prime healthcare services, inc. and subsidiaries 31, 2013 · liabilities and stockholders'...

Report of Independent Auditors and Consolidated Financial Statements for

Prime Healthcare Services, Inc. and Subsidiaries

December 31, 2013 and 2012

CONTENTS PAGEREPORTOFINDEPENDENTAUDITORS 1CONSOLIDATEDFINANCIALSTATEMENTS Consolidatedbalancesheets 2‐3 Consolidatedstatementsofincome 4 Consolidatedstatementsofstockholders’equity 5 Consolidatedstatementsofcashflows 6‐7 Notestoconsolidatedfinancialstatements 8‐32

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REPORTOFINDEPENDENTAUDITORSTheBoardofDirectorsPrimeHealthcareServices,Inc.andSubsidiariesReportonFinancialStatements

WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofPrimeHealthcareServices,Inc.andSubsidiaries(the “Company”),which comprise the consolidatedbalance sheetsasofDecember31,2013and2012, and the relatedconsolidatedstatementsofincome,stockholders’equity,andcashflowsfortheyearsthenended,andtherelatednotestotheconsolidatedfinancialstatements.Management’sResponsibilityfortheFinancialStatements

Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with accounting principles generally accepted in the United States of America; this includes the design,implementation, andmaintenanceof internal control relevant to thepreparationand fairpresentationof consolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Auditor’sResponsibility

Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudits.Weconductedour audits in accordancewith auditing standards generally accepted in theUnitedStates ofAmerica.Those standardsrequire thatweplan andperform the audits to obtain reasonable assurance aboutwhether the consolidated financialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterial misstatement of the consolidated financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of theconsolidatedfinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Webelievethattheauditevidenceobtainedissufficientandappropriatetoprovideabasisforourauditopinion.Opinion

Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofPrimeHealthcareServices,Inc.andSubsidiariesasofDecember31,2013and2012,andtheresultsoftheiroperationsandtheircashflowsfortheyearsthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.

Irvine,CaliforniaMay19,2014

Seeaccompanyingnotes. 2

PRIMEHEALTHCARESERVICES,INC.ANDSUBSIDIARIES

CONSOLIDATEDBALANCESHEETS

CURRENTASSETSCashandcashequivalents* $ 30,873,477 $ 33,064,792Patientaccountsreceivable,netofallowancefordoubtfulaccountsof$166,771,221in2013and$157,997,904in2012* 382,749,240 299,647,741

Relatedpartyreceivables* 5,758,448 359,811Estimatedthird‐partypayorsettlements 25,524,685 4,797,746Suppliesinventory* 18,587,715 16,906,642Prepaidexpensesandothercurrentassets* 129,273,732 129,802,383

Totalcurrentassets 592,767,297 484,579,115

RESTRICTEDCASH 209,013,585 ‐

PROPERTYANDEQUIPMENT,netofaccumulateddepreciationandamortization* 692,287,134 581,848,148

INSURANCECLAIMSANDRESERVESRECOVERABLE* 95,205,333 76,524,889

GOODWILL 38,881,903 39,944,429

OTHERASSETS* 20,182,850 7,422,835

$ 1,648,338,102 $ 1,190,319,416

DECEMBER31,

ASSETS

2013 2012

*Account balances containassets of the consolidated variable interest entities that can only beused tosettle obligations of the variable interest entities (see Note 2) as of December 31, 2013 and 2012,respectively: Cash and cash equivalents $2,285,078 and $4,861,228; Patient accounts receivable, net ofallowancefordoubtfulaccounts$4,052,415and$3,855,329;Relatedpartyreceivablesof$145,157,659and$109,380,200; Supplies inventory $46,632 and $48,454; Prepaid expenses and other current assets$12,148,754and$9,877,228;PropertyandEquipment$34,755,462and$36,189,243;andInsuranceclaimsandreservesrecoverable$6,596,542and$5,568,711.

3 Seeaccompanyingnotes.

PRIMEHEALTHCARESERVICES,INC.ANDSUBSIDIARIESCONSOLIDATEDBALANCESHEETS(CONTINUED)

CURRENTLIABILITIESAccountspayable* $ 107,842,610 $ 89,990,383Accruedexpenses* 92,426,358 91,355,748Medicalclaimspayable* 2,597,122 2,298,774Lineofcredit 110,049,171 45,392,743Currentportionofcapitalleases 6,737,672 7,322,536Currentportionoflong‐termdebt* 3,143,266 2,510,891

Totalcurrentliabilities 322,796,199 238,871,075

LONG‐TERMLIABILITIESSalelease‐backliability 348,000,000 248,000,000Insuranceclaimsliabilitiesandreserves* 95,205,333 76,524,889Capitalleases,netofcurrentportion 24,414,104 23,700,499Long‐termdebt,netofcurrentportion* 509,984,840 302,838,507Otherlong‐termliabilities 15,650,234 11,131,540

Totallong‐termliabilities 993,254,511 662,195,435

STOCKHOLDERS'EQUITYCommonstock,$0.01parvalue,3,000sharesauthorized,30sharesissuedandoutstanding 1 1Additionalpaidincapital 2,999 2,999Retainedearnings 160,785,283 147,369,884Non‐controllinginterest 171,499,109 141,880,022

Totalstockholders'equity 332,287,392 289,252,906

$ 1,648,338,102 $ 1,190,319,416

2013 2012DECEMBER31,

LIABILITIESANDSTOCKHOLDERS'EQUITY

*Accountbalancescontain liabilitiesofconsolidatedvariable interestentities forwhichcreditorsdonothave recourse to the general credit of the Company (seeNote 2) as of December 31, 2013 and 2012,respectively:Accountspayable$3,276,468and$2,685,442;Accruedexpenses$3,759,183and$3,715,476;Medical claimspayable$395,599and $216,239; Insurance claim liabilitiesand reserves$6,596,542and$5,568,711;Currentportionof long‐termdebt$716,721and$669,943,and long‐termdebt$37,825,788and$39,679,455.



CONSOLIDATEDSTATEMENTSOFINCOME

REVENUENetpatientservicerevenue(netofcontractualallowancesanddiscounts) $ 2,349,313,582 $ 1,758,717,715Provisionfordoubtfulaccounts 442,128,590 308,313,901

Netpatientservicerevenuelessprovisionfordoubtfulaccounts 1,907,184,992 1,450,403,814

Premiumrevenue 20,228,163 26,123,115Otherrevenue 94,201,532 72,868,064

2,021,614,687 1,549,394,993

OPERATINGEXPENSESCompensationandemployeebenefits 888,929,951 693,747,333Generalandadministrative 309,328,048 216,417,189Supplies 273,756,371 197,291,883Professionalservices 225,142,173 155,382,760Depreciationandamortization 64,304,844 46,512,490Rentandlease 37,174,627 40,238,854Medicalclaims 4,130,952 8,016,787

1,802,766,966 1,357,607,296

INCOMEFROMOPERATIONS 218,847,721 191,787,697

GAINFROMACQUISITIONS ‐ 1,542,181

INTERESTEXPENSE,net (76,622,613) (63,061,275)

INCOMEBEFOREPROVISIONFORINCOMETAXES 142,225,108 130,268,603

INCOMETAXPROVISION 2,136,758 2,963,430

INCOMEBEFOREALLOCATIONTONON‐CONTROLLINGINTEREST 140,088,350 127,305,173

ALLOCATIONOFINCOMETONON‐CONTROLLINGINTEREST (98,377,200) (75,661,111)

CONTROLLINGINTERESTINNETINCOME $ 41,711,150 $ 51,644,062

2013 2012YEARSENDEDDECEMBER31,


PRIMEHEALTHCARESERVICES,INC.ANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFSTOCKHOLDERS’EQUITY

Shares

BALANCE,December31,2011 30 $ 1 $ 2,999 $ 135,209,780 $ 102,691,039 $ 237,903,819

DistributionofHuntingtonBeachHospital(seeNote4) ‐ ‐ ‐ (39,483,958) ‐ (39,483,958)

Cashdistributions ‐ ‐ ‐ ‐ (36,472,128) (36,472,128)

Controllinginterestinnetincome ‐ ‐ ‐ 51,644,062 ‐ 51,644,062

Non‐controllinginterestinnetincome ‐ ‐ ‐ ‐ 75,661,111 75,661,111

BALANCE,December31,2012 30 1 2,999 147,369,884 141,880,022 289,252,906

DistributionofPampaRegionalMedicalCenterandPampaRegionalMedicalGroup(seeNote4) ‐ ‐ ‐ (28,295,751) ‐ (28,295,751)

Cashdistributions ‐ ‐ ‐ ‐ (68,758,113) (68,758,113)

Controllinginterestinnetincome ‐ ‐ ‐ 41,711,150 ‐ 41,711,150

Non‐controllinginterestinnetincome ‐ ‐ ‐ ‐ 98,377,200 98,377,200

BALANCE,December31,2013 30 $ 1 $ 2,999 $ 160,785,283 $ 171,499,109 $ 332,287,392

TotalNon‐controlling

InterestStockRetainedEarnings

Common AdditionalPaidinCapital



CONSOLIDATEDSTATEMENTSOFCASHFLOWS

CASHFLOWSFROMOPERATINGACTIVITIESIncomebeforeallocationtonon‐controllinginterest $ 140,088,350 $ 127,305,173Adjustmentstoreconcilecontrollinginterestinnetincometonetcashprovidedbyoperatingactivities:

Depreciationandamortization 64,304,844 46,512,490Loss(gain)onsaleofassets 1,694 (302,580)Provisionfordoubtfulaccounts 442,128,590 308,313,901Gainonacquisition ‐ (1,542,181)Changeininterestrateswap ‐ 593,988Write‐offofdeferredloanissuancecosts ‐ 4,939,000Changesinassetsandliabilitiesnetofacquisitions/dispositions:Patientaccountsreceivable (531,755,683) (403,840,447)Suppliesinventory (926,234) 1,111,475Prepaidexpensesandothercurrentassets 1,264,417 (53,707,792)Otherassets (1,115,864) 4,805,355Relatedpartyreceivables/payables (5,398,637) (1,322,900)Accountspayable 12,857,576 29,104,326Accruedexpensesandotherlong‐termliabilities 8,307,016 5,176,645Medicalclaimspayable 298,348 187,261Estimatedthird‐partypayorsettlements (21,316,444) 45,537,361

Netcashprovidedbyoperatingactivities 108,737,973 112,871,075

CASHFLOWSFROMINVESTINGACTIVITIESPurchaseofpropertyandequipment (100,517,996) (66,748,542)Proceedsfromsaleofpropertyandequipment ‐ 363,256Cashpaidforacquisitions,netofcashacquired (55,874,033) (81,591,288)Purchaseofrelatedpartynotereceivable ‐ (11,072,500)Repaymentsonnotesreceivable ‐ 9,099,880

Netcashusedininvestingactivities (156,392,029) (149,949,194)

CASHFLOWSFROMFINANCINGACTIVITIESPaymentsofloanissuancecosts (8,987,236) (3,642,855)Proceedsfromborrowingsonsalelease‐back 75,000,000 110,000,000Borrowingsonlineofcredit 1,460,102,810 638,155,181Repaymentsonlineofcredit (1,395,446,382) (592,762,438)Paymentsonlong‐termdebt (1,221,292) (197,113,081)Paymentsoncapitalleaseobligations (8,061,989) (10,648,223)Paymentforsettlementofinterestrateswap ‐ (4,385,000)Proceedsfromlong‐termdebtborrowing ‐ 100,000,000LeasebuyoutofHuntingtonBeachHospitalfacility ‐ (12,199,324)Linesofcredit,net ‐ (14,180,737)Proceedsfromsaleofmortgagenote ‐ 36,531,007Cashdistributions (68,758,113) (36,472,128)CashdistributedwithPampaRegionalMedicalCenter (7,165,057) ‐CashdistributedwithHuntingtonBeachHospital ‐ (437,749)

Netcashprovidedbyfinancingactivities 45,462,741 12,844,653

NETDECREASEINCASHANDCASHEQUIVALENTS (2,191,315) (24,233,466)

CASHANDCASHEQUIVALENTS,beginningofyear 33,064,792 57,298,258

CASHANDCASHEQUIVALENTS,endofyear $ 30,873,477 $ 33,064,792

YEARSENDEDDECEMBER31,2013 2012


PRIMEHEALTHCARESERVICES,INC.ANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCASHFLOWS(CONTINUED)

Cashpaidduringtheyearfor:

Interest $ 70,152,803 $ 69,194,944

Incometaxes $ 2,136,758 $ 2,963,430

Capitalleaseobligationsincurredfortheacquisitionofpropertyandequipment $ 8,190,730 $ 940,089

Non‐cashdistributionofPampaRegionalMedicalCenterassets(seeNote4) $ 21,130,694 $ ‐

Non‐cashdistributionofHuntingtonBeachHospitalassets(seeNote4) $ ‐ $ 39,046,209

Salelease‐backofDallasMedicalCenterfacility(seeNote8) $ 25,000,000 ‐

Proceedsofrestrictedcashfromissuanceoflong‐termdebt $ 209,000,000 $ ‐

SUPPLEMENTALDISCLOSUREOFNON‐CASHINVESTINGANDFINANCINGACTIVITIES

SUPPLEMENTALCASHFLOWINFORMATION

YEARSENDEDDECEMBER31,2013 2012


NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS

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Note1‐NatureofBusinessPrimeHealthcareServices, Inc.andSubsidiaries(the“Company”or“PHSI”) isaDelawarecorporationthatincorporatedonMarch27,2000.During theyearendedDecember31,2013, theCompanyoperated18acutecarehospitalswith3,667licensed beds located in various communities throughout California, Nevada, Texas, Kansas andPennsylvania.TheCompany’soperationsalsoincludefivemedicalgroupsandotheroperationsrelatedtoitshospitalbusiness.TheCompanyoperatesthefollowingacutecarehospitals:

LicensedHospital Beds Location

DesertValleyHospital 148 Victorville,CAChinoValleyMedicalCenter 126 Chino,CALaPalmaIntercommunityHospital 141 LaPalma,CAWestAnaheimMedicalCenter 219 Anaheim,CAParadiseValleyHospital 301 NationalCity,CACentinelaHospitalMedicalCenter 370 Inglewood,CAGardenGroveHospitalMedicalCenter 167 GardenGrove,CASanDimasCommunityHospital 101 SanDimas,CAShastaRegionalMedicalCenter 246 Redding,CAAlvaradoHospital 306 SanDiego,CAHarlingenMedicalCenter 112 Harlingen,TXRoxboroughMemorialHospital 140 Philadelphia,PAPampaRegionalMedicalCenter* 115 Pampa,TXSaintMary'sRegionalMedicalCenter 380 Reno,NVDallasMedicalCenter 155 Dallas,TXLowerBucksHospital 160 Bristol,PAProvidenceMedicalCenter 400 KansasCity,KSSaintJohnHospital 80 Leavenworth,KSTotal 3,667

Effective December 31, 2013, the Company’s equity interest in Pampa Regional Medical

Center was distributed by the Company to its controlling stockholder, who contributedPampaRegionalMedicalCentertoPrimeHealthcareServicesFoundation,Inc.(seeNote4).

TheCompanyhasa67.9%equityinterestinHarlingenMedicalCenter.Allotheracutecarehospitalsarewhollyownedsubsidiaries.

PRIMEHEALTHCARESERVICES,INC.ANDSUBSIDIARIESNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS

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Note2‐OrganizationandSummaryofSignificantAccountingPoliciesBasisofconsolidation ‐Theconsolidated financial statements include theaccountsof theCompany,thehospitalsubsidiariesasdescribedinNote1andthefollowingotherwhollyownedsubsidiaries:

PrimeHealthcareServicesAlvaradoHospital,LLCBio‐MedServices,Inc.PrimeHealthcareServicesLosAngeles,LLCPHSDallasII,LLCBMCPrimaryCarePhysicians,LLCBMCSpecialtyPhysicians,LLCPrimeHealthcareServicesRoxboroughProviders,LLCPampaRegionalMedicalGroup,Inc.*ProvidencePhysicianGroupProvidencePlace,Inc.PhysiciansResources,Inc.SaintJohnPhysicianGroupSaintMary’sRegionalMedicalGroupDallasMedicalGroup

TheCompany’sresultsofoperationsincludePampaRegionalMedicalGroup,Inc.through

thedateofdisposition.EffectiveDecember31,2013,theCompany’sequityinterestwasdistributedtoitscontrollingstockholder,whocontributedPampaRegionalMedicalGrouptoPrimeHealthcareServicesFoundation,Inc.(seeNote4)

The Company has a variable interest in the following entities as defined by Financial AccountingStandardsBoard(“FASB”)AccountingStandardsCodification(“ASC”)810,forwhichPHSIistheprimarybeneficiaryofthesevariableinterestentities:

Medicalgroups:

DesertValleyMedicalGroup,Inc.ShermanOaksMedicalGroupManagement,Inc.ParadiseValleyMedicalGroup,Inc.ShastaRegionalMedicalGroup,Inc.

Otherentities:

PrimeHealthcareManagement,Inc.HospitalBusinessService,Inc.PrimeHealthcareAirTransportLLCInternationalAircraftInvestmentsLLCHMCRealty,LLC



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Note2‐OrganizationandSummaryofSignificantAccountingPolicies(continued)TheCompanyhasdetermined that themedicalgroupsarevariable interestentitiesdue to theequityinterestholder’slackofabilitytoexercisecontrol.TheCompanyhasdeterminedthattheotherentitiesarevariableinterestentitiesduetoalackofsufficientequityatrisk.TheCompanyhasalsodeterminedit is the primary beneficiary of themedical groups and other entities because the Company has thepower to direct activities that most significantly impact the economic performance of these entities.Accordingly,theCompanyhasconsolidatedtheseentitiesintoPHSI.The equity of the variable interest entities have been reflected as a non‐controlling interest as ofDecember31,2013and2012.Theconsolidationoftheseentitiesdoesnotchangeanylegalownership,anddoesnotchangetheassetsortheliabilitiesandequityofPHSIasastand‐aloneentity.Totalassetsofthesevariableinterestentitieswereapproximately$205,043,000and$165,605,000asofDecember31,2013and2012,respectively.Totalliabilitiesofthesevariableinterestentitieswereapproximately$52,570,000and$48,360,000asofDecember31,2013and2012, respectively.With theexceptionofHMCRealty, LLC, these entities providemanagement services for the Company, aswell as providinghealth care services through the medical groups for which total revenues were approximately$183,953,000and$142,372,000fortheyearsendedDecember31,2013and2012,respectively. HMCRealty,LLCisarealestatepartnershipwhichownsthelandandhospitalbuildingleasedtoandoperatedby HarlingenMedical Center. The Company owns a 36.06 percent interest in HMC Realty, LLC. Allintercompanyaccountsandtransactionshavebeeneliminateduponconsolidation.Netpatientservicerevenue‐Netpatientservicerevenueisreportedattheestimatednetrealizableamounts from patients, third‐party payors, and others for services rendered, including estimatedretroactive adjustments under reimbursement agreements with third‐party payors. In some cases,reimbursement is based on formulas which cannot be determined until cost reports are filed andauditedorotherwisesettledbythevariousprograms.Premiumrevenueandmedicalclaimsexpense‐TheCompanyhasagreementswithvariousHealthMaintenanceOrganizations(“HMO”)toprovidemedicalservicestoenrollees.Undertheseagreements,the Company receives monthly capitation revenue based on the number of each HMO’s enrollees,regardlessofservicesactuallyperformedbytheCompany. PremiumrevenueunderHMOcontractsisrecognized during the period in which the Company is obligated to provide services. Certain HMOcontracts also contain shared‐risk provisions whereby the Company can earn additional incentiverevenueor incur penalties basedupon theutilization of inpatient hospital services by assignedHMOenrollees.TheCompanyrecordsshared‐riskrevenueandexpensesbaseduponinpatientutilizationonanestimatedbasis.Differencesbetweenestimatedshared‐riskrevenueorexpensesandactualamountsarerecordeduponfinalsettlementwitheachHMO.Amountsduetounaffiliatedhealthcareprovidersforoutofnetworkclaimsarerecognizedasincurred.Theamountsrecordedarebaseduponprojectionsofhistoricaldevelopments.Suchprojectionsareadjustedandestimateschangedwhendevelopmentsofclaims information arewarranted. Therewas no significant impact to the 2013 and 2012 operatingresultsduetochangesinthisestimate.


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Note2‐OrganizationandSummaryofSignificantAccountingPolicies(continued)Supplies inventory ‐ Supplies inventory is stated at cost, determined by the average cost method,whichisnotinexcessofmarket.Property and equipment ‐ Property and equipment is stated at cost, net of depreciation andamortization. Depreciation and amortization is computed using the straight‐line method over theestimateduseful livesof theassets,whichrange fromthree to fortyyears. Amortizationof leaseholdimprovementsiscomputedoverthelesseroftheleasetermandtheestimatedusefullivesoftheassetsandisincludedindepreciationandamortizationexpense.Assetretirementobligations‐TheCompanyrecognizesthefairvalueofaliabilityforlegalobligationsassociatedwithassetretirementsintheperiodinwhichitisincurredifareasonableestimateofthefairvalueoftheobligationcanbemade.Whentheliabilityisinitiallyrecorded,theCompanycapitalizesthecostoftheassetretirementobligationbyincreasingthecarryingamountoftherelatedlong‐livedasset.Overtime,the liability isaccretedto itspresentvalueeachperiod,andthecapitalizedcostassociatedwiththeretirementobligationisdepreciatedovertheusefullifeoftherelatedasset.Uponsettlementoftheobligation,anydifferencebetweenthecosttosettletheassetretirementobligationandtheliabilityrecordedisrecognizedasagainorlossintheconsolidatedstatementsofincome.Useofestimates‐ThepreparationofconsolidatedfinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsand liabilitiesat thedateof theconsolidated financial statementsand thereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.Income taxes ‐ The Company has elected to be taxed under the provisions of subchapter S of theInternalRevenueCode. Under theseprovisions, theCompanydoesnotpay federal corporate incometaxesonitstaxableincome. However,theCompanyissubjecttoa1.5%Californiafranchisetaxalongwithapplicable income taxes in stateswhere theCompanyhasoperations. ThestockholdersofPHSIwillbetaxedontheirproportionateshareoftheirrespectivetaxableincomeasdefinedbytheInternalRevenueCode. TheCompanydisburses fundsnecessary to satisfy the stockholders’ tax liability. Thestock basis (accumulated previously taxed income) is available to the S Corporation stockholders insubsequent periods as tax free distributions. As ofDecember 31, 2013 and 2012, the accumulatedpreviouslytaxedincomeavailabletothestockholdersisapproximately$172,487,000and$123,117,000,respectively.



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Note2‐OrganizationandSummaryofSignificantAccountingPolicies(continued)The Company accounts for uncertain tax positions in accordancewith the provisions of ASC 740‐10.ASC740‐10prescribesarecognitionthresholdandmeasurementprocessforaccountingforuncertaintax positions and also provides guidance on various relatedmatters such as derecognition, interest,penaltiesanddisclosuresrequired.TheCompanydoesnothaveanyentityleveluncertaintaxpositions.The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.Generally, the Company is subject to examination by U.S. federal (or state and local) income taxauthoritiesforthreeyearsfromthefilingofataxreturn.Cash and cash equivalents ‐ The Company considers all highly liquid investments with an originalmaturityofthreemonthsorlesswhenpurchasedtobecashequivalents.Restrictedcash‐Restrictedcashof$209,000,000consistsofproceedsfromtheamendedandrestatedrevolving and term loan and security agreement (see Note 8). The proceeds of the term loan areclassified as restricted cash, and the Company must meet certain term loan draw conditions beforefunds can be disbursed including permitted target acquisitions, certain acquisition‐related capitalexpenditures,orpermittedacquisition‐relatedworkingcapitalfundings,asdefinedintheamendedandrestatedrevolvingandtermloanandsecurityagreement.Goodwill ‐Managementevaluates goodwill, onanannualbasis andwhenever events and changes incircumstances suggest that the carrying amountmay not be recoverable. Impairment of goodwill istestedatthereportingunitlevelbycomparingthereportingunit’scarryingamount,includinggoodwill,to the fair value of the reporting unit. The fair value of the reporting units are estimated using acombination of the income or discounted cash flow approach and market approach, which usescomparabledata.Ifthecarryingamountofthereportingunitexceedsfairvalue,goodwillisconsideredimpairedandasecondstepisperformedtomeasuretheamountofimpairmentloss,ifany.FortheyearsendedDecember31,2013and2012,themanagementoftheCompanydeterminedthatanimpairmentdidnot exist. However, if estimatesor the relatedassumptionschange in the future, theCompanymayberequiredtorecordimpairmentchargestoreducethecarryingamountofthisasset.Fairvalueoffinancialinstruments‐TheCompany’sconsolidatedbalancesheetsincludethefollowingfinancialinstruments:cashandcashequivalents,patientaccountsreceivable,notesreceivable,accountspayableandaccrued liabilities, and long‐termdebt. TheCompany considers the carryingamountsofcurrentassetsand liabilities in theconsolidatedbalancesheets toapproximate the fairvalueof thesefinancialinstrumentsandtheirexpectedrealization.Thecarryingamountofnotesreceivableandlong‐termdebtapproximatedtheirfairvalue,basedoncurrentmarketratesofinstrumentsofthesamerisksandmaturities.


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Note2‐OrganizationandSummaryofSignificantAccountingPolicies(continued)Deferred loan issuancecosts ‐Deferred loan issuancecostsareamortizedoverthetermof the loan(seeNote7).Charitycare‐TheCompanyprovidescaretopatientswholackfinancialresourcesandaredeemedtobemedicallyindigentbasedoncriteriaestablishedundertheCompany’scharitycarepolicy.ThiscareisprovidedwithoutchargeoratamountslessthantheCompany’sestablishedrates.BecausetheCompanydoes not pursue collection of amounts determined to qualify as charity care, such amounts are notreportedasrevenue.TheCompanymaintainsrecordstoidentifyandmonitorthelevelofcharitycareprovided. These records include the amount of direct and indirect costs for services and suppliesfurnished under its charity care policy. The direct and indirect costs related to this care totaledapproximately $26,309,000 and $23,953,000 for the years ended December 31, 2013 and 2012,respectively.Directandindirectcostsforprovidingcharitycareareestimatedbycalculatingaratioofcost to gross chargesand thenmultiplying that ratioby thegrossuncompensated chargesassociatedwithprovidingcaretocharitypatients. Inaddition, theCompanyprovidesservicestoothermedicallyindigentpatientsundervariousstateMedicaidprograms.Suchprogramspayamountsthatarelessthanthecostoftheservicesprovidedtotherecipients.Allowance for contractual adjustments anddoubtful accounts ‐ The Company’s patient accountsreceivablearereducedbyallowancesforcontractualadjustmentsanddoubtfulaccounts.Inevaluatingthe collectibility of patient accounts receivable, the Company analyzes its past history and identifiestrendsforeachof itsmajorpayorsourcesofrevenuetoestimatetheappropriateallowancesforbothcontractual adjustments and doubtful accounts and provision for bad debts. Management regularlyreviews data about these major payor sources of revenue in evaluating the sufficiency of theseallowances. For receivables associated with services provided to patients who have third‐partycoverage, the Company analyzes contractually due amounts and provides an allowance for doubtfulaccountsandaprovisionforbaddebts,ifnecessary(forexample,forexpecteduncollectibledeductiblesand copaymentsonaccounts forwhich the third‐partypayorhasnotyetpaid, or forpayorswhoareknown to be having financial difficulties that make the realization of amounts due unlikely). Forreceivables associated with self‐pay patients (which includes both patients without insurance andpatientswithdeductibleandcopaymentbalancesdueforwhichthird‐partycoverageexistsforpartofthebill),theCompanyrecordsaprovisionforbaddebtsintheperiodofserviceonthebasisofitspastexperience,whichindicatesthatmanypatientsareunableorunwillingtopaytheportionoftheirbillforwhich they are financially responsible. Thedifferencebetween the expected rates (or thediscountedratesifnegotiated)andtheamountsactuallycollectedafterallreasonablecollectioneffortshavebeenexhaustedischargedoffagainsttheallowancefordoubtfulaccounts.TheCompany’sallowance fordoubtfulaccountsdecreased from9.3percentofgrosspatientaccountsreceivable atDecember31,2012 to9.0percentof grosspatient accounts receivableatDecember31,2013. In addition, theCompany’swrite‐offswere approximately $429,806,000and$286,523,000 fortheyearsendedDecember31,2013and2012,respectively. TheCompanyhasnotchangeditscharitycareoruninsureddiscountpoliciesduring2013or2012.



14

Note2‐OrganizationandSummaryofSignificantAccountingPolicies(continued)Reclassification ‐ Certain prior year amounts were reclassified to conform to the current yearpresentation. There was no change in reported net income or stockholders’ equity related to thesereclassifications.Subsequentevents ‐Subsequenteventsareeventsor transactions thatoccurafter thebalancesheetdate but before financial statements are available to be issued. The Company recognizes in theconsolidatedfinancialstatementstheeffectsofallsubsequenteventsthatprovideadditionalevidenceabout conditions thatexistedat thedateof thebalance sheet, including theestimates inherent in theprocess of preparing the consolidated financial statements. The Company’s consolidated financialstatementsdonotrecognizesubsequenteventsthatprovideevidenceaboutconditionsthatdidnotexistatthedateofthebalancesheetbutaroseafterthebalancesheetdateandbeforeconsolidatedfinancialstatementsareavailabletobeissued.TheCompanyhasevaluatedsubsequenteventsthroughMay19,2014,whichisthedatetheconsolidatedfinancialstatementswereavailabletobeissued.Note3‐NetPatientServiceRevenueTheCompanyhasarrangementswiththird‐partypayorsthatprovideforpaymentstotheCompanyatamountsdifferentfromitsestablishedrates.Asummaryofthepaymentarrangementswithmajorthird‐partypayorsareasfollows:Medicare ‐ Inpatient acute‐care services rendered to Medicare program beneficiaries are paid atprospectively determined rates per discharge. These rates vary according to a patient classificationsystem that isbasedon clinical, diagnostic, andother factors. Medicare reimburses theCompany forcovered outpatient services rendered to Medicare beneficiaries by way of an outpatient prospectivepaymentsystembasedonambulatorypaymentclassifications.TheCompany’sclassificationofpatientsundertheMedicareprogramandtheappropriatenessoftheiradmissionsaresubjecttoanindependentreview.Inpatient non‐acute services, certain outpatient services,medical education costs, anddefined capitalcostsrelatedtoMedicarebeneficiariesarepaidbased, inpart,onacostreimbursementmethodology.The Company is reimbursed for cost reimbursable items at a tentative rate with final settlementdetermined after submission of annual cost reports and audits thereof by the Medicare fiscalintermediary.Theestimatedamountsduetoorfromtheprogramarereviewedandadjustedannuallybasedonthestatusofsuchauditsandanysubsequentappeals. Differencesbetweenfinalsettlementsandamountsaccruedinpreviousyearsarereportedasadjustmentstonetpatientservicerevenueintheyear that examination is substantially completed. These differences increased net patient servicerevenuebyapproximately$5,621,000fortheyearendedDecember31,2013anddecreasednetpatientservice revenue by approximately $4,661,000 for the year endedDecember 31, 2012. The Companydoesnotbelievethattherearesignificantcreditrisksassociatedwiththisgovernmentagency.


15

Note3‐NetPatientServiceRevenue(continued)Medicaid ‐ Inpatient services rendered to Medicaid program beneficiaries in California, Texas,Pennsylvania, Nevada and Kansas are reimbursed under a prospective payment system. Outpatientservicesare reimbursedbasedonamixtureof feeschedulesandacost reimbursementmethodology.The Company is reimbursed for cost reimbursable services at tentative rates with final settlementdetermined after submission of annual cost reports and audits thereof by the Medicaid fiscalintermediaries.TheCompanyalsoparticipates inMedicaidmanagedcarearrangements.PaymentsforservicesofMedicaidbeneficiariesthatparticipateinthoseprogramsincludeprospectivelydeterminedrates and fee schedule payments. The estimated amounts due to or from the Medicaid fiscalintermediaries are reviewed and adjusted annually based on the status of such audits and anysubsequentappeals.Differencesbetweenfinalsettlementsandamountsaccruedinpreviousyearsarereported as adjustments to net patient service revenue in the year examination is substantiallycomplete. These differences decreased net patient service revenue by approximately $6,163,000 and$5,901,000 for the years ended December 31, 2013 and 2012, respectively. The Company does notbelievethattherearesignificantcreditrisksassociatedwiththesegovernmentagencies.Commercialinsurance,healthmaintenanceorganizations,andpreferredproviderorganizations‐ The Company has also entered into agreementswith certain commercial insurance carriers, healthmaintenance organizations, and preferred provider organizations. The basis for payment to theCompany under these agreements includes prospectively determined rates per discharge, discountsfromestablishedchargesandprospectivelydetermineddailyrates.Other ‐ The Company also provides its services to patients enrolled in programs of commercialinsurancecarriers,healthmaintenanceorganizationsandpreferredproviderorganizationsunderwhichtheCompanydoesnothaveagreements.TheCompanyrecognizesrevenueforthesepatientsbasedonits usual customary rates for these services adjusted for historical trends in the Company’sreimbursementforsimilarservices.Lawsandregulationsgoverningthethirdpartypayorarrangementsareextremelycomplexandsubjectto interpretation. As a result, there is at least a reasonable possibility that recorded estimates willchangebyamaterialamountinthenearterm.Normalestimationdifferencesbetweensubsequentcashcollections on patient accounts receivable and net patient accounts receivable estimated in the prioryeararereportedasadjustmentstonetpatientservicerevenueinthecurrentperiod.Thesedifferencesdecreased net patient service revenue by approximately $10,102,000 and $12,388,000 for the yearsendedDecember31,2013and2012,respectively.



16

Note4‐AcquisitionsandDispositionsDuring 2013 and 2012, the Company entered into the following acquisitions and dispositions. Allacquisitionshavebeenaccountedforusingtheacquisitionmethodofaccounting.Operatingresultsforeachoftheacquisitionshavebeenincludedintheaccompanyingconsolidatedfinancialstatementsfromthedateofacquisition.Operatingresultsforthedispositionshavebeenincludedintheaccompanyingconsolidatedfinancialstatementsthroughthedateofdisposition.Effective December 31, 2013, the Company distributed the ownership interest of Pampa RegionalMedicalCenterandsubsidiarytoPrimeHealthcareServicesFoundation,Inc.onbehalfofitscontrollingstockholder.Thefollowingtablesummarizesthecomponentsofassetsdistributed:

Cashandcashequivalents $ 7,165,057Patientaccountsreceivable,netofallowance 7,696,128Suppliesinventory 745,594Prepaidexpensesandothercurrentassets 538,818Estimatedthird‐partypayorsettlements 589,505Propertyandequipment 11,012,564Otherassets 548,085

$ 28,295,751

All liabilitiesofPampaRegionalMedicalCenterandsubsidiarywereassumedbyPHSI in conjunctionwiththedistribution.Effective December 31, 2012, the Company distributed the ownership interest of Huntington BeachHospital to Prime Healthcare Services Foundation, Inc. on behalf of its controlling stockholder. Thefollowingtablesummarizesthecomponentsofassetsdistributed:

Cashandcashequivalents $ 437,749Patientaccountsreceivable,netofallowance 8,434,031Suppliesinventory 237,493Relatedpartyreceivable 3,318,307Prepaidexpensesandothercurrentassets 6,775,754Propertyandequipment 17,111,608Goodwill 1,461,947Estimatedthird‐partypayorsettlements 1,707,069

$ 39,483,958

AllliabilitiesofHuntingtonBeachHospitalwereassumedbyPHSIinconjunctionwiththedistribution.


17

Note4‐AcquisitionsandDispositions(continued)During2013,theCompanyacquiredtwogeneralacutecarehospitalsandamedicalgroup.OnJanuary18,2013,theCompanyenteredintoanassetpurchaseagreementwithSistersofCharityofLeavenworthHealthSystem,Inc.Pursuanttotheagreement,theCompanyacquiredcertainassetsandliabilitiesofProvidenceMedicalCenterandSaintJohnHospital.

Total

Cash $ ‐ $ ‐ $ 1,210,164 $ 1,210,164Patientaccountsreceivable ‐ ‐ 1,184,119 1,184,119Inventory 1,019,421 372,773 108,239 1,500,433Prepaidexpenses 752,364 70,628 451,592 1,274,584Propertyandequipment 41,828,000 8,945,000 1,276,362 52,049,362Intangibleassets 2,600,000 440,000 165,000 3,205,000Goodwill 1,655,186 ‐ ‐ 1,655,186Liabilities (2,803,060) (555,059) (1,636,532) (4,994,651)

Netcashconsideration $ 45,051,911 $ 9,273,342 $ 2,758,944 $ 57,084,197

ProvidencePlace,Inc.andPhysicianResources,Inc.SaintJohnHospital

ProvidenceMedicalCenter

During 2012, the Company acquired five general acute care service providers, consistent with theCompany’sstrategicgrowthplan.OnFebruary22,2012theCompanyenteredintoanassetpurchaseagreementwithSolisHealthcare,LP.Pursuant to the agreements, the Company acquired certain assets and liabilities of RoxboroughMemorialHospital.On April 25, 2012 the Company entered into an asset purchase agreement with Signature PampaHospital,LPtoacquirecertainassetsandliabilitiesofPampaRegionalMedicalCenter.ThetransactionclosedonMay31,2012.OnJuly2,2012theCompanyenteredintoanassetpurchaseagreementwithDignityHealthandSaintMary’sMulti‐SpecialtyClinic,Inc.Pursuanttotheagreements,theCompanyacquiredcertainassetsandliabilitiesofSt.Mary’sRegionalMedicalCenter.OnOctober3,2012,theCompanyenteredintoanassetpurchaseagreementwithLowerBucksHospital,Lower Bucks Health Enterprises, Inc., Advanced Primary Care Physicians, and Advanced SpecialtyPhysiciansGroup. Pursuant to the agreements, the Company acquired certain assets and liabilities ofLowerBucksHospital.OnOctober24,2012,theCompanyacquired100%ofthemembershipinterestsinDallasMedicalCenterfromDallasSVHealthCare,LLC,PSG‐Dallas,LLCandlocalphysicianinvestors.



18

Note4‐AcquisitionsandDispositions(continued)Thefollowingtablepresentstheallocationoftheaggregatepurchasepriceforeachofthefivehospitalspurchasedin2012:

RoxboroughMemorialHospital

PampaRegionalMedicalCenter

SaintMary'sRegional

MedicalCenterDallasMedical

CenterLowerBucksHospital Total

Cash $ ‐ $ 1,320 $ 10,122 $ 3,247,971 $ 1,784,288 $ 5,043,701Patientaccountsreceivable ‐ 3,984,706 ‐ 5,418,409 8,942,182 18,345,297Inventory 1,358,885 776,612 6,434,784 1,026,205 627,257 10,223,743Prepaidexpenses 429,781 298,894 201,442 71,896 612,073 1,614,086Propertyandequipment 25,229,856 4,886,895 58,453,806 2,117,968 9,412,645 100,101,170Otherassets ‐ ‐ 1,362,692 ‐ ‐ 1,362,692Goodwill ‐ ‐ 1,500,000 20,489,302 1,849,307 23,838,609Liabilities (2,223,513) (1,622,033) (24,523,445) (30,709,342) (13,273,795) (72,352,128)Gainonacquisition (1,542,181) ‐ ‐ ‐ ‐ (1,542,181)

Netcashconsideration $ 23,252,828 $ 8,326,394 $ 43,439,401 $ 1,662,409 $ 9,953,957 $ 86,634,989

Note5‐ConcentrationofCreditRiskFinancialinstrumentswhichpotentiallysubjecttheCompanytosignificantconcentrationsofcreditriskconsistprimarilyofcash.TheCompanymaintainscashinbankdepositaccountsathighcreditqualityfinancial institutions. The balances, at times, may exceed federally insured limits. Managementmonitors the financial condition of these institutions on an ongoing basis and does not believe anysignificantcreditriskexistsasofDecember31,2013.At December 31, 2013 and 2012, patient accounts receivable were comprised of the following:governmentprograms,primarilyMedicare34%and37%,respectively;MedicaidandMedi‐Cal22%and22%, respectively; healthcare maintenance and preferred provider organizations (managed careprograms) 12% and 9%, respectively; and private pay and commercial insurance patients 32% and32%, respectively. Management believes there are no credit risks associated with receivables fromgovernmentprograms. Receivablesfrommanagedcareprogramsandothersarefromvariouspayorswho are subject to differing economic conditions and do not represent concentrated risks to theCompany.Managementcontinuallymonitorsandadjuststhereservesassociatedwithreceivables.


19

Note6‐PropertyandEquipmentPropertyandequipmentconsistofthefollowingatDecember31:

Land $ 82,487,307 $ 66,264,728Buildings 401,051,659 363,552,124Buildingimprovements 40,686,408 18,635,116Equipment 351,026,385 266,373,723Constructioninprogress(estimatedcosttocompleteisapproximately$72,164,000and$74,057,000atDecember31,2013and2012,respectively) 51,547,665 30,349,177

926,799,424 745,174,868

Less:Accumulateddepreciationandamortization (234,512,290) (163,326,720)

$ 692,287,134 $ 581,848,148

20122013

Gross property and equipment includes approximately $63,082,000 and $54,639,000 of equipmentundercapitalleasearrangementsasofDecember31,2013and2012,respectively.Relatedaccumulatedamortizationtotaledapproximately$37,138,000and$26,465,000asofDecember31,2013and2012,respectively.Note7‐LineofCreditAsofDecember19,2013,theCompanyenteredintoanamendedandrestatedrevolvingandtermloanandsecurityagreementwithHFG.Thisagreement increasedtheavailable lineofcreditamountsfrom$175,000,000 to $225,000,000. The line of credit accrues interest at LIBOR (with a LIBOR floor of1.00%)plus3.25%.AtDecember31,2013,theinterestratewas4.25%andbalancesoutstandingasofDecember 31, 2013 and 2012 were $110,049,171 and $45,392,743, respectively. The line of creditmaturesonDecember18,2018.SeeNote8fordiscussionofthetermloan.



20

Note8‐Long‐TermDebtDuring2010, theCompanyentered intoa credit agreement includingTermLoanAandTermLoanBwithRoyalBankofCanada(“RBC”).Aportionofthetotalproceedsof$232,000,000fromTermLoanAandTermLoanBwasused to pay off existing bankdebt for various amounts totaling $130,400,000.Approximately $9,500,000 of deferred loan issuance costs were incurred relating to this creditagreementandwerebeingamortizedoverthetermoftheloans. TheCompanyrefinanceditsdebtonJuly3,2012andpaidoffTermLoanAandTermLoanB.Non‐amortizeddeferredloanissuancecostsofapproximately$4,939,000wereexpensedasinterestexpenseasaresultofthisrefinancingduringtheyearendedDecember31,2012.On July 3, 2012, the Company entered into a revolving loan and security agreementwithHealthcareFinanceGroup,LLC(“HFG”)withatotalavailableamountof$175,000,000. ThelineofcreditmaturesonJuly15,2016.TheinterestrateisLIBOR(withaLIBORfloorof1.25%)plus3.5%.AtDecember31,2012,theinterestratewas4.75%.ThefollowinghospitalspreviouslyhadlinesofcreditwithHFGwhichwere terminated on July 3, 2012: Chino ValleyMedical Center, Huntington BeachHospital, La PalmaIntercommunity Hospital, West Anaheim Medical Center, Chino Valley Medical Center and ParadiseValleyHospital.Inconjunctionwith theCompany’srefinancingof itsrevolving loanandsecurityagreementon July3,2012, the Company also restructured its obligations with MPT. The Company entered into (a) anagreement with MPT of Inglewood, L.P. for $100,000,000, (b) a cross‐collateralization and cross‐guarantee agreementwith the Company’s other obligations due toMPT, and (c) included propertiesownedbyPrimeA(“thePrimeAproperties”) forwhichtheCompanyisalsoobligatedtorepayinthecollateralizationandguaranteeagreements.AsofDecember19,2013,theCompanyenteredintoanamendedandrestatedrevolvingandtermloanandsecurityagreementwithHFG.Thisagreementincreasedtheavailablelineofcredit(seeNote7)andincludedatermloanfor$209,000,000.ThetermloanaccruesinterestatLIBOR(withaLIBORfloorof1.25%) plus 4.50%. At December 31, 2013, the interest rate was 5.75%. The term loanmatures onDecember18,2018.TheCompany’srevolvingloanandsecurityagreementwithHFGissubjecttocertainfinancialcovenants,including1)minimumliquidityof$40,000,000;2)fixedchargecoveragerationottobelessthan1.25to1.00;and3)accountsreceivabledaysoutstandingnottobegreaterthan85days.


21

Note8‐Long‐TermDebt(continued)Long‐termdebtconsistsofthefollowingasofDecember31:

Loan with MPT secured by Desert ValleyHospital and Chino Valley Medical Centerfacilities, monthly payments of interest only,interest accrues at a variable rate (10.66% atDecember 31, 2013), maturing in February2022. $ 140,000,000 $ 140,000,000

Loan with MPT, secured by real property ofCentinela Hospital Medical Center monthlypayments of interest only, interest accrues ata variable rate (10.54% at December 31,2013),maturinginJune30,2022. 100,000,000 100,000,000

Term loans with BBVA Compass, secured bycertain real property, principal and interestof $153,000 payable monthly at an annualrateof7.45%,maturinginJuly2022. 35,586,120 36,723,066

Term loan with Siemens Financial Services,secured by certain equipment of PrimeHealthcare Air Transport LLC, payable inmonthly installments of approximately$75,000 including interest at a fixed rate of6.77%perannum,maturingin2017. 2,956,389 3,626,332

Note payable with MPT secured by certainproperty and equipment and lease depositsof Paradise Valley Hospital, bearing interestata variable rate (10.54% at December 31,2013). Interest only payments due monthly,principal balance due at maturity in May2022. 25,000,000 25,000,000

Term loan with HFG, secured by the assets ofthe Company, interest payable monthly at anannual rate of Libor + 4.5% (5.75% atDecember 31, 2013), maturing in December2018. The Company is required to maintaincertain financial and non‐financial covenantsatyearend. $ 209,000,000 $ ‐

2013 2012



22

Note8‐Long‐TermDebt(continued)Long‐termdebtconsistsofthefollowingasofDecember31(continued):

2013 2012

Other 585,597 ‐

513,128,106 305,349,398

Less:Currentportion (3,143,266) (2,510,891)

$ 509,984,840 $ 302,838,507

Aggregateannualprincipalmaturitiesoflong‐termdebtforthefiveyearssubsequenttoDecember31,2013andthereafter,areasfollows:

YearsendingDecember31,

2014 $ 3,143,2662015 2,607,7132016 2,661,2522017 2,493,5472018 1,840,948

Thereafter 500,381,380

$ 513,128,106

Note9‐InterestRateSwapIn conjunctionwith theRBCTermBLoan, theCompanyentered intoan interest rate swapand flooragreementwith a commercial bank. The swap agreement served to convert the underlying variableinterest rates of theTermLoans. The swapwasnot designated as a cash flowhedge for accountingpurposes, therefore changes in the fair value of the swap were recorded as interest expense. TheCompanypaidapproximately$4,385,000toterminatetheinterestswapagreementinconjunctionwiththeJuly3,2012refinancing.Thenetchangeinvalueoftheswapofapproximately$340,000wasincludedwithininterestexpensefortheyearendedDecember31,2012(priortotermination).


23

Note10‐LeasesInMay2007,inconnectionwiththeacquisitionofcertainassets,ParadiseValleyHospitalsoldtherealestateandrelatedhospitalbuildingacquiredtoahealthcarerealestateinvestmenttrust(“theREIT”).Aspartof thesale,ParadiseValleyHospital leasedback therealestateandhospitalbuilding (“leasedproperty”)inaleaseagreementwhichexpiresinMay2022.ParadiseValleyHospitalhasanoptiontoextendthetermoftheleaseforthreeadditionalfiveyearperiods.Aftertenyears,orattheendoftheleaseterm,ParadiseValleyHospitalhastheoptiontopurchasetheleasedpropertyfor$23,000,000.Ifat the end of the lease term, including renewal terms, Paradise Valley Hospital does not exercise itsoption topurchase the leasedproperty;ParadiseValleyHospitalmustpay the lessora leasemakeuppayment equal to the difference between the then fair market value of the leased property and$23,000,000. Dueto theguaranteeandoptiontopurchase included inthe lease, this transactionwasrecognizedasa financeobligation. Theproceedsof$23,000,000were recordedas a sales lease‐backliabilityontheconsolidatedbalancesheets.InNovember2008,inconnectionwiththeacquisitionofcertainassets,SanDimasCommunityHospitalsoldtherealestateandrelatedhospitalandmedicalofficebuildingsacquiredtotheREIT.Aspartofthesale, SanDimasCommunityHospital leasedback thehospital and related landaswell as themedicalofficebuildingsand the related land (“leasedproperty”)which lease expires inNovember2018. SanDimasCommunityHospitalhasoptionstoextendthetermsoftheleasesforthreeadditionalfiveyearperiods.Aftertenyears,orattheendoftheleaseterm,SanDimasCommunityHospitalhastheoptiontopurchasetheleasedpropertyfor$13,000,000forthehospitalandrelatedlandand$7,000,000forthemedicalofficebuildingsandrelatedland. Ifattheendoftheleaseterm,includingrenewalterms,SanDimas Community Hospital does not exercise its option to purchase the leased property, San DimasCommunityHospitalmustpaytothe lessora leasemakeuppaymentequaltothedifferencebetweenthethenfairmarketvalueoftheleasedpropertyand$13,000,000and$7,000,000,forthehospitalandmedicalofficebuildings,respectively.Duetotheguaranteeandoptiontopurchaseincludedinthelease,this transactionwasrecognizedasa financeobligation. Theproceedsof$13,000,000and$7,000,000wererecordedassalelease‐backliabilitiesontheconsolidatedbalancesheets.InNovember2008,inconnectionwiththeacquisitionofcertainassets,GardenGroveHospitalMedicalCentersoldtherealestateandrelatedhospitalandmedicalofficebuildingsacquiredfromTenettotheREIT. Aspartof the sale,GardenGroveHospitalMedicalCenter leasedback thehospitalandrelatedlandaswellasthemedicalofficebuildingandtherelatedland(“leasedproperty”)inaleaseagreementwhich expires in November 2018. Garden Grove Hospital Medical Center has options to extend thetermsoftheleasesforthreeadditionalfiveyearperiods.Aftertenyears,orattheendoftheleaseterm,GardenGroveHospitalMedicalCenterhastheoptiontopurchasetheleasedpropertyfor$16,250,000forthehospitalandrelatedlandand$8,750,000forthemedicalofficebuildingsandrelatedland.Ifatthe end of the lease term, including renewal terms, Garden Grove Hospital Medical Center does notexerciseitsoptiontopurchasetheleasedproperty,GardenGroveHospitalMedicalCentermustpaytothe lessora leasemakeuppaymentequal to thedifferencebetweenthethenfairmarketvalueof theleasedproperty and $16,250,000 and$8,750,000, respectively. Due to the guarantee included in thelease, this transaction was recognized as a finance obligation. The proceeds of $16,250,000 and$8,750,000wererecordedassalelease‐backliabilitiesontheconsolidatedbalancesheets.



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Note10‐Leases(continued)InFebruary2011, theCompanyagreedtosell the landandbuildingsacquired in theNovember2010AlvaradoHospitalacquisitiontotheREIT.Aspartofthesale,AlvaradoHospitalleasedbackthehospitalandrelatedlandinaleaseagreementwhichexpiresinFebruary2021.AlvaradoHospitalhasoptionstoextendthetermsoftheleaseforthreeadditionalfiveyearperiods.Aftertenyears,orattheendofthelease term,AlvaradoHospitalhas theoption topurchase the leasedproperty for$70,000,000 for thehospital and related land. If at the endof the lease term, including renewal terms,AlvaradoHospitaldoesnotexerciseitsoptiontopurchasetheleasedproperty,AlvaradoHospitalmustpaytothelessoralease make up payment equal to the difference between the then fair market value of the leasedproperty and $70,000,000. Due to the guarantee and option to purchase included in the lease, thistransactionwasrecognizedasafinanceobligation.Theproceedsof$70,000,000wererecordedasasalelease‐backliabilityontheconsolidatedbalancesheets.TheCompanyenteredintoamasterleaseagreement(the“masterlease”)onJuly3,2012whichreplacedthe existing leases to lease the hospital properties and related othermedical office buildings for SanDimas Community Hospital, Garden Grove Hospital Medical Center, Paradise Valley Hospital andAlvaradoHospitalfromtheREIT.On September 10, 2012, the Company entered into an agreementwith the REIT to sell the land andbuildingsacquiredinFebruary2012acquisitionforRoxboroughMemorialHospitalandintheJuly2012acquisition for St. Mary’s Regional Medical Center to the REIT. Concurrent with this agreement, theCompanyentered intoanamendment to themaster leaseagreementwhereby thehospitalpropertiesand related other medical office buildings of St. Mary’s Regional Medical Center and RoxboroughMemorialHospitalwereaddedtothemasterlease.OnJune11,2013,theCompanyenteredintoanagreementwiththeREITtosellthelandandbuildingsacquired in the April 2013 acquisition of Providence Medical Center and Saint John’s Hospital andconcurrently entered into an amendment to the master lease agreement whereby the hospitalproperties and related other medical office buildings of Providence Medical Center and Saint John’sHospitalwereaddedtothemasterlease.On December 12, 2013, the Company entered into an agreement with the REIT to sell the land andbuildingsacquired in theOctober2012acquisitionof the landandbuildingsofDallasMedicalCenterand concurrently entered into an amendment to the master lease agreement whereby the hospitalpropertiesandrelatedothermedicalofficebuildingsofDallasMedicalCenterwereaddedtothemasterlease.


25

Note10‐Leases(continued)The master lease agreement has a 10‐year term with options to extend the term by two 60 monthperiods.Monthlyrentisdefinedas10.54%oftheleasebase,subjecttoannualescalationofthegreaterof2%ortheconsumerpriceindex.Ifattheendoftheleaseterm,includingrenewalterms,theCompanydoesnotexerciseitsoptiontopurchasetheleasedproperty,theCompanymustpaytotheREITaleasemakeuppaymentequaltothedifferencebetweenthethenfairmarketvalueoftheleasedpropertyandtheoptionprice.Duetotheguaranteeandoptiontopurchaseincludedinthelease,thistransactionwasrecognizedasafinanceobligation.Thesignificanttermsoftheleaseareasfollows:

TheParadiseValleyHospitalfacilityincludesmonthlyrentpaymentsofapproximately$202,000permonthatinceptionbasedonthe$23,000,000leasebase.

TheAlvaradoHospital facility includesmonthlyrentpaymentsofapproximately$615,000permonthatinceptionbasedonthe$70,000,000leasebase.

TheSanDimasCommunityHospital facility includesmonthlyrentpaymentsofapproximately$176,000permonthatinception.Theleasebaseandpurchaseoptionfortheleasedpropertyis$13,000,000 for thehospital and related landand$7,000,000 for themedical officebuildingsandrelatedland.

The Garden Grove Hospital Medical Center facility includes monthly rent payments ofapproximately$220,000permonthatinceptionbasedonthecombined$25,000,000leasebase.

TheRoxboroughMemorialHospital facility includesmonthly rentpaymentsof approximately$263,000permonthatinceptionbasedonthe$30,000,000leasebase.

The St. Mary’s Regional Medical Center facility includes monthly rent payments ofapproximately$702,000permonthatinceptionbasedonthe$80,000,000leasebase.

TheDallasMedicalCenter facility includesmonthlyrentpaymentsofapproximately$146,000permonthatinceptionbasedonthe$25,000,000leasebase.

The Providence Medical Center facility includes monthly rent payments of approximately$527,000permonthatinceptionbasedonthe$60,000,000leasebase.

The Saint John’sHospital facility includesmonthly rent payments of approximately $132,000permonthatinceptionbasedonthe$15,000,000leasebase.



26

Note10‐Leases(continued)TheCompany’ssalesleasebackliabilitiesconsistofthefollowing:

Hospital

ParadiseValleyHospital $ 23,000,000 $ 23,000,000AlvaradoHospital 70,000,000 70,000,000SanDimasCommunityHospital 13,000,000 13,000,000SanDimasMedicalOfficeBuilding 7,000,000 7,000,000GardenGroveHospitalMedicalCenter 16,250,000 16,250,000GardenGroveMedicalOfficeBuilding 8,750,000 8,750,000RoxboroughMemorialHospital 30,000,000 30,000,000SaintMary'sRegionalMedicalCenter 80,000,000 80,000,000DallasMedicalCenter 25,000,000 ‐ProvidenceMedicalCenter 60,000,000 ‐SaintJohnHospital 15,000,000 ‐

$ 348,000,000 $ 248,000,000

2013December31,

2012

In addition to the hospital facilities operated through the sale leaseback transactions and the relatedpartyagreements forDesertValleyHospital andChinoValleyMedicalCenter’shospitalbuildings, theCompany entered into amaster lease agreement on July 3, 2012 to lease thehospital properties andrelated othermedical office buildings for La Palma Intercommunity Hospital,West AnaheimMedicalCenter,andShastaRegionalMedicalCenterfromtheREIT.Allleasesunderthismasterleaseagreementhavea10‐yeartermwithoptionstoextendthetermbytwo60monthperiods.Monthlyrentisdefinedas10.33%of the leasebase, subject to annual escalationof the greaterof 2%or the consumerpriceindex.Thesignificanttermsoftheleaseareasfollows:

The La Palma Intercommunity Hospital facility includes monthly rent payments ofapproximately$110,000atinceptionbasedonthe$12,500,000leasebase.

TheWest AnaheimMedical Center facility includesmonthly rent payments of approximately$220,000atinceptionbasedonthe$25,000,000leasebase.

TheShastaRegionalMedicalCenter facility includesmonthlyrentpaymentsofapproximately$553,000basedonthe$63,000,000leasebase.

Leaseexpense,consistingprimarilyofbuildingrentandequipmentleases,amountedtoapproximately$37,175,000and$40,239,000fortheyearsendedDecember31,2013and2012,respectively.


27

Note10‐Leases(continued)AsofDecember31,2013,futureminimumleasepaymentsundernon‐cancelableoperatingleases(withinitialorremainingleasetermsinexcessofoneyear)andfutureminimumcapitalleasepaymentsare:

SaleLeaseback

Commitments

$ 8,566,973 $ 27,714,939 $ 26,518,6708,145,789 27,562,379 27,049,0444,979,563 22,980,247 27,590,0254,689,297 22,992,236 28,141,8254,067,578 22,175,913 28,447,46811,291,834 56,600,546 466,445,404

Totalminimumpayments 41,741,034 $ 180,026,260 604,192,436

Less:Amountsrepresentinginterest (10,589,258) (256,190,815)

31,151,776 348,001,621

Less:Currentportion (6,737,672) ‐

$ 24,414,104 $ 348,001,621

2016

YearsendingDecember31,

2018Thereafter

2017

20142015

OperatingCapitalLeases Commitments

Lease

Note11‐ProfessionalLiability,Workers’Compensation,HealthcareandEarthquakeInsuranceDesertValleyInsurance,LTD.(“DVIL”)providesworkers’compensation,professional liability,medicalinsurance, and earthquake insurance coverage to the Company. DVIL is affiliatedwith the Companythroughcommonownership.Workers’ compensation insurance ‐ Under the terms of the agreementDVIL is obligated to insureeach workers’ compensation claim up to a maximum of $1,000,000 per claim. Losses in excess of$1,000,000perclaimareinsuredbytheHartfordInsuranceCompany.



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Note11 ‐ProfessionalLiability,Workers’Compensation,HealthcareandEarthquakeInsurance(continued)Professional liability insurance ‐ DVIL provides professional liability insurance on a claims‐madebasis. Under this policy, insurance premiums cover only those claims actually reported during thepolicy term. Should the claimsmade policy not be renewed or replaced with equivalent insurance,claimsrelatedtooccurrencesduringthepolicytermbutreportedsubsequenttothepolicy’sterminationmaybeuninsured.Underthecurrentpolicy,themedicalgroupsofPHSIarecovereduptoa$1,000,000perclaimand$3,000,000generalaggregatelimitwithnoamountdeductible.ThehospitalsofPHSIarecovered up to a $3,000,000 per claim and $21,000,000 general aggregate limit with no amountdeductible. Excess losses up to an additional $7,000,000 per incident and $14,000,000 generalaggregatewillbe insuredbyCNAInsuranceCompany. TheCompanyrenewed itsclaimsmadepolicywithDVILforthenextpolicyyearendingDecember31,2014,underthesameterms.Accounting principles generally accepted in the United States of America require that a health carefacilityrecognizetheestimatedcostsofmalpracticeclaimsintheperiodoftheincidentofmalpractice,ifit is reasonablypossible that liabilitiesmaybe incurredand lossescanbereasonablyestimated. TheCompany recognized an estimated liability based upon its claims experience to cover the Company’spotential exposure to incurred but unreported claims. The claim reserve is based on the best dataavailabletotheCompany;however,theestimateissubjecttoasignificantdegreeofinherentvariability.The estimate is continuallymonitored and reviewed, and as the reserve is adjusted, the difference isreflected in current operations. While the ultimate amount of professional liability is dependent onfuture developments, management is of the opinion that the associated liabilities recognized in theaccompanying consolidated financial statements is adequate to cover such claims. Management isaware of no potential professional liability claims whose settlement, if any, would have a materialadverseeffectontheCompany’sconsolidatedfinancialposition.Earthquakeandfloodinsurance‐UndertheDVILpolicy,insurancepremiumscoveronlythoseclaimswhichoccurredduringthepolicyterm.Shouldtheclaimsmadepolicynotberenewed,orreplacedwithequivalentinsurance,claimsrelatedtooccurrencesduringthepolicytermbutreportedsubsequenttothe policy’s terminationmay be uninsured under the current policy. The Company is covered up to$30,000,000per occurrence and in the aggregate subject to a five percent deductible. TheCompanyreneweditspolicythroughJune2014.Medical insurance ‐ The Company began a medical insurance program with DVIL for healthcarecoverage for employees effective January 1, 2010. The Company has renewed this policy throughDecember 31, 2014. Under the terms of the agreement, DVIL is obligated to insure each employeemedicalclaimsubjecttoadeductibleof$500perclaim.Claimsareadjudicatedbyanindependentthirdpartyadministrator.


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Note11 ‐ProfessionalLiability,Workers’Compensation,HealthcareandEarthquakeInsurance(continued)TheCompanyhasevaluatedwhethertheyarerequiredtoconsolidateDVILinaccordancewithASC810asofDecember31,2013,andhasdeterminedthatDVILisnotavariableinterestentity.TheCompanyisnotexposed to therisk that itmayberequired tosubsidize the losses, ifanyofDVIL. DVILprovidesworkerscompensation,hospitalandmedicalprofessional,general liability,healthcareandearthquakeinsurance.DVILhadtotalassetsofapproximately$257,000,000and$218,000,000asofDecember31,2013 and 2012, respectively. DVIL had total admitted assets of approximately $250,000,000 and$209,000,000andtotalequityofapproximately$65,000,000and$51,000,000asofDecember31,2013and2012,respectively.Note12‐RelatedPartyTransactionsAmountsdue(to)/fromrelatedpartiesasofDecember31areasfollows:

Payable to Prime Healthcare Services Foundation andsubsidiaries $ (1,442,226) $ (5,998,272)

Receivable from DVIL, related to expenses incurred inexcess of deductibles and over‐payment of healthinsurancepremiums 6,374,231 6,424,289

Other 826,443 (66,206)

$ 5,758,448 $ 359,811

2013 2012

The Company entered into agreements with DVIL to provide workers’ compensation, earthquakeinsurancecoverage,commercialmalpracticeliabilityinsuranceandhealthcareinsuranceforemployeeson a claims‐made basis (see Note 11), and healthcare insurance for employees. Insurance premiumspaid toDVIL totaled$79,011,000and$70,401,000 for theyearsendedDecember31,2013and2012,respectively. TheCompany receives reimbursement fromDVIL forworkers’ compensation insurancedeductiblespaidonbehalfofDVIL. AsofDecember31,2013and2012, theCompanyhasrecordedaprepaid insurance expense of approximately $56,476,000 and $56,544,000, respectively, related tocoveragebeingprovidedbyDVILinfutureyears.TheCompanyleasescertainofficebuildingsandparkingfacilitiesfromPrimeA.Theleasesareforfiveyear terms. Rentexpense incurredunder these leaseswasapproximately$8,038,000and$1,543,000fortheyearsendedDecember31,2013and2012,respectively.



30

Note13‐RetirementSavingsPlanTheCompanyhasadefinedcontributionpensionplancoveringsubstantiallyallofitsemployees. TheCompany’scontributiontotheplanisattheCompany’sdiscretionbutlimitedtothemaximumamountdeductible for federal income tax purposes under the applicable Internal Revenue Code. During theyears ended December 31, 2013 and 2012, the Company made contributions of approximately$8,173,000and$4,840,000,respectively,totheplan.Note14‐ContingenciesTheCompanyisawareofcertainassertedandunassertedlegalclaimsarising inthenormalcourseofbusiness. While theoutcomescannotbedeterminedat this time, it ismanagement’sopinion that theliability,ifany,fromtheseactionswillnothaveamaterialadverseeffectontheCompany’sconsolidatedfinancialposition.The health care industry is subject to numerous laws and regulations of federal, state, and localgovernments. Compliancewithsuchlawsandregulationscanbesubjecttofuturegovernmentreviewand interpretation,aswellasregulatoryactionsunknownorunassertedat this time. These lawsandregulationsinclude,butarenotlimitedto,accreditation,licensure,andgovernmenthealthcareprogramparticipationrequirements,reimbursementforpatientservices,andMedicareandMedicaidfraudandabuse. Recently, government activity has increased with respect to investigations and allegationsconcerning possible violations of fraud and abuse statutes and regulations by health care providers.Violationsoftheselawsandregulationscouldresultinexclusionfromgovernmenthealthcareprogramparticipation, together with the imposition of significant fines and penalties, as well as significantrepayment for past reimbursement for received patient services. While the Company is subject tosimilar regulatory review,management believes that the outcome of any potential regulatory reviewwillnothaveamaterialadverseeffectontheCompany’sconsolidatedfinancialposition.OnJune15,2012, theCompanyreceivedadocumentsubpoenafromtheUnitedStatesDepartmentofJustice in connectionwith an investigation of alleged coding deficiencies. Certain of these allegationshave already been reviewed by the Joint Commission, Healthcare Facilities Accreditation Program,Palmetto GBA, Recovery Audit Contractors, Health Services Advisory Group (a Medicare qualityimprovementorganization)andtheCaliforniaDepartmentofPublicHealthwithoutidentificationoftheallegedcodingdeficiencies.TheCompanyiscooperatingfullywiththegovernmentinitsinvestigations.ManagementbelievesthattheCompanyisincompliancewithgovernmentlawsandregulationsrelatedto fraud and abuse and other applicable areas. Compliance with such laws and regulations can besubject to future governmental review and interpretation, as well as regulatory actions unknown orunassertedatthistime.


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Note15‐RevenuefromGovernmentalProgramsHospitalfeeprogram‐TheCaliforniaHospitalFeeProgram(the“Program”)iscomprisedofthreelawsenacted by the state of California. The three laws cover the periods from April 1, 2009, throughDecember31,2010(the “TwentyMonthProgram”); January1,2011, through June30,2011(the “SixMonth Program”); and July 1, 2011, through December 31, 2013 (the “ThirtyMonth Program”). TheProgram requires a Quality Assurance Fee (“QA Fee”) to be paid by certain hospitals to a State fundestablished to accumulate the assessed QA Fees and receive matching federal funds. QA Fees andcorresponding matching federal funds are then paid to participating hospitals in two supplementalpaymentmethodologies:afee‐forservicemethodologyandamanagedcareplanmethodology.CMSapprovedCalifornia’sStatePlanAmendmentandWaiversasofOctober8,2010,May18,2011,andJune22,2012,allowingtheStatetoimplementtheQAFeeandthefee‐for‐serviceSupplementPaymentmethodology of the legislation for the Twenty Month, Six Month and Thirty Month programs. CMSapproved themanaged care planmethodology on January 18, 2011, andDecember 29, 2011, for theTwentyMonth and Six Month Programs. Themanaged care planmethodology for the Thirty MonthProgramwasapprovedbyCMSthroughJune30,2013.Based on formulas contained in the legislation as well as modeling done by the California HospitalAssociation, the Company recognized net patient service revenue for payments received and qualityassurance fee expense included within general and administrative expenses in the accompanyingconsolidated statements of income. The net gain recognized from the program was approximately$45,868,000 and $29,524,000 for the years ended December 31, 2013 and 2012, respectively. AtDecember 31, 2012, QA Fees related to the managed care portion of the program of approximately$31,711,000 were included in prepaid and other current assets in the accompanying consolidatedbalancesheet.TheCompanyhasalsorecordedareceivableofapproximately$9,366,000andaliabilityof approximately $9,769,000 within estimated third‐party payor settlements in the accompanyingconsolidatedbalancesheetsatDecember31,2013and2012,respectively.“Meaningful Use” incentives ‐ The American Recovery and Reinvestment Act of 2009 (“ARRA”)established incentive payments under theMedicare andMedicaid programs for certain professionalsandhospitalsthatmeaningfullyusecertifiedelectronichealthrecord(“EHR”)technology.TheMedicareincentivepaymentswillbepaidouttoqualifyinghospitalsoverfourconsecutiveyearsonatransitionalschedule.Toqualify forMedicare incentives,hospitalsandphysiciansmustmeetEHRmeaningfulusecriteria that become more stringent over three stages designated by the Centers for Medicare andMedicaid(“CMS”).Medicaidprogramsandpayment schedules vary fromstate to state.TheMedi‐Cal programs requireshospitalstoregisterfortheprogrampriorto2016,toengageineffortstoadopt,implementorupgradecertified EHR technology in order to qualify for the initial year of participation, and to demonstratemeaningfuluseof certifiedEHR technology inorder toqualify forpayment forup to threeadditionalyears.



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Note15‐RevenuefromGovernmentalPrograms(continued)FortheyearendedDecember31,2013,theCompanyrecordedrevenueofapproximately$15,738,000related to theMedicareprogramandapproximately$4,316,000related to theMedicaidprogram.Forthe year ended December 31, 2012, the Company recorded revenue of $19,238,000 related to theMedicare program and $8,394,000 related to the Medicaid program. Meaningful use incentives areincluded in other revenue in the consolidated statements of income. These incentives have beenrecognized following the grant accounting model, recognizing income ratably over the applicablereporting period as management becomes reasonably assured of meeting the required criteria.Subsequentchangestotheseestimateswillberecognizedintheconsolidatedstatementofincomeintheperiod inwhichadditional information isavailable.Suchestimatesaresubject toauditby the federalgovernmentoritsdesignee.Note16‐LaborRelationsCentinelaHospitalMedicalCenter‐SEIU‐UHWrepresentsapproximately800employeesatCentinelaHospitalMedical Center and the CaliforniaNursesAssociation (“CNA”) represents approximately400registerednursesatCentinelaHospitalMedicalCenter.ThecollectivebargainingagreementwithSEIU‐UHWterminatedonDecember31,2009andeffortstonegotiatethetermsofanewcollectivebargainingagreementhavebeenunsuccessfultodate.Subjecttocertainexceptions,thetermsandconditionsofemployment as of thedate onwhich the collective bargaining agreement terminated remain in placeuntil such time that a new agreement is reached. Centinela negotiated a new collective bargainingagreementwithCNA,whichexpiresin2015.GardenGroveHospitalMedicalCenter‐SEIU‐UHWrepresentsapproximately400employeesandtheUnited Nurses Association of California (“UNAC”) represents approximately 250 registered nurses atGardenGroveHospitalMedicalCenter.ThecollectivebargainingagreementwithSEIU‐UHWterminatedonMarch31,2011.Subjecttocertainexceptions,thetermsandconditionsofemploymentasofthedateonwhichthecollectivebargainingagreementwithSEIUterminatedremaininplaceuntilsuchtimethatanewagreementisreached.AnewcollectivebargainingagreementwithUNACwasnegotiatedin2013,whichexpiresuntilmid‐2016AlvaradoHospital ‐ CNA represents approximately 200 registered nurses at Alvarado Hospital. InMarch2012,anewfour‐yearagreementwassignedwithCNA.Note17‐SubsequentEventsOnJanuary2,2014,PHSIacquiredsubstantiallyalloftheassetsofLandmarkMedicalCenter inNorthSmithfield,RhodeIsland.Theacquisitionwasfundedprimarilythroughadrawdownofthetermloanforapurchasepriceofapproximately$43,250,000.LandmarkMedicalCenter isa214 licensedbedacutecarehospital.TheacquisitionisconsistentwiththeCompany’sstrategicgrowthplans.

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