects to be entitled in exchange for providing patient care. Charity care: Summa provides care to all patients, regardless of their ability to pay, which includes patients who qualify for charity services under Summa’s charity care policy. Charity services are defined as those for which patients have the obligation and willingness to pay but do not have the ability to do so. The cost of charity care provided in 2019 and 2018 was $12,414 and $10,126, respectively. Summa estimated these costs by calculating a ratio of gross charges associated with charity patients to gross charges for all patients, then applying that ratio to net costs of providing care. Summa participates in the Hospital Care Assurance Program (HCAP). Ohio created HCAP to financially support those hospitals that service a disproportionate share of low-income patients unable to pay for care. HCAP assists in funding medically necessary hospital services for patients whose family income is at or below 138% of the federal poverty level, which includes Medicaid patients and patients without health insurance. In 2016, Summa became an economic contributor to the HCAP program. As a result, Summa recorded reductions to patient service revenue of $3,712 and $4,616 in 2019 and 2018, respectively. Premium revenue and receivables: Premiums earned include premiums from employer groups, individuals, and Medicare. Medicare revenue includes premiums based on predetermined prepaid rates under Medicare risk contracts. Premiums are recognized in the month in which the members are entitled to health care services. Premiums collected in advance are deferred and recorded as unearned premium revenue. Premium deficiency losses are recognized when it is probable that expected future claim expenses will exceed future premiums on existing health and other insurance contracts. For purposes of premium deficiency losses, contracts are grouped in a manner consistent with Summa’s method of acquiring, servicing, and measuring the profitability of such contracts. Summa evaluated the need for a premium deficiency reserve and concluded no reserve was required at December 31, 2019 and 2018. Premiums receivable represent amounts due from members but currently uncollected by Summa, including employer groups, individuals, and the Medicare program. Commercial premiums earned by Summa are subject to retroactive adjustment through the Affordable Care Act risk-sharing provisions. Medicare Advantage and Medicare Part D premiums earned by Summa are subject to audit and retroactive adjustment by the regulatory agency responsible for the programs through the risk adjustment provisions included in those programs. Laws and regulations governing these programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that record estimates will change by a material amount. Health care claims expense and services cost recognition: The cost of health care services is recognized in the period in which services are provided. Health care expenses also include an estimate of the cost of services provided to SC members by third-party providers, which have been incurred but not reported to SC. The estimate for incurred but not reported claims is based on actuarial projections of costs using historical paid claims data. Estimates are continually monitored and reviewed and, as settlements are made or estimates adjusted, differences are reflected in current operations. Such estimates 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. While the ultimate amount of claims paid is dependent on future developments, management is of the opinion that the reserves for claims are a reasonable provision to cover such claims.


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Reinsurance (stop-loss insurance): Reinsurance premiums are recorded as a reduction of premiums earned. Reinsurance recoveries are recorded as a reduction of health care claims expense. Federal medical loss ratio rebate: Summa is subject to the Public Health Service Act, which requires the payment of rebates to eligible policyholders or enrollees when the amounts paid for health care benefits and quality improvement initiatives fall below specified thresholds. Separate calculations are performed for each state and by employer group size (individual, small group, and large group). Summa does not expect to owe any federal medical loss ratio rebates for either 2019 or 2018. Beneficial interests in perpetual trusts: Summa has received gifts of beneficial interests in trusts held by bank trustees. Under the terms of the trusts, Summa has the irrevocable right to receive the income earned on the trust assets in perpetuity, but never receives the assets held in trust. Annual distributions from the trusts are reported as investment income and classified as net assets with donor restrictions based upon the donor designation. The beneficial interests in perpetual trusts are reported at Summa’s pro rata share of the fair value of the assets and are included in other assets in the accompanying consolidated statements of financial position, with the change in fair value reported as an increase or decrease in net assets with donor restrictions. Net asset categories: Net assets without donor restrictions are those that are free of donor-imposed restriction, and include all revenue, expenses, gains, and losses that do not relate to net assets with donor restrictions. Net assets with donor restrictions are those net assets whose use has been limited by donors to a specific time period or purpose. Included in net assets with donor restrictions are net assets restricted by donors to be maintained in perpetuity, the income from which is included in net assets with donor restrictions until used in accordance with donor intentions. Also included in net assets with donor restrictions is the value of perpetual trusts. The trusts are to be held in perpetuity by outside trustees. Summa has no control of the assets or the investment of the assets. The value of future distributions is estimated based on the fair value of the assets. Excess of revenues over expenses: The accompanying consolidated statements of operations and changes in net assets include excess of revenues over expenses, which is Summa’s performance indicator. Changes in net assets without donor restrictions, which are excluded from excess of revenues over expenses, include unrealized gains and losses on other-than-trading investments (unless the unrealized loss is considered other-than-temporary), 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 pension and postretirement benefit adjustments. Operating and nonoperating income (expense): Activities directly associated with the furtherance of Summa’s mission are considered operating activities. Other activities that result in gains or losses peripheral to Summa’s primary mission are considered to be nonoperating. Nonoperating activities include investment income, unrealized gains/losses on investments, derivative instrument gains/losses and other. Gifts and contributions: Unconditional donor pledges to give cash and other assets are reported at fair value at the date the promise is made. Conditional donor pledges to give and indications of intentions to give are not recognized until the condition is satisfied. Gifts are reported as net assets with donor restrictions if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, net assets with donor restrictions are transferred to net assets without donor restrictions and reported in the accompanying consolidated statements of operations and changes in net assets as net assets released from restrictions.


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Gifts of long-lived assets such as land, buildings, or equipment are reported as an addition to net assets without donor restrictions unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as contributions, grants and other within net assets with donor restrictions in the accompanying consolidated statements of changes in net assets. Absent explicit donor stipulations about how long those long-lived assets must be maintained, expirations of donor restrictions are reported when the donated or acquired long-lived assets are placed in service. Concentration of credit risk: Summa’s concentration of credit risk relating to patient accounts receivable is limited by the diversity and number of Summa’s patients and payors. Patient accounts receivable consist of amounts due from governmental programs, commercial insurance companies, private-pay patients, and other group insurance programs. The composition of accounts receivable from patients and third-party payors, was as follows at December 31, 2019 and 2018:

2019 2018

Managed care payors 42% 40%Medicare and Medicare managed care 27% 28%Medicaid and Medicaid managed care 16% 18%Commercial and other 10% 9%Self-pay, including self-pay after insurance 5% 5%

100% 100%

Summa invests in highly rated financial instruments, including time deposits, U.S. treasuries, U.S. government obligations, common and preferred stocks, and income and stock funds. With the exception of U.S. treasuries, there is no significant concentration in one investment or group of similar investments. Interest rate swaps: Interest rate swaps are recognized as liabilities in the accompanying consolidated statements of financial position at fair value. Interest rate swaps are not being accounted for as hedge transactions. Therefore, the changes in fair value are recorded as derivative instrument gain (loss) in the accompanying consolidated statements of operations. Interest rate swap agreements are used as part of Summa’s program to manage the fixed and floating interest rate mix of Summa’s total debt portfolio and related overall cost of borrowing. The interest rate swap agreements involve the periodic exchange of payments without the exchange of the notional amounts upon which the payments are based. Recently issued accounting pronouncements: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance introduces a lessee model that brings substantially all leases on the balance sheet. The changes to the lease accounting model require that operating leases be recorded on the balance sheet through recognition of a liability for the discounted present value of future fixed lease payments and a corresponding right-of-use (ROU) asset. Summa’s accounting for finance leases remained substantially unchanged from its prior accounting for capital leases. The ROU asset recorded at commencement of the lease represents the right to use the underlying asset over the lease term in exchange for the lease payments.


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Leases with an initial term of 12 months or less, that do not have an option to purchase the underlying asset that is deemed reasonably certain to be exercised, are not recorded on the balance sheet; rather, rent expense for these leases is recognized on a straight-line basis over the lease term, or when incurred if the lease is a month-to-month lease. When readily determinable, Summa uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the risk-free discount rate is utilized. Summa’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Summa elected several practical expedients available under the standard upon adoption, including (1) the package of practical expedients whereby an entity need not reassess expired contracts for lease identification or classification as a finance or operating lease, or for the reassessment of initial direct costs, (2) combining lease and non-lease components when determining lease payments, and (3) for certain equipment leases such as copiers, applying a portfolio approach to effectively record the operating lease liability and ROU asset. Summa recorded ROU operating lease assets and corresponding lease obligations of approximately $22,600 and ROU finance lease assets and corresponding lease obligations of approximately $27,700 upon adoption of the standard on January 1, 2019; however, there was no impact on net assets without donor restrictions. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities. In addition to other amendments that do not apply to Summa, this ASU requires certain equity investments to be measured at fair value with changes in the fair value recognized through net income. There was no impact to Summa’s reporting of gains and losses on equity securities in the consolidated financial statements for the year ended December 21, 2019 as a result of implementing this standard. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance on how certain cash receipts and cash payments should be presented and classified in the statement of cash flows with the objective of reducing existing diversity in practice with respect to these items. This ASU was adopted by Summa January 1, 2019 using a full retrospective method. The impact of adoption on the consolidated financial statements is not material. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. Its provisions require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The effect of adopting this standard is that $20,381 and $78,373 of restricted cash is included within cash, cash equivalents and restricted cash in the consolidated statements of cash flows for the years ended December 31, 2019 and 2018, respectively. Additionally, beginning cash and cash equivalents in the 2018 consolidated statement of cash flows was restated to include $188,767 of restricted cash.


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In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This ASU was adopted by Summa January 1, 2019 and requires retrospective adoption as it relates to the presentation of service costs. The impact of adoption on the consolidated financial statements is not material and, as a result, management of Summa has elected not to restate the 2018 consolidated financial statements to reflect $2,500 as net periodic benefit income other than service costs within the other income (expense) section of the consolidated statement of operations. In June 2018, the FASB issued ASU No. 2018-08, Not-for-Profit Entities - Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made (Topic 958). This ASU provides a more robust framework to determine when a transaction should be accounted for as a contribution or as an exchange transaction and provides additional guidance about how to determine whether a contribution is conditional. This ASU was adopted by Summa January 1, 2019 using a full retrospective method. The impact of adoption on the consolidated financial statements is not material. In May 2019, the FASB issued ASU 2019-06, Intangibles – Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives in Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities. ASU 2019-06 extends the private company alternatives from Topic 350, Intangibles – Goodwill and Other and Topic 805, Business Combinations to not-for-profit entities. Under the amendments of Topic 350, if the goodwill accounting alternative is elected, not-for-profit entities should amortize goodwill on a straight- line basis over a period not to exceed 10 years; make a policy election to test goodwill at either the entity level or the reporting unit level; and test for impairment when a triggering event occurs. Under the amendments in Topic 805, if the business combination alternative is elected, for transactions occurring after adoption of the alternative, a not-for-profit entity should subsume into goodwill certain intangible assets and all noncompetition agreements acquired. A not-for-profit entity that elects the accounting alternative in Topic 805 is required to adopt the alternative in Topic 350 to amortize goodwill. However, a not-for-profit that elects the accounting alternative in Topic 350 is not required to adopt the accounting alternative in Topic 805. The amendments are effective upon issuance of the ASU and should be applied prospectively. Summa has not elected to apply any of the alternatives proposed by this ASU during the year ended December 31, 2019. The FASB has issued the following pronouncements that have not been implemented by Summa in the accompanying consolidated financial statements: In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the measurement of goodwill impairment by eliminating the requirement that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to measure impairment. Instead, goodwill impairment will be measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit.


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Summa will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Summa will be required to adopt ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 requires adoption on a prospective basis. Summa is currently evaluating the effect of the new standard on the consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). This ASU improves the effectiveness of the notes to financial statements through changes in the disclosure requirements for fair value measurement. The new standard will be effective for Summa’s December 31, 2020 consolidated financial statements and will be applied using a retrospective approach. Summa is currently evaluating the effect of the new standard on the consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans (Topic 715). This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The new standard will be effective for Summa’s December 31, 2021 consolidated financial statements and will be applied using a retrospective approach. Summa is currently evaluating the effect of the new standard on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred for internal-use software. ASU 2018-15 is effective for Summa’s December 31, 2021 consolidated financial statements. Early adoption is permitted. Summa is currently evaluating the effect of the new standard on the consolidated financial statements. Reclassifications: Certain amounts included in the 2018 consolidated financial statements have been reclassified to conform to the 2019 presentation. The reclassifications had no impact on total net assets or the excess of revenues over expenses. Subsequent events: Summa has evaluated subsequent events for potential recognition and/or disclosure through March 20, 2020, the date the consolidated financial statements were issued. See Note 20 for additional information regarding subsequent events.


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Note 2. Liquidity and Availability

The table below represents financial assets available for general expenditures within one year of December 31, 2019 and 2018:

2019 2018Financial assets at year end:

Cash and cash equivalents 148,489 $ 203,649 $ Assets whose use is limited 105,471 159,025 Patient accounts and other receivables 157,632 151,088 Investments 857,786 753,297 Contributions receivable 5,185 6,206 Other assets 26,837 26,404

Total financial assets 1,301,400 1,299,669

Less amounts not available to be used within one year:

Assets whose use is limited not expected to be used within one year for general expenditures 88,571 140,179

Investments in non-liquid securities 74,209 34,436 Contributions receivable for restricted gifts, net 3,206 3,930 Contributions receivable due after one year, net 1,979 2,228 Other assets 25,779 23,505

Financial assets not available to be used within one year193,744 204,278

Financial assets available for general expenditures within one year 1,107,656 $ 1,095,391 $

Summa regularly monitors liquidity required to meet its annual operating needs and other contractual commitments while also striving to maximize the return on investment of its funds not required for annual operations. Cash in excess of daily requirements is invested in short-term investments.


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Note 3. Investments and Assets Whose Use is Limited

Investments and assets whose use is limited by category of securities at December 31, 2019 and 2018, are as follows:

2019 2018

Cash and cash equivalents 376 $ 357 $ Money market funds 32,381 99,492 Mutual funds:

Equity 97,171 99,216 Fixed income 43,923 71,399

Fixed income securities:U.S. treasuries 93,314 72,182 U.S. government obligations 2,822 1,704 U.S. corporate 263,696 363,860 Municipal bonds 834 965 Foreign bonds 8,711 10,377

Common and preferred stocks:U.S. 3,773 2,968

Fixed income funds 151,919 57,599 U.S. common stock funds 186,274 91,593 Real estate investment trust 3,854 6,174 Alternative investments:

Real estate 21,793 3,312 Private equity 52,416 31,124

Total investments and assets whose use is limited 963,257 $ 912,322 $

The amortized cost and fair value of U.S. treasuries and U.S. government obligations classified as available for sale, by stated maturity date, at December 31, 2019 and 2018, are as follows:

Amortized Fair Amortized Fair Cost Value Cost Value

Due in one year or less 11,676 $ 11,738 $ 17,841 $ 17,735 $ Due after one year through five years 45,404 45,593 31,602 31,129 Due after five years through ten years 6,071 6,133 1,998 1,962

63,151 $ 63,464 $ 51,441 $ 50,826 $

2019 2018

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Gross unrealized gains were $364 and $39 at December 31, 2019 and 2018, respectively. Gross unrealized losses were $51 and $654 at December 31, 2019 and 2018, respectively. Summa had 21 related securities held in an unrealized loss position with a fair value of $22,098 in 2019 and 44 related securities held in an unrealized loss position with a fair value of $46,316 in 2018. Total unrealized losses less than 12 months were $33 and $91 in 2019 and 2018, respectively. Total unrealized losses more than 12 months were $18 and $563 in 2019 and 2018, respectively. Based on management’s evaluation, Summa does not consider these investments to be other-than-temporarily impaired at December 31, 2019 and 2018.


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Note 3. Investments and Assets Whose Use is Limited (Continued)

U.S. common stock funds includes investments of publicly traded common stocks of both U.S. and international corporations, the majority of which represent actively traded and liquid securities that are traded on many of the world's major exchanges and include large-, mid-, and small-capitalization securities. The composition of these securities represent a risk profile that is commensurate with broadly defined equity indexes such as the Russell 3000 Index, the Morgan Stanley Capital International (MSCI) World ex-U.S. Investable Market Index (MSCI ex-U.S. IMI), and the MSCI Emerging Markets Investable Markets Index. Summa’s investments are exposed to various kinds and levels of risk. Equity investments expose Summa to market risk, performance risk, and liquidity risk. Market risk is the risk associated with major movements of the equity markets. Performance risk is that risk associated with a company's operating performance. Fixed income securities expose Summa to interest rate risk, credit risk, and liquidity risk. As interest rates change, the value of many fixed income securities is affected, including those with fixed interest rates. Credit risk is the risk that the obligor of the security will not fulfill its obligations. Liquidity risk is affected by the willingness of market participants to buy and sell given securities. Liquidity risk tends to be higher for equities related to small capitalization companies. Due to the volatility of the capital markets, there is a reasonable possibility of changes in fair value, resulting in additional gains and losses in the near term. The remaining capital contribution commitment on alternative investments at December 31, 2019, is $16,909. Funds from the real estate fund can be withdrawn after a one-year period with 90 days notice. The private equity funds cannot be redeemed by Summa and are subject to distribution. The total return on the investment portfolios related to short-term and long-term investments, assets whose use is limited, and other notes receivable was comprised of the following for the years ended December 31, 2019 and 2018:

2019 2018Other income:

Interest and dividend income 22,027 $ 20,633 $

Realized gains 12,385 11,800

Unrealized gain (loss) on trading investments 68,169 (48,075) 102,581 (15,642)

Other changes in net assets:

4,658 (705) Total investment return 107,239 $ (16,347) $

Change in net unrealized gain on other-than-trading investments and income (loss) on investments with donor restrictions, including unrealized gains and losses


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Note 4. Fair Value Measurement

The following table presents the financial instruments carried at fair value as of December 31, 2019 and 2018:

Level 1 Level 2 Level 3 Total Assets:

Investments and assets whose use is limited:

Cash and cash equivalents 376 $ -$ -$ 376 $ Money market funds - 32,381 - 32,381 Mutual funds:

Equity 97,171 - - 97,171 Fixed income 43,923 - - 43,923

Fixed income securities:U.S. treasuries 93,314 - - 93,314 U.S. government agencies - 2,822 - 2,822 U.S. corporate - 263,696 - 263,696 Municipal bonds - 834 - 834 Foreign bonds - 8,710 - 8,710

Common and preferred stocks:U.S. 3,774 - - 3,774

Fixed income funds - 151,919 - 151,919 U.S. common stock funds - 186,274 - 186,274 Real estate investment trust - 3,854 - 3,854

Perpetual trusts - - 7,759 7,759 Other noncurrent assets - interest rate swap

- 4,931 - 4,931

238,558 $ 655,421 $ 7,759 $ 901,738 $

Liabilities:Other noncurrent liabilities - interest rate swaps -$ 12,372 $ -$ 12,372 $

2019


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Note 4. Fair Value Measurement (Continued)

Level 1 Level 2 Level 3 Total Assets:

Investments and assets whose use is limited:

Cash and cash equivalents 357 $ -$ -$ 357 $ Money market funds - 99,492 - 99,492 Mutual funds:


Fixed income securities:U.S. treasuries 72,182 - - 72,182 U.S. government agencies - 1,704 - 1,704 U.S. corporate - 363,860 - 363,860 Municipal bonds - 965 - 965 Foreign bonds - 10,377 - 10,377

Common and preferred stocks:U.S. 2,968 - - 2,968

Fixed income funds - 57,599 - 57,599 U.S. common stock funds - 91,593 - 91,593 Real estate investment trust - 6,174 - 6,174

Perpetual trusts - - 6,698 6,698 Other noncurrent assets - interest rate swap

- 211 211

246,122 $ 631,975 $ 6,698 $ 884,795 $

Liabilities:Interest rate swaps -$ 8,634 $ -$ 8,634 $

2018


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Financial instruments are reflected in the accompanying consolidated statements of financial position as of December 31, 2019 and 2018 as follows:

2019 2018Investments and assets whose use is limited

measured at fair value 889,048 $ 898,774 $ Alternative investments accounted for under the

equity method 74,209 34,436 Total investments and assets whose use is limited 963,257 $ 933,210 $

7,759 $ 6,698 $

4,931 $ 211 $

12,372 $ 8,634 $

Perpetual trusts measured at fair value included in other assets

Interest rate swap measured at fair value inclued in other noncurrent assets

Interest rate swaps measured at fair value included in other noncurrent liabilities

Fair value for Level 1 securities is based upon quoted prices for identical assets in active markets. Fair value for Level 2 U.S. government and agency obligations, U.S. corporate bonds, municipal bonds, and foreign bonds is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources, including market participants, dealers, and brokers. Fair value for Level 2 money market funds, fixed income funds, U.S. common stock funds, and real estate investment trust is determined at net asset value (NAV) obtained from the respective fund manager. NAV is equal to the market value of the fund’s investments and other assets, less liabilities, divided by the number of fund shares. The fair value for perpetual trusts was determined based on Summa’s proportionate interest in the investments held in the trust that is measured at fair value. Since Summa has no right to the investments, the perpetual trusts have been classified as Level 3. The following table presents the changes in assets measured at fair value, within Level 3 of the fair value hierarchy:

Perpetual Trusts

Balance, January 1, 2018 7,375 $ Change in trust value (677)

Balance, December 31, 2018 6,698 Change in trust value 1,061

Balance, December 31, 2019 7,759 $

The fair value of interest rate swaps was determined based on the present value of expected future cash flows using discount rates appropriate with risks involved and adjusted for credit. The valuations include a credit spread adjustment to market interest rate curves to appropriately reflect nonperformance risk. The credit spread adjustment is derived from other comparably rated entities' bonds recently priced in the market.


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The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. While Summa believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Note 5. Interest Rate Swap Agreements

Summa’s objective with respect to management of interest rate risk is managing the risk of rising interest rates on Summa’s variable-rate debt. Consistent with its interest rate risk management objective, Summa has entered into various interest rate swap agreements. During the term of certain of these transactions, Summa pays interest at fixed rates and receives interest at variable rates based on the London Interbank Offered Rate (LIBOR). The swap agreements are not designated as hedging instruments. Net interest paid or received under the swap agreements is included in derivative instrument gain (loss) in the accompanying consolidated statements of operations. During 2019, Summa entered into a Securities Industry and Financial Markets Association (“SIFMA”) swap with a counterparty. The SIFMA swap, executed on August 28, 2019, was a forward starting floating to fixed interest rate swap. Under the swap, Summa agreed to pay a fixed rate of 1.224% and receive a variable rate equal to the SIFMA Index. The Swap has a final maturity of November 15, 2040 with an optional redemption (call) date of May 15, 2020. The following table summarizes Summa’s interest rate swap agreements at December 31, 2019 and 2018:

Swap Expiration Summa SummaType Date Pays Receives 2019 2018

SIFMA 2040 1.22% SIFMA 133,585 $ -$ Fixed 2034 4.25% 68% of LIBOR 28,525 29,760 Fixed 2036 3.71% 70% of LIBOR 11,670 12,120 Fixed 2034 2.28% 70% of LIBOR 47,920 50,125 Fixed 2024 2.37% 72% of LIBOR

plus 108 basis points 13,459 16,006 235,159 $ 108,011 $

Notional Amount


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Note 5. Interest Rate Swap Agreements (Continued)

The following table summarizes the location and fair values for Summa’s interest rate swap agreements at December 31, 2019 and 2018:

Statement of Financial Position Fair Statement of Financial Position Fair Location Value Location Value

Other noncurrent 12,372 $ Other noncurrent 8,634 $ liabilities liabilities

Statement of Financial Position Fair Statement of Financial Position Fair Location Value Location Value

Other assets 4,931 $ Other assets 211 $

agreements

Derivatives Not Designatedas Hedging Instruments

2019 2018Derivatives Liability

Interest rate swap

agreements

Derivatives Asset2019 2018

Derivatives Not Designatedas Hedging Instruments

Interest rate swap

The following table summarizes the location and amounts of derivative gains (losses) on Summa’s interest rate swap agreements for the years ended December 31, 2019 and 2018:

2019 2018

Net payments to the counterparties Derivative instrument gain (loss), net (1,380) $ (1,326) $ Change in fair value, unrealized Derivative instrument gain (loss), net 982 2,701

(398) $ 1,375 $

Location of Gain Amount of Gain (Loss)as Hedging Instruments (Loss) Recognized Recognized on Derivative

Derivatives Not Designated

Summa has used various derivative contracts in connection with certain prior obligations and investments. Although minimum credit ratings are required for counterparties, this does not eliminate the risk that a counterparty may fail to honor its obligations. Derivative contracts are recorded at fair value. A derivative contract may, at any time, have a positive or negative value to Summa. In the event that the negative value reaches certain thresholds established in the derivative contracts, Summa is required to post collateral, which could adversely affect its liquidity. At December 31, 2019 and 2018, Summa was required to post collateral of $2,656 and $600, respectively, which is reported in assets whose use is limited under bond indenture and other agreements in the accompanying consolidated statements of financial position. If Summa was to choose to terminate a derivative contract or if a derivative contract was terminated pursuant to an event of default or a termination event as described in the derivative contract, Summa could be required to pay a termination payment to the counterparty.


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Note 6. Contributions Receivable

Outstanding contributions receivable at December 31, 2019 and 2018 are as follows:

2019 2018Due:

In one year or less 1,838 $ 2,501 $ Between one and five years 2,974 3,421 More than five years 1,052 1,047

5,864 6,969 Less allowance for uncollectible contributions (205) (232) Less discount on contributions receivable (474) (531)

Net contributions receivable 5,185 $ 6,206 $

Note 7. Property and Equipment

Property and equipment consist of the following at December 31, 2019 and 2018:

2019 2018

Land and improvements 79,246 $ 73,494 $ Buildings and service equipment 850,596 652,934 Equipment 595,647 542,978

1,525,489 1,269,406 Less accumulated depreciation and amortization (960,959) (904,007)

564,530 365,399 Construction in progress 80,070 204,306 Buildings and equipment under capital lease

obligations, net of accumulated amortization 18,705 21,844

Property and equipment, net 663,305 $ 591,549 $

Approximately $10,524 and $17,846 of unamortized computer software is included in equipment at December 31, 2019 and 2018, respectively. Computer software is amortized over five years. Summa recorded amortization expense on computer software of $9,420 in 2019 and $13,834 in 2018. At December 31, 2019, the remaining commitment on construction contracts related to hospital facilities was $8,116.


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Note 8. Pension Plan

Summa maintains a noncontributory defined benefit pension plan for the benefit of eligible employees, the Summa Health System Retirement Income Plan and Trust Plan (Plan). The benefits are based upon years of service, as defined by the Plan. It is Summa’s policy to contribute annually to the plan amounts that are actuarially determined to provide the Plan with sufficient assets to meet future benefit payment requirements. Effective June 30, 2011, Summa froze the Plan for all nonunion participants under age 60 as of December 31, 2010. In August 2013, Summa amended its union contract with respect to the Plan, and union employees who were participants in the Plan as of December 31, 2012, will continue to accrue benefits and additional service for vesting under the terms of the Plan. Union employees who were not participants in the Plan as of December 31, 2012, shall not become participants in the Plan and may contribute to Summa’s Tax Sheltered Annuity Plan 1% of their pay up to a maximum of 50% not to exceed the limit under the Internal Revenue Code. The following table sets forth changes in the underfunded status and accrued pension cost recognized by Summa for the Plan for the years ended December 31, 2019 and 2018:

2019 2018Change in benefit obligation

Projected benefit obligation at beginning of year 216,273 $ 235,511 $ Service cost 727 852 Interest cost 8,481 7,700 Actuarial loss (gain) 29,914 (16,337) Benefits paid (11,800) (11,453)

Projected benefit obligation at end of year 243,595 216,273

Change in plan assetsFair value of plan assets at beginning of year 200,068 222,026

Actual return on plan assets 33,429 (10,505) Benefits paid (11,800) (11,453)

Fair value of plan assets at end of year 221,697 200,068

Underfunded status of plan (21,898) $ (16,205) $

Amount recognized in the consolidated statements of financial position:Noncurrent liabilities (21,898) $ (16,205) $

The accumulated benefit obligation for the Plan was $243,594 and $216,272 at December 31, 2019 and 2018, respectively. Of the net actuarial loss of $29,914 for the year ended December 31, 2019, $29,800 is attributed to the change in the discount rate from 4.39% at December 31, 2018 to 3.26% at December 31, 2019. There is also a $1,738 gain attributed to the adoption of the MP-2019 mortality improvement scale and a $1,600 loss due to demographic changes. Of the net actuarial gain of $16,337 for the year ended December 31, 2018, $16,649 is attributed to the change in the discount rate from 3.72% at December 31, 2017 to 4.39% at December 31, 2018. There is also a $592 gain attributed to the adoption of the MP-2018 mortality improvement scale. The gains are offset by a $904 loss due to demographic changes.


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Note 8. Pension Plan (Continued)

Amounts included in net assets without donor restrictions that have not been recognized in net periodic pension cost at December 31, 2019 and 2018 are as follows:

2019 2018

Unrecognized actuarial losses 104,186 $ 99,198 $ Unrecognized prior service credit (75) (78)

104,111 $ 99,120 $

Changes in amounts recognized in net assets without donor restrictions for the years ended December 31, 2019 and 2018 are as follows:

2019 2018

Net loss created during year (8,099) $ (7,117) $ Amortization of net loss 3,112 2,751 Amortization of prior service credit (4) (4)

(4,991) $ (4,370) $

Actuarial losses are amortized as a component of net periodic pension cost, only if the losses exceed 10% of the greater of the projected benefit obligation or the fair value of plan assets. Actuarial losses and unrecognized prior service credits are amortized on a straight-line basis over the average remaining life expectancy of all participants. The actuarial losses included in net assets without donor restrictions and expected to be recognized in net periodic pension cost during the year ending December 31, 2020 are $3,255. In 2019, the mortality improvement scale used to calculate the benefit obligation for Summa’s defined benefit pension plan was updated to the MP-2019 mortality improvement scale. In 2018, the mortality improvement scale used to calculate the benefit obligation for Summa’s defined benefit pension plan was updated to the MP-2018 mortality improvement scale. Summa believes that the updated mortality rates are the best estimate of future experience. The components of net periodic pension credit for the years ended December 31, 2019 and 2018 are as follows:

2019 2018

Service cost 727 $ 852 $ Interest cost 8,481 7,700 Expected return on plan assets (11,614) (12,948) Amortization of unrecognized:

Cumulative net loss 3,112 2,751 Prior service credit (4) (4)

Net periodic pension cost (credit) 702 $ (1,649) $

The nonservice cost components of net periodic pension cost for the year ended December 31, 2019 is reflected within the nonoperating section of the consolidated statement of changes in net assets.


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The following table sets forth the assumptions used as of and for the years ended December 31, 2019 and 2018:

2019 2018Expected increase in future compensation levels

benefit obligations as of December 31,Discount rate 3.26% 4.39%Expected increase in future compensation levels 3.00% 3.00%

Weighted-average assumptions used to calculate pension cost for the year ended December 31,

Discount rate - benefit obligation 4.39% 3.72%Discount rate - interest on benefit obligation 4.01% 3.34%Discount rate - service cost 4.56% 3.85%Discount rate - interest on service cost 4.20% 3.34%Expected return on plan assets 6.00% 6.00%Expected increase in future compensation levels 3.00% 3.00%

Summa utilizes a full yield curve (spot rate) approach to determine the service cost and interest cost components of expense. This change does not affect the measurement of Summa’s benefit obligations but requires additional disclosures for the underlying effective rates. The investment policy covering plan assets is established by the Investment Committee of the Board of Directors for Summa. This committee meets on a quarterly basis and makes periodic changes to the policy. The written investment policy for the Plan includes a target allocation of 15% in U.S. equities, 15% in non-U.S. equities, 50% in fixed income investments, 7% in real estate, 5% in master limited partnerships, 3% in alternative investments, and 5% in cash and cash equivalents. The Plan's obligations are long-term in nature, and the investment policy is therefore focused on a long-term horizon. Goals include achieving returns at least equal to relevant indices. Management, outside advisors and the Investment Committee regularly review and discuss investment performance, adherence to the written investment policy and the investment policy itself. In performing these tasks, the Investment Committee approves changes in asset managers and asset allocation. The investment policy is furthermore utilized as the basis for determining the long-term return assumption for the assets. Historical data, and the future expected returns of each asset class, are the primary components utilized in developing this assumption. Additional information, such as specific manager performance and risk characteristics, is also included in the assessment of the long-term rate of return assumption. Summa’s pension portfolio return assumption is based on the targeted assumed rate of return through a diversified portfolio designed to mitigate short-term return volatility and achieve an efficient trade-off between return and risk. Expected returns and risk for each asset class are formed using a global capital asset pricing model framework in which the expected return is the compensation earned from taking risk. Forward-looking adjustments are made to expected return, volatility and correlation estimates as well. Additionally, constraints such as permissible asset classes, portfolio guidelines and liquidity considerations are included in the model.


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The following table presents the financial instruments in Summa’s defined benefit pension plan as of December 31, 2019 and 2018 measured at fair value on a recurring basis based on the fair value hierarchy:

Assets: Level 1 Level 2 Level 3 TotalInvestments

Money market funds -$ 8,914 $ -$ 8,914 $ Mutual funds:


Fixed income securities:U.S. treasuries 22,498 - - 22,498 U.S. corporate - 34,226 - 34,226

Guaranteed investment contracts - 8,378 - 8,378 Fixed income fund - 34,696 - 34,696 U.S. common stock funds - 40,790 - 40,790 Real estate investment trust - 14,551 - 14,551

69,864 $ 141,555 $ -$ 211,419

Investments reported at fair value based on net asset value: Alternative investments:

Private real estate 2,288 Private equity 7,990

Total assets at fair value 221,697 $

2019

Assets: Level 1 Level 2 Level 3 TotalInvestments

Money market funds -$ 6,072 $ -$ 6,072 $ Mutual funds:


Fixed income securities:U.S. treasuries 18,808 - - 18,808 U.S. corporate - 26,894 - 26,894

Guaranteed investment contracts - 8,449 - 8,449 Fixed income fund - 27,315 - 27,315 U.S. common stock funds - 42,387 - 42,387 Real estate investment trust - 11,940 - 11,940

64,403 $ 123,057 $ -$ 187,460

Investments reported at fair value based on net asset value: Alternative investments:

Private real estate 4,262 Private equity 8,346

Total assets at fair value 200,068 $

2018


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In accordance with U.S. GAAP, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the tables are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets. The table below represents quantitative information about significant unobservable inputs related to investments reported at fair value using the practical expedient.

Unfunded Redemption Redemption 2019 2018 Commitments Frequency Notice Period

Alternative investments:

Private real estate (b) 2,288 $ 4,262 $ 144 $ (a) (a)

Private equity (c) 7,990 8,346 1,594 (a) (a)

Total 10,278 $ 12,608 $ 1,738 $

Fair Value at December 31,

(a) The private real estate and equity funds cannot be redeemed and are subject to distribution. No

specific period of time has been identified over which the underlying assets are expected to be liquidated by the investees. It is anticipated that distribution will be made at the time the partnership dissolves.

(b) Private real estate funds consist of investments in public real estate equity securities that derive a substantial portion of their revenues from real estate industry activities and real estate fixed income securities including collateralized mortgage obligations, debt and preferred stock.

(c) Private equity funds consist of publicly-traded and privately-held equity and debt instruments issued by the U.S. and international corporations.

The real estate investment trust and fixed income fund are meant to provide equity-like returns with fixed-income-like levels of risk. Included in this category are investments that are well diversified across various strategies and may consist of absolute return funds, long/short funds, and other opportunistic multi strategy funds. The underlying investments in such funds may include publicly-traded and privately-held equity and debt instruments issued by U.S. and international corporations. Investment strategies in this category may include buyouts, distressed debt, and venture capital. Summa is not required nor does it expect to make a discretionary contribution to the pension plan in 2020. The projected benefit payments for the next five years and in the aggregate for the five years thereafter are as follows: 2020 12,825 $ 2021 13,194 2022 13,550 2023 13,787 2024 13,988 2025-2029 71,373

138,717 $


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Note 9. Long-Term Debt

Long-term obligations of Summa consist of the following at December 31:

2019 2018Akron, Bath and Copley Joint Township Hospital District, Ohio Hospital Facilities Improvement Revenue Bonds:

Series 2017A due December 31, 2047. Variable interest rates ranging from 1.06% to 3.27% and 2.48% to 3.15% during 2019 and 2018, respectively. 15,000 $ 15,000 $

Series 2017B due December 31, 2047. Variable interest rates ranging from 1.06% to 3.42% and 2.61% to 3.27% during 2019 and 2018, respectively. 75,000 75,000

Series 2017C due December 31, 2047. Variable interest rates ranging from 2.47% to 2.93% and 2.12% to 2.79% during 2019 and 2018, respectively. 50,000 50,000

Akron, Bath and Copley Joint Township Hospital District, Ohio Hospital Facilities Refunding and Improvement Revenue Bonds:

Series 2016 due November 15, 2046. Interest rates ranging from 5.00% to 5.25% at December 31, 2019 and 2018. 185,065 187,110

State of Ohio Hospital Facilities Bonds Revenue Bonds:Series 2010 due November 15, 2040. Interest rates ranging from 4.75% to 5.75% at December 31, 2019 and 2018. 159,150 159,150

RBS Citizens Bank due November 15, 2024. Variable interest rates ranging from 2.35% to 2.89% and 2.14% to 2.74% during 2019 and 2018, respectively. 13,459 16,006 Banc of America Public Capital Corporation:

Series 2014 due November 1, 2036. Variable interest rates ranging from 2.03% to 2.58% and 1.95% to 2.46% during 2019 and 2018, respectively. 11,510 11,960

Series 2014A due November 1, 2034. Variable interest rates ranging from 2.03% to 2.58% and 1.95% to 2.46% during 2019 and 2018, respectively. 76,445 79,885

585,629 594,111 Less: current portion (10,672) (9,417)

574,957 584,694 Plus: amount representing unamortized premium 11,784 12,238 Less: amount representing unamortized original issue discount (3,814) (3,995) Less: amount representing unamortized debt issuance costs (6,536) (6,755)

576,391 $ 586,182 $

The approximate future annual principal maturities of long-term debt at December 31, 2019 are as follows: 2020 10,672 $

2021 10,121

2022 10,749

2023 11,902

2024 12,325

Thereafter 529,860

Total long-term debt 585,629 $


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Note 9. Long-Term Debt (Continued)

The unamortized portion of certain privately placed debt is subject to renewal, replacement or redemption at the following put dates: Series 2017A on December 1, 2022; Series 2017B on December 1, 2025 and Series 2017C on December 1, 2020. In June 2019, Summa converted the Series 2017A, Series 2017B and Series 2017C bonds to SIFMA based variable rate demand bonds, supported with three separate direct-pay letters of credit. These bonds are remarketed with interest rates determined on a weekly rate period. The credit facilities for the Series 2017A and 2017B bonds expire on June 6, 2023 and the credit facility for the Series 2017C bonds expires on June 6, 2024. In connection with this transaction, Summa recorded a loss on extinguishment of debt of $520 primarily related to the write-off of unamortized bond issuance costs. The loss on extinguishment of debt is reported in other income (expense) in the accompanying consolidated statement of operations. Obligated group and other requirements: Summa currently has debt outstanding under a Master Trust Indenture (Indenture) dated as of October 15, 1987, with the Huntington National Bank, as trustee, as amended and supplemented thereto, as of December 1, 2016. Under the terms of its Indenture, the Obligated Group has pledged its gross receipts as well as a mortgage on real property not otherwise excluded in the Indenture. The amended indenture permits the Obligated Group to issue obligations to finance certain activities. Obligations issued under the amended indenture are general, unsecured, direct obligations of current and any future members of the Obligated Group, as defined. As a result of the amended indenture, effective December 1, 2016, Summa Health and SHS are the members of the Obligated Group. There are several conditions and covenants required by the amended indenture with which the Obligated Group must comply, including covenants that require the Obligated Group to maintain a minimum debt service coverage ratio. In addition, Summa is required to comply with certain other reporting and financial covenants.

Note 10. Line of Credit

Summa had a $20,000 revolving line of credit with a financial institution that matured on January 15, 2019 and was not renewed. There were no borrowings under this line of credit as of December 31, 2018.

Note 11. Leases

Summa as a Lessee Summa has leases for real estate and equipment. Summa determines whether an arrangement contains a lease at the inception of the arrangement by assessing whether there is an identified asset and whether the arrangement conveys the right to control the use of the identified asset in exchange for consideration for a period of time. Leases are classified as either operating of financing. For operating leases, Summa has recognized a lease liability equal to the present value of the remaining lease payments and a right of use asset equal to the lease liability, subject to certain adjustments. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. Summa has lease agreements that require payments for lease and non-lease components and has elected to account for these as a single lease component provided that (1) the lease component and the associated non-lease components have the same timing and pattern of transfer and (2) the lease component, if accounted for separately, would be classified as an operating lease.


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Note 11. Leases (Continued)

Right-of-use assets represent Summa’s right to use an underlying asset during the lease term, and lease liabilities represent Summa’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the then net present value of fixed lease payments over the lease term. Certain variable lease payments are determined based on changes in facts and circumstances occurring after the commencement date, other than the passage of time. Summa’s lease terms include options to extend or terminate the lease. Such extended terms are considered in the determination of right-of-use assets and lease liabilities when it is reasonably certain that the options will be exercised. As most of Summa’s operating leases do not provide an implicit rate, Summa uses its own discount rate based on the information available at commencement date in determining the present value of lease payments. Summa utilizes the risk-free rate, the rate of a zero-coupon U.S. Treasury instrument, for the discount rate using a period comparable with the lease term. Operating leases result in a straight-line lease expense, while finance leases result in a front-loaded expense pattern. Summa leases an office building that is recorded as a finance lease. The asset recorded under this finance lease totals $28,830 and has accumulated amortization of $10,891 as of December 31, 2019, and is included in property and equipment in the accompanying consolidated statement of financial position. Summa leases office buildings that were recorded as capital leases in 2018. Assets recorded under these capital leases total $48,020 and have accumulated amortization of $26,176 as of December 31, 2018, and are included in property and equipment in the accompanying consolidated statement of financial position. Total expense for the leasing activity of Summa as a lessee for the year ended December 31, 2019, was $12,045. The aggregate future lease payments for leases as of December 31, 2019, were as follows:

Operating Finance Leases Leases

2020 8,977 $ 2,314 $ 2021 6,972 2,314 2022 4,930 2,314 2023 2,546 2,314 2024 2,514 2,314 Thereafter 1,501 31,612

Total lease payments 27,440 43,182 Less: imputed interest 1,708 19,256

Present value of lease liabilities 25,732 $ 23,926 $


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Note 11. Leases (Continued)

The components of lease expense and supplemental cash flow information related to leases for the year ended December 31, 2019 are as follows: Finance lease expense

Interest on lease liabilities 1,945 $

Amortization of right-of-use assets 1,538 Operating lease expense 8,562 Short-term lease expense - Variable lease expense -

Total lease expense 12,045 $

Average lease terms and discount rates were as follows at December 31, 2019:

Weighted - average remaining lease term (years):Finance leases 17.5Operating leases 2.5

Weighted-average discount rate:Finance leases 7.05%Operating leases 2.52%

Right-of-use assets obtained in exchange for new lease liabilities:Finance leases -$ Operating leases 6,174$


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Note 12. Medical Claims Payable/Estimated Liability for Incurred but Unreported and Incomplete Claims and Reinsurance

Summa Insurance Company The following tables present information about incurred and paid claims development as of December 31, net of reinsurance. The information about incurred and paid claims development for the years ended December 31, 2015 to 2019, is presented as supplementary information. Also presented are incurred-but-not-reported liabilities plus expected development on reported claims and the cumulative number of reported claims as of December 31, 2019.

Audited

2015 2016 2017 2018 2019Year in which losseswere incurred:

2015 446,890 $ 440,824 $ 440,824 $ 440,824 $ 440,824 $ -$ 1,280 2016 389,445 383,086 383,040 383,040 - 1,106 2017 389,765 387,374 386,568 - 1,068 2018 389,480 384,814 291 1,057 2019 348,962 35,546 952

Total 1,944,208 $

Cumulative Number of Reported Claims

As of December 31, 2019 Incurred-but-not-Reported Liabilities Plus

Expected Development on Reported

Claims

Cumulative Incurred Claims and Claims Adjustment Expenses, Net of Reinsurance for the Years Ended December 31,

Unaudited

Audited

2015 2016 2017 2018 2019Year in which losseswere incurred:

2015 395,006 $ 440,824 $ 440,824 $ 440,824 $ 440,824 $ 2016 347,020 383,040 383,086 383,040 2017 340,826 386,568 386,568 2018 349,650 384,523 2019 313,416

1,908,371 $

All outstanding liabilities before 2015, net of reinsurance -$ Liabilities for claims and claims adjustment expenses, net of reinsurance 35,837 $

Unaudited

Cumulative Paid Claims and Claims Adjustment Expenses, Net of Reinsurance for the Years Ended December 31,


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Note 12. Medical Claims Payable/Estimated Liability for Incurred but Unreported and Incomplete Claims and Reinsurance (Continued)

SC provides insurance coverage to the subsidiaries of Summa. The tables above do not include the elimination of the claims activity of these services and is therefore reflected in the reconciliation below. The reconciliation of the liabilities for claims and claims adjustment expenses, net of reinsurance to the medical claims payable in the consolidated statement of financial position as of December 31, 2019 is as follows: Liabilities for claims and claims adjustment expenses, net of reinsurance 35,837 $ Unallocated claims adjustment expenses, net of reinsurance (948) Eliminations for intercompany claims activity (9,299) Estimated medical claims payable at December 31, 2019 25,590 $

Activity in the estimated medical claims payable for the years ended December 31 is as follows:

2019 2018

Balance, January 1, 33,193 $ 37,946 $ Provision for claims incurred in:

Current year 265,386 297,602 Prior years (5,472) (2,437)

259,914 295,165 Claims paid related to:

Current year 239,572 263,885 Prior years 27,945 36,033

267,517 299,918 Balance, December 31, 25,590 $ 33,193 $

Note 13. Patient Service Revenue

Patient service revenue is reported at the amount that reflects the consideration to which Summa expects to be entitled in exchange for providing patient care. These amounts are due from patients, third-party payors (including health insurers and government programs), and others and include variable consideration for retroactive revenue adjustments due to settlement of audits and reviews. Generally, Summa bills patients and third-party payors several days after the services are performed or the patient is discharged from the facility. Revenue is recognized as performance obligations are satisfied.

Performance obligations represent promises to transfer goods or services to patients and are determined based on the nature of the services provided by Summa. Substantially all of Summa’s patient service revenue relates to performance obligations satisfied over time and is recognized based on actual charges incurred in relation to total expected charges. Summa believes that this method provides an accurate depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. For patients in Summa’s hospitals receiving inpatient services, Summa measures the performance obligation from admission into the hospital to the point when it is no longer required to provide services to the patient, which is generally the time of discharge. For most outpatient and physician services, the patient simultaneously receives and consumes the benefits of the services as the services are provided.


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Note 13. Patient Service Revenue (Continued)

Because all of its performance obligations relate to contracts with a duration of less than one year, Summa has elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations referred to above are primarily related to inpatient acute care services at the end of the reporting period. The performance obligations for these contracts are generally completed when the patients are discharged, which generally occurs within days or weeks of the end of the reporting period.

Summa has agreements with third-party payors that generally provide for payments at amounts different from its established rates. For uninsured patients who do not qualify for charity care, Summa recognizes revenue based on established rates, subject to certain implicit price concessions as determined by Summa. Summa determines the transaction price based on standard charges for goods and services provided, reduced by contractual adjustments provided to third-party payors, and implicit price concessions provided to uninsured patients. Summa determines its estimates of contractual adjustments and discounts based on contractual agreements, its discount policy, and historical experience. Summa determines its estimate of implicit price concessions based on its historical collection experience with this class of patients.

A summary of the payment arrangements with major third-party payors follows:

Medicare: Certain inpatient acute care services are paid at prospectively determined rates per

discharge based on clinical, diagnostic and other factors. Certain services are paid based on cost-reimbursement methodologies subject to certain limits. Physician services are paid based upon established fee schedules. Outpatient services are paid using prospectively determined rates. Capital and medical education costs are reimbursed on a prospective basis.

Medicaid: Medicaid services are generally paid at prospectively determined rates per discharge or occasion of service. Capital is reimbursed on a cost basis, while medical education is reimbursed on a prospective basis.

Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges, and prospectively determined daily rates.

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretations. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge Summa’s compliance with these laws and regulations. It is not possible to determine the impact (if any) such claims would have on Summa. In addition, the contracts Summa has with other third-party payors also provide for retroactive audit and review of claims. Summa believes it is in compliance with all applicable laws and regulations governing these programs and adequate provisions have been made for any adjustments that may result from settlements.


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Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and Summa’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as information becomes available, or as years are settled or are no longer subject to such audits, reviews, or investigations. For the years ended December 31, 2019 and 2018, changes in estimated transaction price for performance obligations satisfied in prior years increased patient service revenue by $10,598 and $6,965, respectively. Generally patients who are covered by third-party payors are responsible for related deductibles and coinsurance, which vary in amount. Summa estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and current market conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments, discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue in the period of the change. Subsequent changes that are determined to be the result of an adverse change in the patient’s ability to pay are recorded as bad debt expense. Bad debt expense for these adverse changes for the years ended December 31, 2019 and 2018 was not significant. Consistent with Summa’s mission, care is provided to patients regardless of their ability to pay. Therefore, Summa has determined it has provided implicit price concessions to uninsured patients and patients with other uninsured balances. The implicit price concessions included in estimating the transaction price represent the difference between amounts billed to patients and the amounts Summa expects to collect based on its collection history with those patients. Patients who meet Summa’s criteria for charity care are provided care without charge or at amounts less than established rates. Such amounts determined to qualify as charity care are not reported as revenue. Summa has determined that the nature, amount, timing and uncertainty of revenue and cash flows are affected by the following factors: payors, service lines, method of reimbursement and timing of when revenue is recognized. The following tables provide details of these factors.


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The composition of patient service revenue based on major lines of business and payor for the years ended December 31, 2019 and 2018, are as follows:

2019 2018

Hospital - inpatient 413,680 $ 369,151 $ Hospital - outpatient 389,911 387,345 Physician services 112,188 103,306 Home health and hospice 42,445 30,129

958,224 $ 889,931 $

Medicare and Medicare managed care 355,713 $ 318,066 $ Medicaid and Medicaid managed care 166,635 157,420 Managed care and commercial 431,070 404,517 Self-pay and other 4,806 9,928

958,224 $ 889,931 $

Summa elected the practical expedient allowed under FASB ASC 606-10-32-18 and does not adjust the promised amount of consideration from patients and third-party payors for the effects of a significant financing component due to Summa’s expectation that the period between the time the service is provided to a patient and the time that the patient or a third-party payor pays for that service will be one year or less. However, Summa does, in certain instances, enter into payment agreements with patients that allow payments in excess of one year. For those cases, the financing component is not deemed to be significant to the contract.


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Note 14. Net Assets with Donor Restrictions

Net assets with donor restrictions consist of the following at December 31, 2019 and 2018:

2019 2018Subject to expenditure for the following specified purposes:

Research 3,238 $ 2,974 $ Scholarship and loans 1,052 840 Education 11,366 7,093 Plant replacement and expansion 3,121 3,394 Other 6,141 6,496

24,918 20,797 Endowments and perpetual trusts, the income from which isexpendable for the following purposes:

Research 335 335 Scholarship and loans 1,191 1,537 Education 14,741 11,313 Financial support 8,551 7,547 Other 1,609 1,546

26,427 22,278

Total net assets with donor restrictions 51,345 $ 43,075 $

Note 15. Functional Classification of Expenses

The consolidated financial statements present certain expenses that are attributed to more than one program or supporting function. Therefore, expenses require allocation on a reasonable basis that is consistently applied. Benefits and payroll taxes are allocated based on factors of either salary expense or hours worked. Overhead costs that include things such as professional services, office expenses, information technology, interest, insurance, occupancy and other similar expenses are allocated on a variety of factors including revenues, hours worked, salary expense and square footage. The expenses reported in the consolidated statement of operations for the years ended December 31, 2019 and 2018, supported the following programs and functions:

Healthcare Insurance General and Total Services Services Administrative Fundraising Expenses

Salaries and wages 440,805 $ 20,757 $ 64,825 $ 1,616 $ 528,003 $ Employee benefits 55,272 5,160 15,409 248 76,089 Health care claims - 260,129 - - 260,129 Materials and supplies 227,412 10,791 44,139 384 282,726 Contracts and professional fees 120,871 21,509 40,676 129 183,185 Depreciation and amortization 46,630 448 13,395 - 60,473 Interest 21,575 - 231 - 21,806

912,565 $ 318,794 $ 178,675 $ 2,377 $ 1,412,411 $

2019


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Note 15. Functional Classification of Expenses (Continued)

Healthcare Insurance General and Total

Services Services Administrative Fundraising Expenses

Salaries and wages 407,206 $ 20,679 $ 58,861 $ 1,621 $ 488,367 $

Employee benefits 51,901 5,296 16,207 294 73,698

Health care claims - 291,206 - - 291,206

Materials and supplies 211,306 7,731 41,831 352 261,220

Contracts and professional fees 104,400 26,001 21,950 194 152,545

Depreciation and amortization 44,156 240 16,261 - 60,657

Interest 22,607 - 291 - 22,898

841,576 $ 351,153 $ 155,401 $ 2,461 $ 1,350,591 $

2018

Note 16. Income Taxes

Summa is a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code (the Code) and is exempt from federal income taxes pursuant to Section 501(a) of the Code. On December 22, 2017, the federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, or the Tax Reconciliation Act. The Tax Reconciliation Act contains significant changes to corporate taxation, including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21% and modifying or limiting many business deductions. At December 31, 2017, Summa estimated the effects on existing deferred tax and concluded that a provisional amount recorded related to the remeasurement of the deferred tax assets and liabilities was a net impact of $0, as a full valuation allowance was set up on a consolidated basis, with the exception of AMT carryforward in the amount of $229 that changed as a result of the Act. During 2018, Summa completed their analysis of H.R.1 and accounted for all items within the consolidated financial statements. Summa recorded federal income tax expense, primarily related to SC, for the years ended December 31, 2019 and 2018 as follows:

2019 2018

Current tax expense 87 $ 282 $ Deferred tax (benefit) expense (353) 90

Total federal income tax (benefit) expense (266) $ 372 $

Summa had deferred tax assets of $11,326 and $10,748 and deferred tax liabilities of $2,292 and $1,551 at December 31, 2019 and 2018, respectively. The net deferred tax asset is included in other assets on the consolidated statements of financial position. A valuation allowance of $8,982 and $10,748 was recorded for net deferred tax assets at December 31, 2019 and 2018, respectively. Summa had net operating loss carryforwards for federal income tax purposes as of December 31, 2019 and 2018, totaling $35,095 and $34,918, respectively. These net operating loss carryforwards are available to offset future federal taxable income, if any, through 2036 and are offset by a valuation allowance, as management does not believe that it is more likely than not they will utilize the carryforwards within the allowable periods.


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Note 17. Commitments and Contingencies

Litigation: Summa is involved in various legal proceedings, including professional liability, employment-related litigation, and other claims with respect to its operations. In the opinion of management, based upon current facts and circumstances, the resolution of these matters is not expected to have a material adverse effect on the financial position or results of operations of Summa. Regulatory restrictions: Insurance companies are subject to certain risk-based capital (RBC) requirements, as specified by the National Association of Insurance Commissioners. Under those requirements, the amount of capital and surplus maintained by SC is determined based on the companies' risk factors. At December 31, 2019 and 2018, SC met the minimum RBC requirements.

Note 18. Related Parties

Certain members of Summa’s Board of Directors serve as management of entities that provide services to Summa, including certain banking and supplier relationships. Also, certain members of Summa’s Board of Directors are physicians who serve as medical directors or provide other services to Summa. Summa has a minority owner, HealthSpan Partners (HSP). HSP became a 30% owner of Summa by investing $250,000 in conjunction with a definitive agreement. HSP does not manage or control the operations of Summa. The partnership is intended to improve access to affordable quality care and further develop Summa’s integrated patient care delivery model. Summa pays HSP for costs HSP incurs to assist Summa in achieving certain performance improvement initiatives. For the first ten years of the partnership, neither partner can independently require dissolution of the partnership. Summa incurred approximately $4,767 and $4,998 in 2019 and 2018, respectively, for services provided by HSP which are included in contracts and professional fees expense in the consolidated statements of operations. SHMG entered into a contract with Mercy Health to provide computerized claims, billing and collection services. The initial term of the agreement was three years, beginning in May 2015 and shall automatically renew for a one year term until terminated by either party. SHMG agrees to pay Mercy Health a percentage of all patient service cash receipts for back office billing and collection services and annual oversight of the auditing and coding process. SHMG incurred approximately $4,598 and $4,296 in 2019 and 2018, respectively, for services provided which are included in contracts and professional fees expense in the consolidated statements of operations.

Note 19. Venture Activities

ARIS Teleradiology Holdings, Inc.: Summa has a joint venture in a for-profit teleradiology company, ARIS Teleradiology, LLC (ARIS). Summa does not manage or control the operations of ARIS. The investment is accounted for under the equity method wherein Summa’s share of the income (loss) of ARIS is reflected in Summa’s consolidated statements of operations and as an increase (decrease) in the carrying value of the investment. Summa’s investment in ARIS was $0 at December 31, 2019 and 2018. Summa recorded a loss on its investment of $5,233 in 2018 which is included in venture loss in the consolidated statement of operations. ARIS incurred operating losses in 2019 that were not recorded by Summa because the balance of the investment has been reduced to zero.


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Note 20. Pending Transactions and Subsequent Events

On December 20, 2019, Summa and Beaumont Health executed a Definitive Agreement whereby Summa will become a wholly owned subsidiary of Beaumont Health. Upon the closing of the transactions contemplated in the Definitive Agreement, Beaumont Health will become the sole member of Summa through (a) the redemption, on behalf of Summa, of HealthSpan Partners’ 30% membership interest in Summa, and (b) a member substitution in which Beaumont Health will be substituted in the place of Summa Health System Community, the current holder of the remaining 70% membership interest in Summa. The completion of the transaction is subject to certain conditions including the approval of regulatory authorities. While management believes that the transaction will be completed, management can provide no assurance if and when such transaction will be completed. The spread of COVID-19, a strain of coronavirus, appears to be altering the behavior of business and people in a manner that is having negative effects on local, regional and global economies. Further, stock markets in the United States and globally have recently experienced significant declines attributed to coronavirus concerns. The continued spread of COVID-19 or any similar outbreaks in the future may adversely impact the local, regional and national economies and, accordingly, may adversely impact Summa’s business.

Supplementary Information

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Consolidating Statement of Financial Position

December 31, 2019

(Dollars in Thousands)

Summa HealthConsolidating and

and SubsidiariesObligated Nonobligated Eliminating Consolidated

Assets Group Group Entries Total Current assets:

Cash and cash equivalents 94,867 $ 53,622 $ -$ 148,489 $ Assets whose use is limited - 10,471 - 10,471 Investments 5,187 13,801 - 18,988 Patient accounts receivable, net 114,676 19,782 (11,391) 123,067 Premiums receivable - 671 - 671 Receivable from affiliated organization 80,184 3,956 (84,140) - Other receivables 10,794 23,771 - 34,565 Inventories 17,188 104 - 17,292 Due from third-party payors 1,058 - - 1,058 Prepaid expenses and other 8,684 8,854 (3,907) 13,631

Total current assets 332,638 135,032 (99,438) 368,232

Assets whose use is limited:Under bond indenture and other agreements 20,381 - - 20,381 Under self-insurance funding requirements - 40,422 - 40,422 Restricted by donors 44,668 - - 44,668

Total assets whose use is limited 65,049 40,422 - 105,471 Less: assets whose use is limited - required for current liabilities - 10,471 - 10,471

Noncurrent assets whose use is limited 65,049 29,951 - 95,000

Contributions receivable, net 5,185 - - 5,185 Property and equipment, net 655,027 8,278 - 663,305 Operating lease - right of use assets, net 9,110 16,622 25,732 Investments 780,954 57,844 - 838,798 Investments in ventures 53,654 - (53,644) 10 Other assets 34,584 821 - 35,405

1,538,514 83,565 (53,644) 1,568,435

Total assets 1,936,201 $ 248,548 $ (153,082) $ 2,031,667 $

46



December 31, 2019




Liabilities and Net Assets Group Group Entries Total Current liabilities:

Current portion of long-term debt 10,672 $ -$ -$ 10,672 $

Current portion of operating lease obligation 3,791 4,966 - 8,757 Current portion of finance lease obligation 643 - - 643

Accounts payable 53,022 5,273 - 58,295

Accrued salaries, wages and benefits 44,535 10,617 (189) 54,963

Medical claims payable - 36,792 (11,202) 25,590

Unearned premium revenue - 10,867 (2,581) 8,286

Current portion of malpractice liability - 10,471 - 10,471

Payable to affiliated organization 3,268 248,954 (252,222) -

Due to third-party payors 2,145 - - 2,145

Other current liabilities 6,665 13,609 - 20,274

Total current liabilities 124,741 341,549 (266,194) 200,096

Noncurrent liabilities:Accrued pension 21,898 - - 21,898

Malpractice liability, net of current portion 13,736 24,254 (3,311) 34,679

Long-term debt, net of current portion 576,391 - - 576,391

Operating lease obligation, net of current portion 5,319 11,656 16,975

Finance lease obligation, net of current portion 23,283 - - 23,283

Accrued postretirement benefits 644 - - 644

Other noncurrent liabilities 24,403 2,879 - 27,282

665,674 38,789 (3,311) 701,152 Total liabilities 790,415 380,338 (269,505) 901,248

Net assets:Without donor restrictions 1,094,441 (137,649) 116,423 1,073,215

Noncontrolling ownership interest in subsidiaries - 5,859 - 5,859

With donor restrictions 51,345 - - 51,345

Total net assets 1,145,786 (131,790) 116,423 1,130,419

Total liabilities and net assets 1,936,201 $ 248,548 $ (153,082) $ 2,031,667 $

47


Consolidating Statement of Operations

Year Ended December 31, 2019




Group Group Entries Total Revenues, gains, and other support:

Patient service revenue 856,347 $ 181,468 $ (79,591) $ 958,224 $ Premiums earned - 403,559 (11,874) 391,685 Other operating revenue 63,526 115,638 (110,429) 68,735 Net assets released from restrictions 6,586 - - 6,586

Total revenues, gains, and other support 926,459 700,665 (201,894) 1,425,230

Expenses:Salaries and wages 314,455 235,490 (21,942) 528,003 Employee benefits 49,899 36,657 (10,467) 76,089 Health care claims - 336,796 (76,667) 260,129 Materials and supplies 244,396 41,430 (3,100) 282,726 Contracts and professional fees 186,317 77,371 (80,503) 183,185 Depreciation and amortization 58,137 2,336 - 60,473 Interest 21,806 - - 21,806

Total expenses 875,010 730,080 (192,679) 1,412,411

Operating income 51,449 (29,415) (9,215) 12,819

Other income (expense):Investment income 30,194 4,218 - 34,412 Unrealized gain on trading investments 64,568 3,601 - 68,169 Derivative instrument loss (398) - - (398) (Provision) benefit for income tax (488) 754 - 266 Loss on extinguishment of debt (520) - - (520) Net periodic benefit income other than service cost 25 25 Venture income (loss) 6,789 (6,790) (1)

Total other income 100,170 8,573 (6,790) 101,953

Excess (deficiency) of revenues over expenses 151,619 (20,842) (16,005) 114,772

Less: amounts attributable to noncontrolling interest in subsidiaries - (5,050) - (5,050)

Excess (deficiency) of revenues over expenses attributable to Summa Health and Subsidiaries 151,619 $ (25,892) $ (16,005) $ 109,722 $

48



December 31, 2018




Assets Group Group Entries Total Current assets:

Cash and cash equivalents 133,141 $ 70,508 $ -$ 203,649 $ Assets whose use is limited - 14,395 - 14,395 Investments 5,035 17,744 - 22,779 Patient accounts receivable, net 112,205 17,217 (10,489) 118,933 Premiums receivable - 660 - 660 Receivable from affiliated organization 74,025 2,046 (76,071) - Other receivables 6,551 25,604 - 32,155 Inventories 15,078 136 - 15,214 Due from third-party payors 2,899 - - 2,899 Prepaid expenses and other 6,002 6,122 (1,804) 10,320

Total current assets 354,936 154,432 (88,364) 421,004

Assets whose use is limited:Under bond indenture and other agreements 78,373 - - 78,373 Under self-insurance funding requirements - 43,786 - 43,786 Restricted by donors 36,866 - - 36,866

Total assets whose use is limited 115,239 43,786 - 159,025 Less: assets whose use is limited - required for current liabilities - 14,395 - 14,395

Noncurrent assets whose use is limited 115,239 29,391 - 144,630

Contributions receivable, net 6,206 - - 6,206 Property and equipment, net 583,765 7,784 - 591,549 Investments 691,250 39,268 - 730,518 Investments in ventures 51,953 - (51,943) 10 Other assets 26,505 808 - 27,313

1,359,679 47,860 (51,943) 1,355,596

Total assets 1,829,854 $ 231,683 $ (140,307) $ 1,921,230 $

49



December 31, 2018




Liabilities and Net Assets Group Group Entries Total Current liabilities:

Current portion of long-term debt 9,417 $ -$ -$ 9,417 $

Current portion of capital lease obligation 1,320 - - 1,320

Accounts payable 66,248 6,052 - 72,300

Accrued salaries, wages and benefits 38,125 9,018 (189) 46,954

Medical claims payable - 43,493 (10,300) 33,193

Unearned premium revenue - 9,747 (1,804) 7,943

Current portion of malpractice liability - 14,395 - 14,395

Payable to affiliated organization 3,315 242,113 (245,428) -


Other current liabilities 6,543 18,800 - 25,343

Total current liabilities 126,974 343,618 (257,721) 212,871

Noncurrent liabilities:Accrued pension 16,205 - - 16,205

Malpractice liability, net of current portion 12,870 17,916 (2,884) 27,902

Long-term debt, net of current portion 586,182 - - 586,182

Capital lease obligation, net of current portion 26,418 - - 26,418

Accrued postretirement benefits 685 - - 685


Other noncurrent liabilities 20,920 11,253 (8,314) 23,859

672,860 29,169 (11,198) 690,831 Total liabilities 799,834 372,787 (268,919) 903,702

Net assets:Without donor restrictions 986,945 (145,730) 128,612 969,827

Noncontrolling ownership interest in subsidiaries - 4,626 - 4,626

With donor restrictions 43,075 - - 43,075

Total net assets 1,030,020 (141,104) 128,612 1,017,528

Total liabilities and net assets 1,829,854 $ 231,683 $ (140,307) $ 1,921,230 $

50


Consolidating Statement of Operations

Year Ended December 31, 2018




Group Group Entries Total Revenues, gains, and other support:

Patient service revenue 822,908 $ 161,625 $ (94,602) $ 889,931 $ Premiums earned - 439,748 (11,544) 428,204 Other operating revenue 52,497 98,598 (100,205) 50,890 Net assets released from restrictions 5,884 - - 5,884

Total revenues, gains, and other support 881,289 699,971 (206,351) 1,374,909

Expenses:Salaries and wages 295,921 214,272 (21,826) 488,367 Employee benefits 49,063 34,619 (9,984) 73,698 Health care claims - 383,489 (92,283) 291,206 Materials and supplies 226,241 38,174 (3,195) 261,220 Contracts and professional fees 153,591 72,860 (73,906) 152,545 Depreciation and amortization 57,892 2,765 - 60,657 Interest 22,891 7 - 22,898

Total expenses 805,599 746,186 (201,194) 1,350,591

Operating income (loss) 75,690 (46,215) (5,157) 24,318

Other income (expense):Investment income 27,184 5,249 - 32,433 Unrealized loss on trading investments (41,867) (6,208) - (48,075) Derivative instrument gain 1,375 - - 1,375 (Provision) benefit for income tax (413) 41 - (372) Venture loss (5,152) - 10 (5,142)

Total other income (18,873) (918) 10 (19,781)

Excess (deficiency) of revenues over expenses 56,817 (47,133) (5,167) 4,537

Less: amounts attributable to noncontrolling interest in subsidiaries - (4,461) - (4,461)

Excess (deficiency) of revenues over expenses attributable to Summa Health and Subsidiaries 56,817 $ (51,594) $ (5,167) $ 76 $

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