Geisinger Authority

This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction. Pennsylvania asenactedandconstruedonthedateofinitialdeliverySeries2017Bonds.See“TAXEXEMPTION”herein. on theSeries2017BondsisexemptfromPennsylvaniapersonalincometaxandcorporatenettax,underlawsofCommonwealth under “TAXEXEMPTION”herein.IntheopinionofBondCounsel,Series2017BondsareexemptfrompersonalpropertytaxesinPennsylvania,andinterest corporate federalalternativeminimumtax(“AMT”);however,interestpaidtoholdersmaybeindirectlysubjectAMTundercircumstancesdescribed compliance withtherequirementsoffederaltaxlaws.InterestonSeries2017Bondsisnotanitempreferenceforpurposeseitherindividualor †† † * Dated: ______, 2017 J.P. Morgan BONDS. T TO T PENNSYLVANIA ORANYOT CREDIT ORTAXINGPOWEROFMONTOUR COUNTY,T T COMMONWEALT AND DONOTCONSTITUTEADEBTOR LIABILITYOFMONTOURCOUNTY,T Dated: DateofDelivery NEW ISSUE;BOOK‑ENTRYONLY Wood LLP,NewYork,York.Itis anticipated thattheSeries2017BondswillbeavailablefordeliverytoDTC in NewYork,onoraboutMay__,2017. Esquire, Danville,Pennsylvaniaandby itscounsel,BallardSpahrLLP,Philadelphia,Pennsylvania;andfortheUnderwriters bytheircounsel,HawkinsDelafield& upon fortheAuthoritybyitscounsel,Marks, McLaughlin&Dennehy,Danville,Pennsylvania;fortheGeisingerHealth SystembyitsChiefLegalOfficer,DavidFelicio, notice, andtoreceiptofanunqualified approvinglegalopinionofBallardSpahrLLP,Philadelphia,Pennsylvania, BondCounsel.Certainlegalmatterswillbepassed information essentialtomakinganinformedinvestmentdecision. the registeredownerofrecordasclosebusinessonfirstdaymonthsuchInterestPaymentDate. on theSeries2017BondswillbepayableAugust15,andsemiannuallythereafterFebruary15ofeachyear(eachan“InterestPayment Date”),to 2017 Bondswillbemadeinbook Depository Trust Cosmpany (“DTC”), New York, New York. DTC will act as securities depository for the Series 2017 Bonds. Purchases of beneficial interests in the Series under theMasterTrustIndentureandthereaftercouldwithdrawfromObligatedGroup. Members oftheObligatedGroupinfutureatwhichtimesuchadditionalpartieswouldbecomejointlyandseverallyliableforpaymentobligations covenants Participants, asmorefullydescribedherein.See“THESERIES2017BONDS—Book the DTCParticipantsisresponsibilityofanddisbursementssuchpaymentstobeneficialowners theIndirect principal orredemptionpriceofandinterestontheSeries2017BondswillbemadedirectlytoDTCsuchnomineebyTrustee.Disbursement paymentsto representing theirbeneficialinterestsintheSeries2017Bonds.SolongasDTCoritsnominee,Cede&Co.,isregisteredownerofBonds, paymentsof organization knownas Company, N.A.,assuccessormastertrustee(the“MasterTrustee”).TheCorporation,togetherwithaffiliatedentities,comprisesaphysician-led,integrated health service the CorporationandanyaffiliatesofwhomaybecomeMembersObligatedGroup(asdefinedtherein)TheBankNewYork MellonTrust obligations tobemadepursuantaMasterTrustIndenturedatedasofAugust 1,1998,supplementeddate(assupplemented,the“MasterIndenture”), among “Corporation”), andfromSeries2017BondproceedsothermoneyspledgedtoorheldbytheTrusteeunderIndentureforsuchpurpose,including payment to bereceivedbytheAuthorityunderaProgramLoanAgreementdatedasofMay1,2017(the“LoanAgreement”),betweenandGeisinger Health(the “Indenture”) betweentheAuthorityandTheBankofNewYorkMellonTrustCompany,N.A.,astrustee(the“Trustee”). 2017 Bonds”)willbelimitedobligationsoftheGeisingerAuthority(the“Authority”)andissuedundersecuredbyaTrustIndenturedatedasMay1, (the “Series2017A-1Bonds”)and$______*principalamountofSeries2017A-2Bonds”and,togetherwiththeBonds,

H Senior managing underwriterfor the Series2017A-2Bonds. Senior managingunderwriter fortheSeries2017A-1Bonds. Preliminary, subjectto change. In theopinionofBondCounsel,interestonSeries2017Bondsisexcludablefromgrossincomeforpurposesfederaltax,assumingcontinuing The Series2017Bondsareofferedwhen, asandifissuedreceivedbytheUnderwriters,subjecttopriorsale,withdrawal ormodificationoftheofferwithout T This coverandtheinsidecontaininformationforquickreferenceonly. InvestorsmustreadtheentireOfficialStatement,includingallappendices,toobtain The Series2017Bondsaresubjecttoredemptionandpurchaseinlieuofpriormaturityasdescribedherein. The Series2017BondswillbearinterestinaFixedRatePeriodtomaturityattheratessetforthoninsidefrontcoverofthisOfficialStatement. Interest The Series2017Bondsareissuableonlyasfullyregisteredbondsand,whenissued,willbeinthenameofandheldbyCede&Co.,nominee forThe The CorporationiscurrentlythesoleMemberofObligatedGroup.AsprovidedinMasterTrustIndentureandhereindescribed,additionalpartiesmay become The principalorredemptionpriceofandinterestontheSeries2017Bondswillbepayablesolelyfrom,securedby,paymentsotherrevenues The GeisingerAuthorityHealthSystemRevenueBonds,Series A of2017(GeisingerHealthSystem),consisting$______*principalamountSeries2017A-1 EREOF. NEIT H H E SERIES2017BONDSARELIMITED OBLIGATIONSOFT E PAYMENTOFT Jefferies LLC † H

E AUT

‑ entry form,indenominationsof$5,000andintegralmultiplesthereof.Exceptashereindescribed,purchaserswillnotreceivecertificates H H H OFPENNSYLVANIA,ORANYOT

ORITY

ER T PRELIMINARY OFFICIAL STATEMENT DATED APRIL 5, 2017 MATURITIES, AMOUNTS,INTERESTRATES,PRICESORYIELDS H H $______* Series2017A $______* Series2017A AND CUSIPSARESHOWNONTHEINSIDECOVERHEREOF H E GENERALCREDITOFT E PRINCIPALOFORINTERESTONT AS NOTAXINGPOWER. H (Montour County,Pennsylvania) ER POLITICALSUBDIVISIONT H GE ealth SystemRevenueBonds (Geisinger PNC CapitalMarketsLLC isinger Series Aof2017 $600,000,000* consisting of H A ealth System) ‑ Entry OnlySystem”herein. ut h ority - -

2 Bonds 1 Bonds H ER POLITICALSUBDIVISION H Wells FargoSecurities H E AUT E COMMONWEALT H EREOF ISPLEDGED H Due: Assetforthoninsidecover ORITY NORT BofA MerrillLynch H H E SERIES2017 E AUT Ratings: Moody’s:“Aa2”

H ORITY S&P: “AA” H OF H H E E ††

$600,000,000∗ Geisinger Authority (Montour County, Pennsylvania) Health System Revenue Bonds Series A of 2017 (Geisinger Health System) consisting of $______* Series 2017A-1 Bonds $______* Series 2017A-2 Bonds

MATURITIES, AMOUNTS, INTEREST RATES, PRICES OR YIELDS AND CUSIPS

Series 2017A-1

$______Serial Bonds Due Principal Interest Price or February 15 Amount Rate Yield CUSIP†

$______% Term Bonds due February 15, ____, Yield ____%, CUSIP† ______$______% Term Bonds due February 15, ____, Yield ____%, CUSIP† ______

Series 2017A-2

$______Serial Bonds Due Principal Interest Price or February 15 Amount Rate Yield CUSIP†

$______% Term Bonds due February 15, ____, Yield ____%, CUSIP† ______$______% Term Bonds due February 15, ____, Yield ____%, CUSIP† ______

∗ Preliminary, subject to change. † CUSIP numbers appearing on the inside cover of this Official Statement have been provided by the CUSIP Service Bureau, which is managed on behalf of the American Bankers Association by S&P Global Ratings, a division of S&P Global Inc. None of the Authority, the Underwriters or the Corporation is responsible for the selection of CUSIP numbers and makes no representation as to their correctness on the Series 2017 Bonds or as set forth in this Official Statement.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2017 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

No dealer, broker, salesperson or other person has been authorized by the Authority, the Underwriters or the Corporation to give any information or to make any representations with respect to the Series 2017 Bonds, other than those in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2017 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the Corporation, the Authority, The Depository Trust Company, and other sources that are believed to be reliable, but the Underwriters do not guarantee the accuracy or completeness of the information, and the information is not to be construed as a representation by the Underwriters. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof.

THE SERIES 2017 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2017 BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE SERIES 2017 BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE SERIES 2017 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

The CUSIP (Committee on Uniform Securities Identification Procedures) numbers on the inside front cover of this Official Statement have been assigned by an organization not affiliated with the Authority, the Corporation, the Underwriters or the Trustee, and such parties are not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of bondholders and no representation is made as to the correctness of the CUSIP numbers printed on the inside front cover hereof. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including but not limited to the refunding or defeasance of such issue or the use of secondary market financial products. None of the Authority, the Corporation, the Underwriters or the Trustee has agreed to, nor is there any duty or obligation to, update this Official Statement to reflect any change or correction in the CUSIP numbers printed on the inside front cover hereof.

TABLE OF CONTENTS

Page

INTRODUCTORY STATEMENT ...... 1 THE AUTHORITY ...... 5 THE SERIES 2017 BONDS ...... 6 REDEMPTION OF THE SERIES 2017 BONDS ...... 9 SECURITY FOR THE SERIES 2017 BONDS ...... 10 PLAN OF FINANCE ...... 13 ESTIMATED SOURCES AND USES OF FUNDS ...... 14 BONDHOLDERS’ RISKS ...... 14 LITIGATION ...... 50 TAX EXEMPTION ...... 50 CONTINUING DISCLOSURE ...... 51 UNDERWRITING ...... 52 FINANCIAL ADVISOR ...... 53 INDEPENDENT AUDITORS ...... 53 RATINGS ...... 53 VERIFICATION OF MATHEMATICAL COMPUTATIONS ...... 54 LEGAL MATTERS ...... 54 CERTAIN RELATIONSHIPS ...... 54 OTHER MATTERS ...... 54

Appendix A — Information Concerning Geisinger Health System...... A-1 Appendix B — Audited Consolidated Financial Statements of the Geisinger Health System for the years ended June 30, 2016 and 2015 ...... B - 1 Appendix C — Definitions of Certain Terms and Summary of Certain Provisions of the Master Indenture, the Twenty-Seventh Supplemental Indenture, the Indenture and the Loan Agreement ...... C-1 Appendix D — Form of Bond Counsel Opinion ...... D-1 Appendix E — Form of Continuing Disclosure Agreement ...... E-1

OFFICIAL STATEMENT relating to $600,000,000∗ GEISINGER AUTHORITY (Montour County, Pennsylvania) Health System Revenue Bonds Series A of 2017 (Geisinger Health System) consisting of $______* Series 2017A-1 Bonds $______* Series 2017A-2 Bonds

INTRODUCTORY STATEMENT

Purpose

This Official Statement provides information in connection with the issuance by the Geisinger Authority (the “Authority”) of $600,000,000* aggregate principal amount of its Health System Revenue Bonds, Series A of 2017 (Geisinger Health System) consisting of $______* principal amount of Series 2017A-1 (the “Series 2017A-1 Bonds”) and $______* principal amount of Series 2017A-2 (the “Series 2017A-2 Bonds” and, together with the Series 2017A-1 Bonds, the “Series 2017 Bonds”). The Series 2017 Bonds will be issued under and secured by a Trust Indenture dated as of May 1, 2017 (the “Indenture”) between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Authority will lend the proceeds of the Series 2017 Bonds to Geisinger Health (the “Corporation”) pursuant to a Program Loan Agreement dated as of May 1, 2017 (the “Loan Agreement”), the terms of which will require payment by the Corporation which, together with other monies, available for such purposes, if any, will be sufficient to provide for the timely payment of the principal or redemption price of and interest on the Series 2017 Bonds. All terms used and not otherwise defined herein shall have the respective meanings set forth in Appendix C hereto.

Geisinger Authority

The Authority is a body corporate and politic organized by the Board of Commissioners of the County of Montour, Pennsylvania, pursuant to provisions of the Pennsylvania Municipality Authorities Act, 53 Pa. Cons. Stat. §5601-5623 (2005) (which represents the codification of the Municipality Authorities Act of 1945). See “THE AUTHORITY” herein.

Geisinger Health System

Geisinger Health System† is a physician-led, integrated health services organization that has as its main components: (i) an array of health services providers, including seven acute care hospitals with multiple campuses; (ii) a multispecialty physician group practice of approximately 1,697 physicians practicing at 216 primary and specialty clinics; (iii) Geisinger Health Plans (“GHPs”), comprised of Geisinger Health Plan (“GHP”), Geisinger Indemnity Insurance Company (“GIIC”) and Geisinger Quality Options, Inc. (“GQO”), one of the nation’s largest rural health insurance organizations with commercial, Medicare Advantage, Medical Assistance and self-insured insurance products; and (iv) Geisinger Commonwealth School of Medicine (“GCSOM”) in Scranton, Pennsylvania with 399 medical students and 105 graduate students. Geisinger operates in 45 of Pennsylvania’s 67 counties, with a significant presence in central, south-central and northeastern Pennsylvania, outside the major metropolitan areas, and in seven counties in southern New Jersey.

∗ Preliminary, subject to change. † Throughout this document the acronym “GHS” or the term the “System” refers to the entire health care system comprised of Geisinger Health as parent and all subsidiary corporate entities comprising the System.

The Master Trust Indenture

To evidence the loan to be made by the Authority to the Corporation under the Loan Agreement (as hereinafter defined), the Corporation will issue and deliver to the Authority a master note corresponding to the aggregate principal amount of the Series 2017 Bonds (the “Series 2017 Note”). The Series 2017 Note will be issued and secured under and pursuant to a Master Trust Indenture dated as of August 1, 1998 (the “Master Indenture”), as theretofore supplemented, and as further supplemented in connection with the issuance of the Series 2017 Bonds by a Twenty-Seventh Supplemental Master Trust Indenture dated as of May 1, 2017, (the “Twenty-Seventh Supplemental Indenture”) relating to the issuance of the Series 2017 Bonds, between the Corporation, as the Obligated Group Agent and as the initial sole Member of the Obligated Group thereunder, and The Bank of New York Mellon Trust Company, N.A., successor Master Trustee to PNC Bank, National Association, Philadelphia, Pennsylvania, as master trustee (the “Master Trustee”). The terms of the Series 2017 Note and the Loan Agreement will require payment by the Corporation which, together with other monies, available for such purposes, if any, will be sufficient to provide for the timely payment of the principal or redemption price of and interest on the Series 2017 Bonds.

The Master Indenture creates an Obligated Group. The sole Member of the Obligated Group will be the Corporation on the date of delivery of the Series 2017 Bonds. The obligations of the Corporation and the other Members of the Obligated Group, if any, to make payments on any promissory notes issued from time to time by the Corporation under the Master Indenture (the “Obligations”), including the Series 2017 Note, are unsecured general obligations of the Corporation and any other Members of the Obligated Group. Obligations in addition to the Series 2017 Note may be issued from time to time in the future pursuant to the Master Indenture, and such Obligations may be secured on a parity with the Series 2017 Note. Prior to the issuance of the Series 2017 Bonds, the Corporation will have outstanding Obligations in the aggregate principal amount of $1,423,125,000 as of March 31, 2017 on a parity with the Series 2017 Note which represent (i) security for the Authority’s Health System Revenue Bonds, Series A of 1998 (Penn State Geisinger Health System) outstanding in the aggregate principal amount of $27,700,000; (ii) security for the Authority’s Health System Revenue Bonds, Series 2002 (Geisinger Health System) outstanding in the aggregate principal amount of $50,000,000 (the “Series 2002 Bonds”); (iii) security for the Authority’s Health System Revenue Bonds, Series 2005 (Geisinger Health System) outstanding in the aggregate principal amount of $127,300,000; (iv) security for the Authority’s Health System Revenue Bonds, Series 2007 (Geisinger Health System) outstanding in the aggregate principal amount of $68,850,000; (v) security for the Mifflin County Hospital Authority Revenue Refunding Bonds (Lewistown Hospital Obligated Group Project) Series of 2007 outstanding in the aggregate principal amount of $16,890,000 (the “Series 2007 Lewistown Bonds”); (vi) security for the Authority’s Health System Revenue Bonds, Series A of 2009 (Geisinger Health System) outstanding in the aggregate principal amount of $157,000,000 (the “Series 2009 Bonds”); (vii) security for the Authority’s Health System Revenue Bonds, Series 2011 (Geisinger Health System) outstanding in the aggregate principal amount of $173,580,000 (the “Series 2011 Bonds”); (viii) security for the West Shore Area Authority Hospital Revenue Bonds – Series of 2011 (Holy Spirit Hospital of the Sisters of Christian Charity Project) outstanding in the aggregate principal amount of $41,485,000 (the “Series 2011 Holy Spirit Bonds”); (ix) security for the West Shore Area Authority Hospital Revenue Bonds – Series B of 2011 (Holy Spirit Hospital of the Sisters of Christian Charity Project) outstanding in the aggregate principal amount of $33,640,000 (the “Series 2011B Holy Spirit Bonds”); (x) security for the Authority’s Health System Revenue Bonds Series A and B of 2013 (the “Series 2013A and B Bonds”) (Geisinger Health System) outstanding in the aggregate principal amount of $115,000,000; (xi) security for the Authority’s Health System Revenue Bonds, Series C and D of 2013 (Geisinger Health System) outstanding in the aggregate principal amount of $169,400,000; (xii) security for the Authority’s Health System Revenue Bonds, Series A and B of 2014 (Geisinger Health System) outstanding in the aggregate principal amount of $110,740,000; and (xiii) security for the Authority’s Health System Revenue Bonds, Series 2015 (Geisinger Health System) outstanding in the aggregate principal amount of $331,540,000.

The Series 2002 Bonds in the principal amount of $50,000,000∗, the Series 2007 Lewistown Bonds in the principal amount of $16,890,000*, the Series 2009 Bonds in the principal amount of $157,000,000*, a portion of the Series 2011 Holy Spirit Bonds in the principal amount of $19,925,000*, a portion of the Series 2011B Holy Spirit Bonds in the principal amount of $7,820,000* and a portion of the Series 2013A and B Bonds in the principal

∗ Preliminary, subject to change.

amount of $50,000,000∗, all listed above are referred to collectively herein as the “Refunded Bonds”. In addition, a term loan provided to the Corporation by Bank of America N.A. outstanding in the principal amount of $34,750,000* (the “Term Loan”), is to be retired with the proceeds of the Series 2017 Bonds. See “PLAN OF FINANCE” herein.

As security for the Series 2017 Bonds, the Authority will pledge and assign to the Trustee for the Series 2017 Bonds substantially all of its rights and interest in, to or under the Loan Agreement (except for the Authority’s rights to indemnification, fees and reimbursement of expenses), the Series 2017 Note and all funds held under the Indenture. See the information herein under the caption, “SECURITY FOR THE SERIES 2017 BONDS.”

The Corporation and the Other System Affiliates

Certain of the System Affiliates described in Appendix A hereto operate health care facilities (the “Facilities”). See Appendix A hereto for a brief description of the System Affiliates.

In addition to those entities that the Corporation controls, the Master Indenture permits the Corporation (or other future Members of the Obligated Group) to designate organizations over which it exercises no corporate control as Designated Affiliates if any such organization enters into a written agreement with the Corporation (or another future Member of the Obligated Group) containing an undertaking by such organization to comply with the covenants in the Master Indenture applicable to the Designated Affiliates.

On the date of issuance of the Series 2017 Bonds, the Corporation will designate its Affiliates owning, in the aggregate, substantially all of the revenue and assets of Affiliates of the System as Designated Affiliates. (See Appendix A hereto for a list of the Designated Affiliates.) The Corporation has covenanted (and any future Member of the Obligated Group will covenant) in the Master Indenture to cause their respective Designated Affiliates, and to use reasonable efforts to cause their Affiliates (subject to existing organizational and contractual limitations), to comply with certain provisions in the Master Indenture. The Corporation, any other Members of the Obligated Group, the Affiliates and the Designated Affiliates are each defined to be a “System Affiliate” under the Master Indenture, and are collectively referred to herein as the “System Affiliates”. See the information herein under the caption, “SECURITY FOR THE SERIES 2017 BONDS.” The Series 2017 Note is a general, unsecured obligations of the Corporation. The obligations of the Corporation and of any future Member of the Obligated Group under the Master Indenture need not be secured by any property of the Corporation or the property of any other future Member of the Obligated Group or any other System Affiliate. A System Affiliate may grant a security interest in certain of its property, which security need not extend to the holders of any Obligations (hereinafter defined) issued under the Master Indenture. Pursuant to the Master Indenture, the Corporation may at any time declare that a Designated Affiliate is no longer a Designated Affiliate under the Master Indenture.

The Designated Affiliates are not obligated to make any debt service payment on any Obligations, including the Series 2017 Note. The obligations of the Corporation (and other Members of the Obligated Group, if any) to pay or cause to be paid the principal of and premium, if any, and interest on the Series 2017 Note will not be secured by any property of the Corporation (or any other Member of the Obligated Group, if any) or any Designated Affiliate. However, the Master Indenture will impose certain operational and financial restrictions and other contractual obligations upon the Corporation and the other Members of the Obligated Group for the benefit of the Authority and the holders and owners of the Obligations, including the Series 2017 Note. The Corporation has covenanted in the Master Indenture to cause each Designated Affiliate, and to use reasonable efforts to cause each of its Affiliates (subject to existing organizational and contractual limitations), to pay, loan or otherwise transfer to the Corporation, subject to certain limitations described herein under the caption, “SECURITY FOR THE SERIES 2017 BONDS”, such amounts as are necessary to enable the Corporation to pay the principal or redemption price of and interest on or other amounts due in payment of the Series 2017 Note or the Series 2017 Bonds and of other Obligations, to the extent permitted by law, and to comply with certain restrictions and obligations regarding payment of taxes and governmental charges assessed, payment of claims for labors, materials and supplies, maintenance of insurance, restrictions on Liens securing Debt, and collection of fees and charges for services

∗ Preliminary, subject to change.

provided. The Corporation has covenanted that the System Affiliates, taken as a whole, will maintain a Historic Debt Service Coverage Ratio (as defined in the Master Indenture) of at least 1.10. See the information herein under the caption, “SECURITY FOR THE SERIES 2017 BONDS.”

Notwithstanding the foregoing, the Corporation may not cause a Designated Affiliate to transfer any property to the Corporation if such transfer would be inconsistent with state law or would cause such Designated Affiliate to breach the terms of any existing contractual obligations or other commitments, including joint operating agreements and joint ventures. See also “BONDHOLDERS’ RISKS—Security and Enforceability of Obligations Under the Master Indenture.”

Plan of Finance

The proceeds of the Series 2017 Bonds will be loaned to the Corporation pursuant to the Loan Agreement in order to (i) finance, including through a pooled loan program, (a) the acquisition of land; (b) the construction, acquisition, renovation and installation of capital improvements; and (c) the acquisition and installation of equipment, all for health care facilities of the System; (ii) provide for the refunding of the Refunded Bonds; and (iii) refinance the Term Loan. Under the Loan Agreement, loans are made from time to time to the Corporation (referred to in this context as the “Program Administrator”) and its System Affiliates (hereinafter called a “Participant”, and collectively, the “Participants”) pursuant to the Loan Agreement. The Corporation expects to pay all of the costs of issuance of the Series 2017 Bonds from its own funds. For a more detailed description of the application of proceeds of the Series 2017 Bonds, see “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein.

Sources of Payment

The Authority will loan the proceeds of the Series 2017 Bonds to the Corporation pursuant to the Loan Agreement. The Series 2017 Bonds will be secured by a pledge and assignment by the Authority to the Trustee of amounts to be received from the Corporation under the Loan Agreement. Amounts received by the Trustee pursuant to the Loan Agreement will be used to make required deposits into Funds established under the Indenture. The Funds established under the Indenture will be held solely as security for the Series 2017 Bonds. The payment and other obligations of the Corporation under the Loan Agreement will be the unsecured general obligation of the Corporation. See “SECURITY FOR THE SERIES 2017 BONDS” and “PLAN OF FINANCE” herein.

As further security for the Series 2017 Bonds, the Corporation will execute and deliver to the Trustee the Series 2017 Note, in an aggregate principal amount corresponding each series of Series 2017 Bonds, pursuant to which the Corporation will agree to make payments at the times and in amounts sufficient to pay when due the principal or redemption price of, and interest on, the Series 2017 Bonds. The Series 2017 Note will be unsecured joint and several general obligations of all of the Members of the Obligated Group, payable in all events, notwithstanding the expiration, invalidity, surrender or termination of the Loan Agreement. The Corporation initially will be the only Member of the Obligated Group. The Series 2017 Note is payable on a parity with other Obligations issued under the Master Indenture. See “SECURITY FOR THE SERIES 2017 BONDS” herein.

Other Indebtedness

The Indenture does not provide for the issuance of additional series of bonds thereunder. However, under the Master Indenture, the System may incur additional indebtedness.

Rate Covenant

Under the Master Indenture, the Corporation covenants to cause the System Affiliates, taken as a whole, to have in each Fiscal Year a Historical Debt Service Coverage Ratio of at least 1.10. See “THE MASTER INDENTURE—GENERAL COVENANTS—Historical Debt Service Coverage Ratio” in Appendix C hereto.

Bondholders’ Risks

For a discussion of certain risks associated with the purchase of the Series 2017 Bonds, see “BONDHOLDERS’ RISKS” herein.

Underlying Documents

The descriptions and summaries of various documents set forth in this Official Statement do not purport to be comprehensive or definitive, and reference is made to each document for the complete details, terms and conditions thereof. All statements herein are qualified in their entirety by reference to each such document, copies of which may be obtained, in limited quantities, from the Trustee.

THE AUTHORITY

General

The Geisinger Authority (formerly, the Geisinger Medical Center Authority) is a body corporate and politic created pursuant to a resolution of the Board of Commissioners of the County of Montour, Pennsylvania under the Pennsylvania Municipality Authorities Act, 53 Pa. Cons. Stat. §5601-5623 (2005) (which represents the codification of the Municipality Authorities Act of 1945) (the “Act”). The Authority may acquire, hold, finance, construct, improve, maintain, own, operate and lease, in the capacity of either lessor or lessee, hospitals and related facilities, and other projects acquired, constructed or improved for hospital purposes. A Certificate of Incorporation, dated November 28, 1975, has been issued to the Authority by the Secretary of the Commonwealth of Pennsylvania. In 1987, the Authority’s Articles of Incorporation were amended to change the Authority’s name from the Geisinger Medical Center Authority to the Geisinger Authority, reflecting the Authority’s expanded role in financings for the Geisinger Health System.

Members of the Authority

The governing body of the Authority is a Board (the “Authority Board”) consisting of seven members appointed by the County Commissioners of Montour County, who are elected officials. The presently elected County Commissioners are: Kenneth A. Holdren, Chairman; Dan W. Hartman, Vice Chairman; and Trevor S. Finn. Members of the Authority Board are appointed for staggered five-year terms and may be reappointed, but they may not be County Commissioners. The present members of the Authority Board are: Term Expires (First Monday Members Office in January) Occupation

Susan M. Kauwell Chairman 2020 Prothonotary/Clerk of Courts, Montour County

William R. Betz* Vice Chairman 2021 Financial Consultant

John J. Gerst Secretary 2021 Retired

John J. Metzer Treasurer 2022 President, Jack Metzer, Inc.

Constance J. Kuziak Asst. Secretary 2020 Self-Employed

H. James Shutt Asst. Treasurer 2018 Retired, Teacher-Coordinator

Barbara J. Nied Parliamentarian 2019 Insurance Agent

* Mr. Betz is a broker for Janney Montgomery Scott LLC who serves as a selling group member for several series of Authority bonds, including the Series 2017 Bonds.

Other Authority Financings

The Authority has issued and may issue bonds to finance projects for entities that are not Members of the Obligated Group. These bonds are not secured by any sources of revenue which secure the Series 2017 Bonds. The Authority may issue additional series of bonds from time to time to finance projects for Members of the Obligated Group to be secured by distinct sources of revenue or other security (which may include additional Obligations issued under the Master Indenture). The Authority has never been declared in default under any of its obligations.

THE SERIES 2017 BONDS

General

The following is a summary of certain provisions of the Series 2017 Bonds. Reference is made to the Series 2017 Bonds and to the Indenture for a more detailed description of such provisions. The discussion herein is qualified by such reference. See “Appendix C - Definitions of Certain Terms and Summary of Certain Provisions of the Master Indenture, the Twenty-Seventh Supplemental Indenture, the Indenture and the Loan Agreement”. Any reference herein to the Series 2017 Bonds or to the Indenture or other similar documents shall be deemed to mean the Series 2017 Bonds or the documents related thereto, unless the context or use clearly indicates otherwise. All capitalized terms used herein but not otherwise defined shall have the meanings given to them in Appendix C hereto.

The Series 2017 Bonds will be dated, bear interest at the annual interest rates and mature in the years and in the principal amounts shown on the inside cover page of this Official Statement, subject to redemption prior to maturity as hereinafter described. The Series 2017 Bonds are issuable only as fully registered bonds, under a book entry system, each in the denomination of $5,000 or any integral multiple thereof.

Interest on the Series 2017 Bonds will be paid semiannually on February 15 and August 15 (each an “Interest Payment Date” for the Series 2017 Bonds), commencing August 15, 2017 and will be calculated on the basis of a 360-day year, composed of twelve 30-day months. Except while the Series 2017 Bonds are registered in the name of Cede & Co., as described below under “DTC AND BOOK-ENTRY”, (i) the principal of each Series 2017 Bond will be payable upon presentation and surrender thereof at the Designated Corporate Trust Office of the Trustee or, at the option of the Holder, at the designated corporate trust office of any Paying Agent named in the Series 2017 Bonds, and (ii) interest on each Series 2017 Bond will be paid to the registered Holders thereof as of the Record Date at their addresses appearing on the registration books maintained by the Trustee or at such other address furnished in writing by such registered Holder to the Trustee by (A) check or draft of the Trustee mailed on the Interest Payment Date relating to such Series 2017 Bond or (B) to any Holder of $1,000,000 or more in aggregate principal amount of the Series 2017 Bonds by wire transfer of funds sent on the Interest Payment Date upon written notice from the Holder received by the Trustee not later than the Business Day prior to the Interest Payment Date containing the wire transfer address (which shall be in the continental United States). Defaulted interest will be paid to the registered Holders of the Series 2017 Bonds as of a Special Record Date established by the Trustee in accordance with the Bond Indenture.

Book-Entry Only System

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Series 2017 Bonds, payment of principal, interest and other payments on the Series 2017 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Series 2017 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the Authority nor the Trustee or Fiscal Agent, appointed with respect to the Series 2017 Bonds (collectively, the “Agent”) take any responsibility for the information contained in this Section.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Series 2017 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Series 2017 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2017 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this section. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

DTC will act as securities depository for the Series 2017 Bonds. The Series 2017 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2017 Bonds certificate will be issued for each issue of the Series 2017 Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations.

DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has S&P Global Ratings’ rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information contained on this Internet site is not incorporated herein by reference.

Purchases of Series 2017 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2017 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2017 Bonds (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2017 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2017 Bonds, except in the event that use of the book-entry system for the Series 2017 Bonds is discontinued.

To facilitate subsequent transfers, all Series 2017 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2017 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2017 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2017 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2017 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Series 2017 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Series 2017 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Authority or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name”, and will be the responsibility of such Participant and not of DTC, Agent, or Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Authority or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the Series 2017 Bonds at any time by giving reasonable notice to the Corporation or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, such Bond certificates are required to be printed and delivered. The Corporation, in its sole discretion and without the consent of any other person, may terminate the services of DTC with respect to the Series 2017 Bonds if the Corporation determines that (i) DTC is unable to discharge its responsibilities with respect to the Series 2017 Bonds, or (ii) a continuation of the requirement that all of the Outstanding Bonds be registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of DTC, is not in the best interests of the Beneficial Owners. In the event that no substitute securities depository is found by the Corporation or restricted registration is no longer in effect, Bond certificates will be delivered.

The information herein concerning DTC and DTC’s book-entry system has been obtained from sources that the Authority, the Corporation and the Underwriters believe to be reliable, but the Authority, the Corporation and the Underwriters take no responsibility for the accuracy thereof.

Each person for whom a Participant acquires an interest in the Series 2017 Bonds, as nominee, may desire to make arrangements with such Participant to receive a credit balance in the records of such Participant, and may desire to make arrangements with such Participant to have all notices of redemption or other communications to DTC, which may affect such persons, to be forwarded in writing by such Participant and to have notification made of all interest payments. NEITHER THE AUTHORITY, THE CORPORATION NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE SERIES 2017 BONDS.

Redemption notices will be sent to DTC. If less than all of the Series 2017 Bonds are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant to be redeemed.

So long as Cede & Co. is the registered owner of the Series 2017 Bonds, as nominee for DTC, references herein to Bondholders or registered owners of the Series 2017 Bonds means Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the Series 2017 Bonds.

When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes. When notices are given, they shall be sent by the Trustee to DTC only.

For every transfer and exchange of Series 2017 Bonds, the Beneficial Owner may be charged a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto.

NONE OF THE AUTHORITY, THE CORPORATION, THE UNDERWRITERS NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, TO INDIRECT PARTICIPANTS, OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE OWNERS OF THE SERIES 2017 BONDS UNDER THE INDENTURE; (III) THE SELECTION BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE SERIES 2017 BONDS; (IV) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OR INTEREST DUE WITH RESPECT TO THE SERIES 2017 BONDS; (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNER OF THE SERIES 2017 BONDS; OR (VI) ANY OTHER MATTER.

REDEMPTION OF THE SERIES 2017 BONDS

Optional Redemption. The Series 2017 Bonds are subject to redemption prior to stated maturity by the Authority, at the written direction of the Program Administrator, at any date on and after February 15, ____, in whole or in part, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.

Mandatory Sinking Fund Redemption. The Series 2017A-1 Bonds maturing on ______and the Series 2017A-2 Bonds maturing on ______are subject to mandatory sinking fund redemption in part by lot prior to maturity, without premium, plus accrued interest to their redemption dates on February 15 of each of the years and in the amounts set forth below. The principal amount of the Series 2017 Bonds otherwise required to be redeemed may be reduced at the written direction of the Program Administrator by the principal amount of such Series 2017 Bonds previously called for optional redemption or theretofore delivered to the Trustee by the Program Administrator in lieu of cash payments under the Loan Agreement or purchased by the Trustee out of moneys provided under the Indenture and which have not theretofore been applied as a credit against any sinking fund installment.

Series 2017A-1 Term Bond Due ______Sinking Fund Year Installment

Series 2017A-2 Term Bond Due ______Sinking Fund Year Installment

______* Maturity.

Extraordinary Optional Redemption. The Series 2017 Bonds are subject to extraordinary optional redemption, in whole or in part at any time by the Authority, at the written direction of the Program Administrator, on satisfaction of certain conditions specified in the Indenture and the Master Indenture, out of the proceeds of

insurance, condemnation awards and the proceeds of conveyances in lieu of condemnations deposited with or held by the Trustee for such purpose, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date.

Program Termination Redemption. The Series 2017 Bonds are subject to mandatory program termination redemption in whole or in part on the earliest practicable Interest Payment Dates after the date on which the Program Administrator determines that no further Loans will be made pursuant to the Loan Agreement (the “Program Termination Date”) or the dates on which Loan Repayments or prepayments are received following such Program Termination Date, as the case may be. Any such redemptions shall be made from time to time in amounts equal to the sums transferred from the Program Fund to the Debt Service Fund pursuant to the Indenture at a redemption price equal to 100% of the principal amount of the Series 2017 Bonds to be redeemed plus accrued stated interest to the redemption date.

Selection of Series 2017 Bonds to be Redeemed. If less than all of the Series 2017 Bonds of a series are to be redeemed, the particular series and maturities to be called for redemption shall be selected by the Program Administrator and within a maturity, the Series 2017 Bonds to be redeemed will be selected by lot.

Notice of Redemption. Notice of redemption shall be sent by the Trustee at the expense of the Corporation to all registered owners of Series 2017 Bonds to be redeemed at their registered addresses not more than 60 days and not fewer than 20 days prior to the redemption date for the Series 2017 Bonds. Failure to mail any such notice or defect in the mailing thereof in respect of any Series 2017 Bonds shall not affect the validity of the redemption of any other Series 2017 Bond. Any such notice shall be given in the name of the Authority, shall identify the Series 2017 Bonds to be redeemed (and, in the case of partial redemption of any Series 2017 Bonds, the respective principal amounts thereof to be redeemed), shall specify the redemption date and the redemption price and when any accrued interest to the redemption date will be payable, and shall state that on the redemption date the redemption price of the Series 2017 Bonds called for redemption will be payable at the corporate trust office or corporate trust agency of the Trustee and/or of one or more Paying Agents identified in such notice and from that date interest will cease to accrue.

If at the time of mailing of notice of any optional redemption the Authority shall not have deposited with the Trustee moneys sufficient to redeem all the Series 2017 Bonds called for redemption, such notice may state that it is conditional in that it is subject to the deposit of moneys with the Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited.

Purchase in Lieu of Redemption. In lieu of redemption under the Indenture, the Program Administrator may purchase some of or all of the Series 2017 Bonds called for redemption, if it gives a notice to the Trustee by the Business Day before the redemption date that it wishes to purchase Series 2017 Bonds up to the principal amount specified in such notice and provides sufficient funds to the Trustee for such purchase on or before the redemption date. Notwithstanding anything in the Indenture to the contrary, any Series 2017 Bonds so purchased shall remain Outstanding unless surrendered by the Program Administrator to the Trustee with instructions to cancel such Series 2017 Bonds.

SECURITY FOR THE SERIES 2017 BONDS

General

The Series 2017 Bonds are payable from, and are secured by (i) the Loan Agreement, (ii) the Series 2017 Note, and (iii) the Funds established under the Indenture.

The Loan Agreement

The net proceeds of the Series 2017 Bonds will be deposited into the Program Fund established under the Indenture. Pursuant to a series of schedules to the Loan Agreement, the Authority will make loans from time to time to the Participants from amounts on deposit in the Program Fund (each referred to herein as a “Loan”). The proceeds of a Loan are used to finance, in whole or in part, capital projects of the Participants which meet the

financing requirements of the Loan Agreement. See “PLAN OF FINANCE” herein and “THE PROGRAM LOAN AGREEMENT—Disbursements of Loan” and “THE INDENTURE—The Program and the Program Fund” in Appendix C.

In connection with the making of each Loan, each Participant will execute a Loan Schedule which will be appended to and become part of the Loan Agreement. The amounts which each Participant must pay pursuant to the Loan Schedule may not correspond to its allocable portion of the debt service on the Series 2017 Bonds. Loan payments shall be deposited into Funds established under the Indenture as directed by the Corporation. A portion of the Loan payments shall be deposited into the Program Fund and shall again be loaned to Participants.

Each Participant will be obligated to repay its Loan and a portion of the Authority’s Administrative Expenses. The payment and other obligations of each Participant under the Loan Agreement will be the general obligation of the particular Participant, unsecured by any pledge of or security interest in any revenues of such Participant or any mortgage of or security interest in the real or personal property of such Participant. The Authority will pledge and assign to the Trustee, for the benefit of the holders of the Series 2017 Bonds, all of the Authority’s right, title and interest in and to the Loan Agreement, as applicable, and the amounts payable by the Participants thereunder (other than the Authority’s right to be reimbursed for Administrative Expenses and its right to indemnification by the Participants).

The Corporation is obligated to pay the principal or redemption price of and interest on the Series 2017 Bonds, and to pay or cause to be paid the purchase price of Series 2017 Bonds tendered for purchase in lieu of redemption in accordance with the Indenture. The aggregate amount of the payments by the Corporation and the Participants, together with other available amounts in the Revenue Fund and the Debt Service Fund or otherwise available for the purpose under the Indenture, shall at all times be sufficient to enable the Trustee to pay the principal or redemption price or purchase price of and interest on the Series 2017 Bonds when due.

The Master Indenture

To secure the repayment of the Series 2017 Bonds, the Corporation will execute and deliver to the Trustee, on the date of issuance of the Series 2017 Bonds, the Series 2017 Note (issued in the same aggregate principal amount as the Series 2017 Bonds) pursuant to the Master Indenture and the Twenty-Seventh Supplemental Indenture. Payments under the Series 2017 Note will be scheduled to be made at the times and in the amounts required to pay the principal or redemption price of and the interest on the corresponding series of Series 2017 Bonds, and will be credited against the payment obligations of the Corporation under the Loan Agreement. Under the terms of the Master Indenture, the Series 2017 Note will be the unsecured joint and several general obligations of all of the Members of the Obligated Group, payable on the same basis as other Obligations issued under the Master Indenture. The Series 2017 Note will be payable in all events, notwithstanding the expiration, invalidity, surrender or termination of the Loan Agreement.

Upon issuance of the Series 2017 Bonds, the Corporation will be the only Member of the Obligated Group. Pursuant to the Master Indenture, the Corporation covenants to subject itself and the Designated Affiliates to operational and financial restrictions including, among others, restrictions on Liens securing Debt, maintenance of certain rates and charges for services provided by the Designated Affiliates, compliance with certain restrictions and obligations regarding payment of taxes and governmental charges assessed, payment of claims and for labor, materials and supplies, maintenance of insurance and maintenance by the System Affiliates, taken as a whole, of a Historic Debt Service Coverage Ratio of at least 1.10.

The Corporation also covenants in the Master Indenture to cause each Designated Affiliate, and to use reasonable efforts to cause each Affiliate (subject to existing contractual and organizational limitations) to pay, loan or otherwise transfer to the Corporation such amounts as are necessary to enable the Corporation to pay the principal of and premium, if any, and interest or other amounts due on the Series 2017 Note or the Series 2017 Bonds or other Obligations. See the information herein under the caption “THE MASTER INDENTURE—GENERAL COVENANTS” in Appendix C hereto.

Affiliate to breach the terms of any existing contractual obligations or other commitments, including joint operating agreements and joint ventures.

Although the Corporation is subject to the covenants contained in the Master Indenture, and has agreed to subject the Designated Affiliates to certain covenants, the Obligations, including the Series 2017 Note, will be the unsecured general obligations of only the Corporation and any future Member of the Obligated Group and will not be secured by any pledge, grant or mortgage of any of the real or personal property of any System Affiliate.

The Master Indenture includes a covenant that no Member of the Obligated Group will consolidate or merge with another entity or transfer its property substantially as an entirety unless the transferee is or becomes a Member of the Obligated Group or assumes the obligations and covenants of the Master Indenture. The Master Indenture includes a covenant that no Member of the Obligated Group will take any action that would cause it to cease to be a Member of the Obligated Group (except for mergers described in the preceding sentence) unless (i) such Member of the Obligated Group is not a party to any loan or credit agreement entered into in connection with the issuance of any Obligations if the bonds secured thereby (the “Related Bonds”) remain outstanding; (ii) no Obligations issued by or for the benefit of such Member of the Obligated Group remain outstanding unless another Member of the Obligated Group issues an Obligation evidencing its assumption of the related indebtedness; (iii) prior to withdrawal of such Member from the Obligated Group, an opinion from nationally recognized bond counsel is delivered to the Master Trustee to the effect that (a) such withdrawal will not adversely affect the tax-exempt status of any other Member of the Obligated Group otherwise having such status, (b) such withdrawal will not adversely affect the validity of any Related Bond or the exemption from federal or state income taxation of interest payable on any Related Bond otherwise entitled to such exemption, and (c) such withdrawal will not cause any Obligation to be required to be registered under the Securities Act of 1933, as amended, or the Master Indenture to be required to be qualified under the Trust Indenture Act of 1939, as amended; and (iv) prior to and immediately after such act, no Event of Default (as defined in the Master Indenture) would exist and no event shall have occurred that with the passage of time or giving of notice or both would become an Event of Default.

Other than as described above, the Master Indenture does not restrict the ability of any System Affiliate to transfer property, including cash, marketable securities or receivables to anyone including entities that are not System Affiliates. The Master Indenture does not limit the amount of Debt which may be issued or incurred by any System Affiliate. Other than as described above, the Master Indenture does not restrict the ability of the Members of the Obligated Group to withdraw from the Obligated Group, and it does not restrict the ability of any Member of the Obligated Group which has designated an organization as a Designated Affiliate to remove such designation. See the information under the caption, “THE MASTER INDENTURE— GENERAL COVENANTS” in Appendix C attached hereto.

Obligations other than the Series 2017 Note may be issued from time to time in the future pursuant to the Master Indenture, and such Obligations may be on parity with the Series 2017 Note with respect to the benefits of the Master Indenture. The Master Indenture provides that no Material Designated Affiliate (as defined in Appendix C hereto) shall create or incur or permit to be created or incurred any Lien on any property of a Material Designated Affiliate securing Debt other than Liens permitted under the Master Indenture. Such Liens may secure such additional Obligations. See the information under the caption, “THE MASTER INDENTURE—GENERAL COVENANTS” in Appendix C attached hereto.

The Designated Affiliates are not obligated to the holders of the Series 2017 Bonds or the Obligations, including the Series 2017 Note, or to the holders of any additional Obligations, or to the Master Trustee, to make debt service payments on such Obligations.

To be a Designated Affiliate, an organization must be controlled by the Corporation or another Member of the Obligated Group or have entered into a written contract or undertaking with a Member of the Obligated Group that is, in the judgment of such Member of the Obligated Group, sufficient to allow such member of the Obligated Group to enforce compliance with the obligations of the Master Indenture, and such organization must be designated as a Designated Affiliate by a resolution of the Member of the Obligated Group designating such Designated Affiliate.

The Master Indenture provides that after an organization is designated as a Designated Affiliate, the Member of the Obligated Group which has designated such Affiliate may at any time declare that such organization is no longer a Designated Affiliate. Accordingly, there can be no assurance that the organizations described herein as Designated Affiliates and to be designated as Designated Affiliates on the date of delivery of the Series 2017 Bonds will continue to be such or that other organizations will be so designated.

Substitution of Security

The Indenture and Loan Agreement may be amended with the consent of not less than a majority of the holders of the Series 2017 Bonds.

Additionally, the Master Indenture may be amended with the consent of not less than a majority of the holders of the Obligations outstanding thereunder. In certain circumstances, a credit enhancer may be deemed the holder of the Obligation for purposes of obtaining such consent.

Such amendments may result in material changes in the security for the Series 2017 Bonds (or portion thereof), and may result in the release of the Corporation from any of its obligations relating to the Series 2017 Bonds (or portion thereof). In such event, the repayment obligations with respect to the Series 2017 Bonds would thereafter be supported by a single obligor or by a credit group which could be comprised of a smaller number of or none of the System Affiliates.

PLAN OF FINANCE

As part of the plan of finance, should market conditions warrant, the Corporation may elect to employ floating rate notes or other variable rate products in a principal amount up to $134,750,000 in lieu of issuing a portion of the Series 2017 Bonds in a similar principal amount.

ESTIMATED SOURCES AND USES OF FUNDS

The sources and uses of funds relating to the issuance of the Series 2017 Bonds are estimated as follows:

Series 2017A-1 Series 2017A-2 Total

Estimated Sources of Funds

Par Amount of the Series 2017 Bonds ...... (Original Issue Discount/Premium) ...... Released Funds ...... Equity Contributions ...... Total Estimated Sources of Funds ......

Estimated Uses of Funds

Deposit to Program Fund ...... Retirement of Refunded Bonds ...... Payment of Term Loan ...... Costs of Issuance(1) ...... Total Estimated Uses of Funds ...... (1) Includes, among other things, Underwriters’ discount, printing costs, Trustee fees and expenses, legal fees and expenses, rating agency fees and Authority-related fees. All of the costs of issuance are expected to be paid from funds of the Corporation.

BONDHOLDERS’ RISKS

Factors That Could Affect the Future Financial Condition of the System

The future financial condition of the System and its ability to pay its obligations under the Master Indenture could be affected adversely by, among other things, legislation, regulatory actions, economic conditions, increased competition from other health care providers, changes in the demand for health care services, demographic changes, malpractice claims, other litigation, nurse staffing and medical malpractice insurance costs.

General: Adequacy of Revenue

The System is a health care provider that derives significant portions of its revenues from Medicare, Medicaid, Blue Cross, HMOs and other third-party payor programs. The System is subject to governmental regulation applicable to health care providers and the receipt of future revenues by the System is subject to, among other factors, federal and state policies affecting the health care industry and other conditions which are impossible to predict. Such conditions may include limits on increasing charges and fees charged by the System, changes in federal and state laws and regulations affecting payments for health services, the continued increase in managed care or development of new third-party payment policies which reduce revenues, unanticipated competition from other health care providers, and changes in demand for health services. The receipt of future revenues by the System is also subject to demand for System services, the ability to provide the services required by patients, physicians’ relationships with the System, System management capabilities, economic developments in the service area, the System’s ability to control expenses, maintenance by the System of relationships with HMOs and other third-party payor programs, competition, rates, costs, third-party reimbursement, legislation and governmental regulation, receipt of private contributions, the continued funding by the Commonwealth of Pennsylvania (the “Commonwealth”) for medically indigent patient care, future economic conditions, and other conditions which are impossible to predict.

No assurances can be given that patient utilization or revenues available to the System from its operations will remain stable or increase. The System expects that it will experience increases in operating costs due to

inflation and other factors. There is no assurance that cost increases will be matched by increased patient revenue in amounts sufficient to generate an excess of revenues over expenses.

The risk factors discussed below should be considered in evaluating the ability of the System to make payments in amounts sufficient to meet its obligations under the Indenture. This discussion is not, and is not intended to be, exhaustive of all possible risks.

Health Care Industry Factors Affecting the System Affiliates

The health care industry is highly dependent on a number of factors that may limit the ability of the System Affiliates to comply with certain provisions in the Master Indenture, effectively limiting the ability of the Obligated Group to meet its obligations under the Master Indenture, several of which are beyond their control. Among other things, participants in the health care industry (such as the System) are subject to significant regulatory requirements of federal, state and local governmental agencies and independent professional organizations and accrediting bodies, technological advances and changes in treatment modes, various competitive factors and changes in third-party reimbursement programs.

Federal Legislative and Regulatory Initiatives

The discussion herein describes risks related to certain existing federal and state laws, regulations, rules and governmental administrative policies and determinations to which the System and the healthcare industry are subject. Several of the federal statutes and regulations described herein may be substantially modified or repealed in whole or in part. During the November 2016 elections, several successful candidates for election to the United States Congress, as well as President Trump, campaigned on promises to effect such modification or repeal. With apparent alignment of views among a majority of the members of the Senate and House of Representatives and the Administration, the coming congressional term is likely to be very active and may include legislation repealing or rewriting the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), tax reform, and financial services reform. Although it is uncertain whether or when legislation affecting such key areas will be introduced or passed, such legislation could have a material impact on the System’s operations, financial condition and financial performance. Further, regulatory changes through adoption or repeal and executive actions taken by the new Administration could have a material impact on the System’s operations, financial condition and financial performance, even in the absence of statutory changes.

The President and certain Congressional leaders have included a repeal of all or a portion of the ACA in early 2017 in statements concerning their respective legislative agendas, and Congress has already taken steps to repeal and replace the ACA. The repeal effort, to date, has focused on individual and employer mandates, exchanges, insurance industry regulations, Medicaid expansion, and the taxes to pay for these elements of the ACA. The timing of such repeal and whether it would be in whole or in part is unclear. It is also unclear when replacement plan would be implemented. A repeal could result in additional pressure on Medicaid and Medicare funding and could have the effect of reducing the availability of health insurance to individuals who were previously insured, resulting in greater numbers of uninsured individuals.

Health Care Reform

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act and on March 30, 2010, the President signed the Health Care and Education Reconciliation Act of 2010, which included amendments to the earlier law (collectively, the laws are referred to as the “PPACA” or “Health Care Reform”). PPACA is intended to address disparities in access, cost, quality and the delivery of healthcare to United States residents.

The changes to various aspects of the healthcare system in PPACA are far-reaching and include substantial adjustments to Medicare reimbursement, establishment of individual and employer mandates for health insurance coverage, extension of Medicaid coverage to certain populations, provision of incentives for employer-provided healthcare insurance, restrictions on physician-owned hospitals, and increased efficiency and oversight provisions

Some of the provisions of PPACA took effect immediately, while others have been phased in over time, ranging from one year to ten years. Most of the significant healthcare coverage reforms began in 2014. PPACA also requires the promulgation of substantial regulations with significant effects on the healthcare industry.

PPACA reforms the sources and methods by which consumers will pay for healthcare for themselves and their families. PPACA also places new requirements on employers related to the provision of health insurance for their employees and dependents. These reforms are expected to expand the base of consumers of healthcare services. One of the primary goals of PPACA is to provide or make available, or subsidize the premium costs of, healthcare insurance for consumers who are currently uninsured (or underinsured) and who fall below certain income levels. PPACA proposes to accomplish that objective through various provisions, including:

• creating organized insurance markets (referred to as exchanges) in which individuals and small employers can purchase healthcare insurance for themselves and their families or their employees and dependents,

• providing subsidies for premium costs to individuals and families based upon their income relative to federal poverty levels,

• mandating that individual consumers obtain and certain employers provide a minimum level of healthcare insurance, and providing for penalties or taxes on consumers and employers that do not comply with these mandates,

• establishing insurance reforms that expand coverage generally through such provisions as prohibitions on denials of coverage for pre-existing conditions and elimination of lifetime or annual cost caps, and

• expanding existing public programs, including Medicaid for individuals and families.

Some of the specific provisions of PPACA that may affect hospital operations, financial performance or financial conditions are described below. This listing is not comprehensive. PPACA is complex and comprehensive, and includes a myriad of new programs and initiatives and changes to previously existing programs, policies, practices and laws. Additional PPACA programs and initiatives and changes to previously existing PPACA programs, policies, practices and laws will likely occur in the future.

• With varying effective dates, the annual Medicare market basket updates for many providers, including inpatient and outpatient hospital services, will be adjusted based on a ten year average of national productivity and will be reduced by specified percentages each year.

• In federal fiscal year 2014, Medicare disproportionate share hospital (“DSH”) payments (i.e., payments a provider receives from the federal government to help defray the cost of treating the uninsured) were reduced by 75%; going forward the amount of these payments will be determined by a formula that takes into account the national number of consumers who do not have healthcare insurance and the amount of uncompensated care provided by a hospital. Medicare DSH payment reductions are scheduled to continue through 2019. Medicaid DSH payments also were to be reduced beginning in fiscal year 2014, but such reductions were delayed until fiscal year 2018.

• Commencing October 1, 2010 through September 30, 2019, payments under the “Medicare Advantage” programs (Medicare managed care) have been or will continue to be reduced, which may result in increased premiums or out-of-pocket costs to Medicare beneficiaries enrolled in Medicare Advantage plans and may also lead to decreased payments to providers by managed care companies operating Medicare Advantage programs.

• Medicaid programs are being expanded in some states, including Pennsylvania.

• Under the Hospital Readmissions Reduction Program (“HRRP”) in effect prior to PPACA, Medicare reduces payments to hospitals for readmissions within 30 days of discharge of beneficiaries with certain conditions, imposing a maximum penalty of a 3% reduction in Medicare reimbursements. Such conditions include myocardial infarction, heart failure, pneumonia, chronic obstructive pulmonary disease, hip and knee replacements and – beginning in 2017 – coronary artery bypass graft surgery. Payment reduction penalties under the HRRP apply to all Medicare patients, not just to beneficiaries with conditions subject to readmission penalties. Under PPACA, readmissions information is available to the public.

• Beginning in fiscal year 2015, hospitals with high volumes of “hospital acquired conditions” have had their payment for discharges reduced to 99% of the amount of payment that would otherwise apply to such discharges. Federal payments to states for Medicaid services related to hospital-acquired conditions have been prohibited since federal fiscal year 2011.

• CMS has established a value-based purchasing program. This program provides incentive payments to hospitals based on their performance on certain quality and efficiency measures. Funding for this program comes from the reductions to Medicare inpatient payments. On December 20, 2016, CMS finalized the Advanced Care Coordination Through Episode Payment Models (EPMs), Cardiac Rehabilitation Incentive Model, and Changes to the Comprehensive Care for Joint Replacement Model rule, which, among other things, expands the Comprehensive Care for Joint Replacement bundled payment model to include other surgeries for hip and femur fractures. These rules are anticipated to take effect on May 20, 2017.

• In order to reduce waste, fraud, and abuse in public programs, PPACA provides for provider enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs. It also requires Medicare and Medicaid program providers and suppliers to establish compliance programs. PPACA requires the development of a database to capture and share healthcare provider data across federal healthcare programs and provides for increased penalties for fraud and abuse violations, and increased funding for anti-fraud activities. Healthcare fraud enforcement activities have increased substantially under the PPACA, yielding the government billions of dollars in recoveries annually.

• On January 26, 2015, HHS announced a timetable for transitioning Medicare payments from the traditional fee-for-service model to a value-based payment system. This schedule calls for tying 30% of traditional Medicare fee-for-service payments to quality or value through alternative payment models, such as accountable care organizations or bundled payment arrangements (meaning payments for multiple services during a single episode of care), by the end of 2016, increasing to 50% by 2018. In addition, HHS has proposed that by 2016, 85% of all Medicare fee-for-service payments have a component based on quality or efficiency of care, such as value-based purchasing or readmission reductions, increasing to 95% by 2018. As of the date of such announcement, approximately 20% of Medicare’s fee-for-service payments are made through alternative delivery models, and 80% of fee-for-service payments have a component based upon quality or efficiency of care, up from almost none in 2011.

• PPACA establishes an Independent Payment Advisory Board to develop proposals to improve the quality of care and to recommend proposals to limit Medicare spending growth. Beginning January 15, 2019, if the Medicare spending growth rate exceeds the target recommended by the Independent Payment Advisory Board, then the Independent Payment Advisory Board is required to develop proposals to reduce the growth rate and require the Secretary of HHS to implement those proposals, unless Congress enacts legislation related to the proposals.

• PPACA imposes substantial new data reporting obligations on hospital initiatives to improve the quality of care, reduce errors and improve health outcomes. Health care insurers now are

required to include quality improvement covenants in their contracts with hospital providers, and will be required to report their progress on such actions to HHS. Commencing January 1, 2015, health care insurers participating in the health insurance exchanges are allowed to contract only with hospitals that have implemented programs designed to ensure patient safety and enhance quality of care.

• PPACA immediately imposed additional requirements upon nonprofit hospitals to maintain their tax-exempt status, including obligations to adopt and publicize a financial assistance policy; limit charges to patients who qualify for financial assistance to the lowest amount charged to insured patients; and control the billing and collection processes. Additionally, effective for tax years commencing January 1, 2013, tax-exempt hospitals must conduct a community needs assessment at least once every three tax years and adopt an implementation strategy to meet those identified needs. Failure to satisfy these conditions may result in the imposition of fines and the loss of tax-exempt status.

Broadly speaking, the provisions of PPACA that encourage or mandate healthcare coverage for individuals can be expected to increase demand for health care and reduce the amount of uncompensated care that the System provides. However, revisions to the Medicare reimbursement program could reduce revenues. Therefore, the impact of PPACA on the operations of the System cannot be currently ascertained, and it may have a material impact, either positive or negative, on the System’s operations.

Efforts to repeal or substantially modify provisions of the PPACA continue. On June 28, 2012, the Supreme Court upheld most provisions of the PPACA, while limiting the power of the federal government to penalize states for refusing to expand Medicaid. The Supreme Court ruled on various legal challenges to portions of the PPACA, finding that its individual mandate was constitutional as a valid exercise of Congress’ taxing power but that its Medicaid expansion provisions were improperly coercive on the states to the extent existing Medicaid funding was put at risk if a state opted out of PPACA’s expansion of the current Medicaid program. In July 2014, two federal appeals courts issued conflicting rulings with respect to the PPACA on whether the federal government could subsidize health insurance premiums in states that use the federal health insurance exchange. On June 25, 2015, the Supreme Court of the United States issued its opinion in King v. Burwell holding that the tax credit subsidies provided in the PPACA apply equally to state-run exchanges and the federal exchange, obviating the potential disparate treatment of program participants nationally. Efforts to repeal or delay the implementation of the PPACA continue in Congress and were a fundamental plank in the Republican Party platform for the 2016 Presidential cycle. On March 6, 2017, two bills (commonly referred to as the American Health Care Act or the “AHCA”) were drafted and passed by the House Energy and Commerce Committee and the House Ways and Means Committee, which are intended to be a replacement to the PPACA. On March 24, 2017, the AHCA was withdrawn from review and approval by the House of Representatives due to a lack of support but future legislation may be proposed. The ultimate outcomes of legislative attempts to repeal or amend the PPACA and other legal challenges to the PPACA are unknown and their impact on the operations of the System cannot be determined at this time.

The System is analyzing PPACA and will continue to do so in order to assess its effects on current and projected operations, financial performance and financial condition. However, management of the System cannot predict with any reasonable degree of certainty or reliability any interim or ultimate effects of the legislation.

Healthcare Delivery Reforms. The Health Care Reform Act includes numerous demonstrative and pilot programs aimed at changing the current delivery of health care to focus on care coordination among healthcare providers and the use of data to maximize the effectiveness of care and eliminating waste. These programs, such as Accountable Care Organization, Medical Homes and value-based purchasing, incorporate risk-sharing between and among the payors and the providers and require start-up investments by providers. The System is participating in several programs. See “New Models for Care” under “Health Care Reform” below.

The System is responding to the changes resulting from the Health Care Reform Act and will continue to do so in order to assess its effects on current and projected operations, financial performance and financial condition. However, management of the System cannot predict with any reasonable degree of certainty or reliability any interim or ultimate effects of the legislation.

Overview of Medicare and Medicaid Program. Medicare and Medicaid are the commonly used names for health care reimbursement or payment programs governed by certain provisions of the federal Social Security Act Amendments of 1965. The federal government, the largest health care purchaser in the country, uses reimbursement as a key tool to implement health care policies, to allocate health care resources and to control utilization, facility and provider development and expansion, and promote the use and development of health technology. These programs reflect the national policy that persons who are aged and persons who are poor should be entitled to receive medical care regardless of ability to pay. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, disabled or qualify for the End Stage Renal Disease Program. Medicare Part A covers inpatient hospital, home health, nursing home care and certain other services, and Medicare Part B covers certain physicians services, medical supplies and durable medical equipment. Medicare Part C, the Medicare Advantage program (formerly known as the Medicare+Choice Program) enables Medicare beneficiaries who are entitled to Part A and are enrolled in Part B to choose to obtain their benefits through a variety of private, managed care, risk-based plans.

In December 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) was signed into law. This law provides for Medicare Part D, under which outpatient prescription drug benefits are available to Medicare beneficiaries. MMA also enhanced the Medicare Part C managed care programs. The private Medicare Part D plans are funded through premium payments from enrolled Medicare beneficiaries and subsidies from the federal government. Enrollment is available on an ongoing and intermittent basis. While participation in the program is voluntary, those who wait to enroll beyond their initial point of eligibility are penalized with additional surcharges which increase over time. The Health Care Reform Act includes changes to the Medicare Part D program, including the gradual reduction of the cost sharing burden by beneficiaries under Medicare Part D (the so-called “donut hole”). Although Medicare Part D reimbursement does not cover inpatient prescriptions, changes in enrollment or program administration could affect the System’s revenue. An expansion of coverage for outpatient pharmaceutical therapy may reduce the System’s admissions or shift the characteristics of those patients that are admitted.

Medicaid is designed to pay providers for care given to the indigent and other persons who qualify based on certain conditions. Medicaid is funded by federal and state appropriations and is administered by an agency of the applicable state. Under the Health Care Reform Act beginning January, 2014, states have the option to expand Medicaid eligibility to cover individuals with income under 133% of the Federal Poverty Level (“FPL”). See Medicaid Reimbursement below for more information.

Conditions of Participation. Hospitals must comply with standards called “Conditions of Participation” in order to be eligible for Medicare and Medicaid reimbursement. Centers for Medicare and Medicaid Services (“CMS”) of the U.S. Department of Health and Human Services (“HHS”) is the federal agency responsible for ensuring that hospitals meet the regulatory Conditions of Participation. Generally, under Medicare rules, hospitals accredited by the Joint Commission (a private nonprofit corporation that accredits health care programs and providers in the United States) are deemed to meet the Conditions of Participation. Failure to maintain Joint Commission accreditation or to otherwise comply with the Conditions of Participation could have a materially adverse effect on the continued participation in the Medicare and Medicaid programs, and ultimately on the revenues of the System. The Medicare Improvements for Patients and Providers Act of 2008 revised hospital accreditation standards, revoking the exclusive deeming authority of the Joint Commission. While each hospital certified by the Joint Commission will continue to be certified for the duration of its accreditation, the process going forward has been opened to competition between accrediting organizations. It is not clear what effect, if any, this legislation will have on the System’s accreditation in the future.

CMS issued a final rule reforming the Conditions of Participation for hospitals and critical access hospitals, which became effective July 16, 2012. The revised Conditions of Participation are an attempt to increase the flexibility and eliminate the burden of certain elements of the Conditions of Participation. The System cannot anticipate the effect of the reformed Conditions of Participation on the System and its affiliates but continues to analyze the full impact of the final regulation to maintain compliance with the Conditions of Participation.

Medicare. Medicare is administered by CMS which delegates to the states the process for certifying those organizations to which CMS will make payment. The HHS’s rule-making authority is substantial and the rules are extensive and complex. Substantial deference is given by courts to rules promulgated by HHS.

Medicare claims are processed by non-government organizations or agencies that contract to serve as the fiscal agent between providers and the federal government to locally process Medicare’s Part A and Part B claims. These claims processors are known as “Medicare Administrative Contractors” or “MACs”. They apply the Medicare coverage rules to determine the appropriateness of claims. CMS selects organizations (generally insurance companies) to act as MACs in various states or regions, and enters into a “prime contract” with each. Most Medicare hospital services are provided through a fixed rate per case program under the reimbursement methods described below. Some Medicare recipients, however, enroll in Medicare Advantage managed care plans, which reimburse providers on a contractually determined basis. Health care providers that participate in the Medicare program must agree to be bound by the terms and conditions of the program such as meeting the quality standards for rendering covered services and adopting and enforcing policies to protect patients from certain discriminatory practices.

The Health Care Reform Act introduces changes to the Medicare program that are estimated by the Congressional Budget Office to reduce the cost of the program over the next ten years by approximately $455 billion. The Health Care Reform Act reduces cost sharing by Medicare beneficiaries for certain preventive services and wellness visits and expands coverage for these services. In addition, The Health Care Reform Act includes programs that link Medicare payments for hospitals and physicians with quality outcomes and the development of new patient care models that stress primary care and community-based care. The objective of these programs is to manage chronic diseases better and to reduce inpatient admissions and other high cost care provided by health care facilities, such as hospitals and nursing homes. While additional governmental reporting, oversight and audits are a certainty, it is difficult to determine what effect the health care reform legislation and its implementation will ultimately have on the financial or operating condition of the System or its competitors in the future.

On March 1, 2013, CMS announced that reductions in Medicare provider rates will begin with services provided on or after April 1, 2013 as a result of the federal government’s sequestration order required by the Budget Control Act of 2011. The cut is capped at 2% for payments made for services provided by physicians and hospitals under Parts A and B of Medicare, as well as monthly payments to Medicare private insurers and Part D prescription drug plans for each year of sequestration. In late December 2013, a budget agreement was signed into law that raised the sequestration caps for fiscal years 2014 and 2015 in exchange for extending the sequestration through 2023. On November 2, 2015, President Obama signed into law the “Bipartisan Budget Act of 2015,” which extended sequestration for an additional year, through fiscal year 2025. The law also provides a uniform 2% reduction for 2024 instead of applying different rates during the first and second halves of the fiscal year, but the FY 2025 sequestration will be “front loaded” (that is, a 4% reduction will apply during the first 6 months of the fiscal year and no reduction will be imposed during the second half of the fiscal year). In the future, Congress and the Administration may or may not reach budget deals to lessen the impact or end sequestration. It is impossible to predict, however, whether any such further budget deals will be made and whether such budget deals or the failure to do so would impact federal spending on the Medicare and Medicaid programs. Likewise, it is not possible to predict whether additional budget control measures will be made to the Medicare payment system in light of Federal budgetary pressures.

System Inpatient Services. Medicare payments for operating expenses incurred in the delivery of inpatient hospital services and inpatient psychiatric services are based on a prospective payment system (“PPS”) which essentially pays hospitals a fixed amount for each Medicare in-patient discharge based upon patient diagnosis and certain other factors used to classify each patient into a Diagnosis Related Group (“DRG”), or more recently Medical Severity DRGs or “MS-DRGs”. Each MS-DRG is given a relative value from which a fixed payment can then be established. With limited exceptions, such payments are not adjusted for actual costs, variations in intensity of illness, or length of stay. MS DRG rates are adjusted annually by the use of an “update factor” based on the projected increase in a market basket inflation index which measures changes in the costs of goods and services purchased by hospitals, but the adjustments historically have not kept pace with inflation.

If a hospital treats a patient and incurs less cost than the applicable MS-DRG-based payment, the hospital will be entitled to retain the difference. Conversely, if a hospital’s cost for treating the patient exceeds the DRG-based payment, the hospital generally will not be entitled to any additional payment. CMS continually attempts to adjust reimbursements to better reflect hospital costs rather than charges. If a case is unusually complex or expensive, it may qualify for an “outlier” payment, which is added to the MS-DRG-adjusted base rate payment.

There can be no assurance that payments under the PPS will be sufficient to cover all actual costs of providing inpatient hospital services to Medicare patients. The MS-DRG system has undergone changes to increase and refine the classifications system, with certain classifications receiving increases in payment and others a decrease. There can be no assurance that payments under PPS will be sufficient to cover all actual costs of providing in-patient hospital services to Medicare patients.

Medicare and Medicaid currently make additional payments to hospitals that serve a disproportionate share of low income patients. Beginning in 2014, the Health Care Reform Act incrementally reduces the Medicare payments for disproportionate share hospitals by 75%, or $49 billion by 2019. The 2014 final rule for inpatient PPS establishes a new policy for the distributions of the Medicare DSH, which will be based on hospitals’ uncompensated care.

The Health Care Reform Act continues and expands earlier Congressional measures taken to address the growing cost of the Medicare and Medicaid programs. CMS periodically promulgates regulations, such as its annual inpatient PPS rules, to adjust the rates paid to hospitals based on its continuing experience with hospital operating and capital costs, and to implement various quality improvement, patient safety and fraud and abuse programs. For example the annual inpatient PPS rules for federal fiscal years 2008 and 2009 included, and then expanded, a list of preventable conditions or consequences (so-called “never events”) for which Medicare would not pay any additional costs of treatment. CMS also reduces payments to hospitals that do not successfully report quality measures adopted under the program by two percent from the percentage increase that would otherwise apply to their payment rates. The Health Care Reform Act expands programs to improve the quality of care, with reductions in reimbursements in future years for excessive readmissions, medical errors and preventable conditions such as hospital acquired infections. Depending on the mix of future services delivered, the overall result of these changes to the inpatient PPS reimbursement rules may be to reduce Medicare reimbursement to the System and its affiliates.

System Outpatient Services. Medicare hospital outpatient services are also reimbursed on a prospective payment basis. Under the outpatient PPS methodology, procedures, evaluations and management services, and drugs and devices in outpatient departments are classified into one of approximately 750 groups called Ambulatory Payment Classifications (“APC”). Services provided within an APC are similar clinically and in terms of the resources they require. Each APC is assigned a weight derived from the median hospital cost of the services in the group relative to the median hospital cost of the services included in the APC for mid-level clinic visits. CMS determines the portion of the median labor related hospital costs and adjusts those costs for variations in hospital labor costs across geographic regions.

Payment rates for each APC are calculated by multiplying the relative weight for an APC by a conversion factor to arrive at a dollar figure. Outpatient PPS includes additional adjustments for transitional pass-through payments and outlier payments. Transitional pass-through payments are costs associated with new technology items (drugs, biologicals and medical devices) that were not reflected in the data that CMS used to calculate PPS payment rates, and are intended to allow for adequate payment of new and innovative technology until there is enough data to incorporate the costs for these items into the base APC group.

APCs include payment for related ancillary services provided in conjunction with the procedure or medical visit. Although hospitals may receive payment for more than one APC for an encounter, payment for multiple surgical APC procedures are subject to substantial discounting.

CMS makes annual changes to its policies and payment structure with respect to outpatient services in response to an increase in amounts paid for outpatient services delivered to Medicare patients. For example, CMS adjusted the market basket update in 2007 and tied rate increases to additional quality measure reporting requirements applicable to outpatient services beginning in 2009. CMS also revised the APC structure, expanding a hospital’s ability to be reimbursed for infusion services. In exchange, CMS reduced per diem payments to hospital outpatient departments for the delivery of partial hospitalization services. Additionally, CMS adjusted the reimbursement rates for Ambulatory Surgery Centers to reflect the reimbursement for equivalent procedures being delivered in hospital outpatient departments. Overall, these changes to the outpatient prospective payment system may result in decreased reimbursement for services, depending on the service mix that the System can expect to deliver in the future.

Outpatient renal dialysis services are reimbursed on the basis of prospective reimbursement, though different rates are paid for hospital-based and free-standing facilities, and are adjusted for geographic differences in labor costs. This composite rate is the same regardless of whether the treatment is furnished in the facility or in the patient’s home to incentivize home dialysis, and must be accepted by the facility as payment in full for covered outpatient dialysis.

Under outpatient PPS, a hospital with costs exceeding the applicable payment rate would incur losses on such services provided to Medicare beneficiaries. There can be no assurance that outpatient PPS payments will be sufficient to cover all of the System’s actual costs of providing hospital outpatient services to Medicare patients.

Physician Payments. Payment for physician fees is covered under Part B of Medicare. Under Part B, physician services are reimbursed in an amount equal to the lesser of actual charges or the amount determined under a fee schedule known as the “resource-based relative value scale” or “RBRVS”. RBRVS sets a relative value for each physician service; that value is then multiplied by a geographic adjustment factor and a nationally-uniform conversion factor to determine the amount Medicare will pay for each service.

In October 2011, the Medicare Payment Advisory Commission (“MedPAC”) recommended to Congress that the Sustainable Growth Rate (“SGR”) system be fully repealed and replaced by a different methodology for determining the nationally-uniform conversion factor. With the enactment of the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), the SGR System was repealed. Beginning in July 2015 and continuing through 2019, the Medicare Physician’s Fee Schedule (“PFS”) increases by 0.5% annually. The PFS will then remain at the same reimbursement level for five years (2020-2025). Beginning in 2026, the PFS will be increased either by (i) 0.25% annually for providers participating in the Merit-Based Incentive Payment System, or (ii) 0.75% annually for providers participating in Alternative Payment Models.

In 2019, penalties under Medicare’s current quality reporting programs (the Physician Quality Reporting System, Electronic Health Records Incentive Program, and the Physician Value-Based Modifier) will end and be replaced with the Merit-Based Incentive Payment System (“MIPS”). MIPS combines the Physician Quality Reporting System, Electronic Health Records Incentive Program, and Physician Value-Based Modifier into a single payment adjustment. The payment adjustment can be an increase or a decrease. The MIPS creates four categories which will be used to calculate the payment adjustment:

1. Quality (which will be 50% of the total adjustment in 2019 and decrease to 30% of the total adjustment by 2021);

2. Resource Use (which will be 10% of the total adjustment in 2019 and increase to 30% of the total adjustment by 2021);

3. Clinical Improvement (which will be 15% of the total adjustment); and

4. Electronic Health Record Use (which will be 25% of the total adjustment).

The range of potential payment adjustments based on performance increases each year through 2022. In 2019, adjustments may range from -4% up to +12%. By 2022, the range will be -9% up to +27%. The program is designed to be budget neutral, meaning the total negative adjustments will equal total positive adjustments across all providers. Additionally, high performers are eligible to share in an additional pool of bonus funds.

Alternatively, providers may participate in the Alternative Payment Models (“APMs”). APMs are programs that involve more than nominal financial risk on behalf of the provider. MACRA had created an advisory panel to consider proposals for new payments models and coverage for telehealth services in APMs. By April 1, 2017, the Secretary must establish criteria for the panel to use in making recommendations on the APMs. By July 1, 2017, MedPAC must submit a report to Congress on how physician spending and ordering patterns relate to spending under Parts A, B, and D. A final report is due by July 1, 2021.

From 2019 through 2024, providers qualifying for APMs will receive an annual lump sum bonus of 5% of PFS payments. To qualify for APM participation, providers must meet a certain threshold for the percentage of revenue received through qualifying APMs, which will increase over time. Providers are also required to report quality measures and use electronic health records. Providers who have not reached these thresholds, but whose revenue is close to the required threshold may be exempt from adjustments.

The specific parameters of these programs are still being developed by CMS. The new quality reporting programs may negatively impact the reimbursement amounts received by the System for the cost of providing physician services.

In July 2014, CMS proposed to transition all 10-day and 90-day global billing codes to 0-day global codes in 2017 and 2018, respectively. Under this proposal, medically reasonable and necessary visits would have been billed separately during the preoperative and postoperative periods outside the day of the surgical procedure. MACRA preserved the 10-day and 90-day global billing period for over 4,000 surgical service codes, reversing the recently adopted CMS rule.

There can be no assurance that payments to the System for the services of its employed physicians or other employed health care professionals will be sufficient to fully reimburse the System for its cost of providing the services of such professionals.

System Capital Expenditures. Medicare payments for capital costs are based upon a PPS system similar to that applicable to operating costs. Payment for capital related costs for all hospitals will be determined based on a standardized amount referred to as the federal rate. Payments for capital costs are calculated by multiplying the federal rate by the DRG weight for each discharge and by a geographical adjustment factor. The payments are subject to further adjustment by a disproportionate share hospital factor that contemplates the increased capital costs associated with providing care to low income patients, and an indirect medical education factor that contemplates the increased capital costs associated with medical education programs.

There can be no assurance that payments under the PPS inpatient capital costs regulations will be sufficient to fully reimburse System for its capital expenditures.

Medical Education Costs. Under PPS, teaching hospitals receive additional payments from Medicare for certain direct and indirect costs related to their graduate medical education (“GME”) programs. Direct graduate medical education (“DGME”) payments compensate teaching hospitals for the cost directly related to educating residents. Such costs include the residents’ stipends and benefits, the salaries and benefits of supervising faculty, other costs directly attributable to the GME program, and allocated overhead costs. Payment for direct medical education costs are calculated based upon set formulae taking into account hospital-specific medical education costs associated with each resident, the number of full-time equivalent residents, and the proportion of Medicare inpatient days to non-Medicare inpatient days. Indirect medical education payments compensate teaching hospitals for the higher patient care costs they incur relative to non-teaching hospitals. Those indirect payments are issued as a percentage adjustment to the PPS payments. The calculation for both the direct part and the indirect part of Medicare payments for GME include certain limitations on the number and classification of full-time equivalent residents reimbursed by Medicare.

The Health Care Reform Act includes some increases to funding for primary care residency programs and provides grants to establish teaching health centers, which are community based ambulatory patient care centers. The Health Care Reform Act also establishes other programs to encourage the training and development of more primary care residents (including family medicine, internal medicine, pediatrics, obstetrics and gynecology, psychiatry and geriatrics) and the primary care workforce.

The formulae used to determine payments for medical education do not necessarily reflect the actual costs of such education, and the federal government will continue to evaluate its policy on graduate medical education and teaching hospital payments. There can be no assurance that payments to the System under the Medicare program will be adequate to cover its direct and indirect costs of providing medical education to interns, residents, fellows and allied health professionals.

Outlier Payments. As noted above, hospitals are eligible to receive additional payments under the inpatient PPS for individual cases incurring extraordinarily high costs. Historically, the amount of an outlier payment was based, in part, on the hospital charges for a particular case as compared to that hospital’s cost-to-charge ratio. As the hospital specific cost-to-charge ratio was calculated based on the most recently settled cost report, it was typically many months or years old and out of date.

Following an audit of aggressive pricing strategies at one of the nation’s largest hospital chains, and a determination that some hospitals might be manipulating current hospital charge data to maximize reimbursement from Medicare under the outlier payment provisions, the Office of the Inspector General of HHS (“OIG”) began investigating past outlier billing practices, and CMS amended the regulations on how outlier payments were to be calculated in the future. The methodology for calculating outlier payments went into effect in August 2003. It was designed to prevent hospitals from manipulating the outlier formula to maximize reimbursement and allows for recovery of overpayments in certain cases.

The OIG continues to scrutinize outlier payments in an effort to determine whether outlier payments to the hospitals were paid in accordance with Medicare regulations or whether such payments were the result of potentially abusive billing practices. While the System believes that it has calculated its outlier payments appropriately, there can be no assurance that the System will not become the subject of an investigation or audit with respect to its past outlier payments, or that such an audit would not have a material adverse impact on the System. Moreover, there can be no assurance that any future revisions to the formula for calculating outlier payments will not reduce the payments to the System, or that any such reduction will not have a material adverse impact on the System.

Medicare Managed Care Program. Every individual entitled to Medicare Part A benefits, and who is enrolled in Medicare Part B, with the exception of individuals who suffer from End Stage Renal Disease, may elect coverage under either the traditional Medicare fee for service program (Parts A and B) or a Medicare managed care (Part C) program, known as the Medicare Advantage Program. The Medicare Advantage program is designed to expand the number and types of private regional plans available to beneficiaries as an alternative to traditional Parts A and B Medicare coverage. Payments for Medicare Advantage plans are based on competitive bids to the government rather than administered pricing.

Public and private health maintenance organizations, preferred provider organizations, fee for service and medical savings account plans may qualify as authorized Medicare Advantage plans. With limited exceptions, Medicare Advantage plans are risk-bearing programs that accept a fixed annual amount in return for providing beneficiaries with a defined level of benefits (basic or basic plus supplemental), either directly or through arrangements with other providers. All Medicare Advantage plans are required to provide coverage, even if out of network, for emergency services, renal dialysis services provided while the enrollee was temporarily outside of the plan’s service area, post stabilization care services (under limited circumstances) and services for which coverage was denied but, following appeal by the enrollee, were determined to be covered services. Providers wishing to participate in Medicare Advantage plans are subject to specific requirements concerning enrollee protection and accountability.

The shift of Medicare eligible beneficiaries from traditional Part A and Part B coverage to Part C Medicare Advantage programs was intended to increase competitive pressure to improve benefits, reduce premiums and generate cost reductions. However, because the cost to the Medicare Advantage program was on average 114% higher than traditional Medicare, the Health Care Reform Act changed some of the Medicare Advantage payment methodologies and will begin paying bonuses to plans that achieve certain quality metrics in 2012. Reductions in the Medicare Part C program may have an impact on reimbursement from these insurance plans, which in turn may have a material negative impact upon the revenue of the System and its affiliates.

The Health Plan entered into a Medicare Advantage plan contract with CMS. As of June 30, 2014, the Health Plan has voluntarily enrolled 80,838 members in Medicare Advantage plans.

New Models for Care Under Health Care Reform. Section 3022 of the Health Care Reform Act directed the Secretary of HHS (the “Secretary”) to establish a Medicare shared savings program that promotes accountability for the care of Medicare beneficiaries and encourages coordination of care and other efficiencies through entities called Accountable Care Organizations (“ACOs”). Under this shared savings program, Medicare

providers are offered a financial incentive to band together in an ACO with the shared goals of improving the quality of care provided to Medicare beneficiaries and coordinating care to achieve cost savings. If the ACO realizes savings in Medicare expenditures above an expenditure benchmark established by CMS for the group, and meets or exceeds quality performance standards established by the Secretary, it will be paid a share of Medicare’s savings. ACOs that do not meet the quality performance thresholds for all proposed measures are not eligible for shared savings, regardless of how much costs were reduced. The shared savings program began operating January 1, 2012.

CMS released final regulations on ACOs on October 20, 2011 setting forth governance standards, application requirements and acceptance standards, and options for sharing in any savings or losses. On June 9, 2015, CMS released final rule provisions amending the Shared Savings Program. Several other federal agencies simultaneously released final guidance regarding ACOs. CMS and OIG jointly released an interim final rule with a comment period granting ACOs participation in the Shared Savings Program waivers with respect to certain federal laws in connection with the Shared Savings Program, including the Stark Law, the Anti-Kickback Law, and certain provisions of the CMP Law. The Federal Trade Commission and the United States Department of Justice jointly released a final enforcement policy that sets forth an antitrust “safety zone” for ACOs that meet the CMS eligibility criteria for the program and are highly unlikely to raise significant competitive concerns. The IRS released a fact sheet in connection with the ACO final rule, which serves as a follow-up to Notice 2011-20 regarding the proposed ACO regulations, which stated that tax-exempt organizations that participate in an ACO with for-profit entities will not jeopardize their tax-exempt status or be subject to unrelated business income tax if certain requirements are met..

Although Geisinger Health System has a well-established infrastructure for cost containment and electronic medical records, and has significant experience in the management of chronic diseases that make it well suited to participate in the shared savings program, it is unclear what effect these proposed regulations will have on the System and its revenues in the future should the System choose to participate in the shared savings program.

Audits, Exclusions, Fines and Enforcement Actions. Providers participating in Medicare are subject to audits and retroactive audit adjustments by fiscal intermediaries under the Medicare program. From an audit, a fiscal intermediary may conclude that a patient discharge has been claimed under an incorrect MS-DRG, that services may not have been provided under the direct supervision of a physician (to the extent so required), that a patient should not have been characterized as an inpatient, that certain services provided prior to admission as an inpatient should not have been billed as outpatient services, that certain outpatient services were subjected to quantity limits or should have been bundled with the outpatient APC payment, or that certain required procedures or processes were not satisfied. As a consequence, payments may be retroactively disallowed. Under certain circumstances, payments made may be determined to have been made as a consequence of improper claims subject to the federal False Claims Act or other federal statutes, subjecting the hospital to civil or criminal sanctions.

The federal government uses a national recovery audit contractor (“RAC”) program to identify overpayments and underpayments to providers under the Medicare program. The RAC auditors are compensated on a contingent fee basis. Audits typically result in far more overpayments than underpayments. Medicare contractors will recoup RAC identified overpayments unless appeals are filed timely. RAC assessments against the System are anticipated; however, the outcome of such assessments are unknown and cannot be reasonably estimated. The Health Care Reform Act expands the scope of the RAC program to include Medicare Parts C and D and Medicaid.

Medicaid Reimbursement

Medicaid is a jointly funded federal and state health insurance program for certain low-income and medically needy people. Under federal guidelines, each state establishes eligibility standards, scope of services, payment rates for services, and an administrative framework for management of the program. The Pennsylvania Department of Human Services (“PADHS”) administers the Medicaid program in the Commonwealth and the New Jersey Department of Human Services administers the Medicaid program in the State of New Jersey (“NJDHS”).

In July 2010, the Medical Assistance Payment Modernization Act (Act 49) was enacted. Act 49 was designed to address the fact that Medical Assistance has historically paid low rates to Pennsylvania hospitals, about 75 cents for each dollar a hospital spent on inpatient care and about 54 cents for each dollar spent on outpatient care. Because Medical Assistance has not paid adequate rates, other health insurers were left to make up the shortfall left

by Medical Assistance’s lower payment rates, having the effect of creating a hidden tax on citizens through higher insurance premiums.

Act 49 modernized Pennsylvania’s inpatient fee for service hospital payment system by establishing a uniform base rate for all hospitals using the most current cost information, and makes adjustments for differences in regional labor costs, teaching programs, and Medical Assistance volume. Act 49 also establishes enhanced hospital payments through the state’s Medical Assistance managed care program, and secures additional matching Medicaid funds through the establishment of the Quality Care Assessment (“QCA”). The QCA is a tax on hospital net inpatient revenues that allows the state to access additional federal dollars. Act 49 also replaced the current clinical classification system with a new clinical classification system (APR-DRG) in which payments more accurately reflect the levels of service and patient needs unique to Medical Assistance patients. Act 92 of 2015 reauthorized the statewide hospital assessment for an additional three years, July 1, 2016 through June 30, 2018 at the current level of 3.71% of net inpatient revenues.

The Health Care Reform Act allows states the option to expand Medicaid eligibility to cover individuals with household income up to 133% of the FPL. The federal government is responsible for the cost of this coverage expansion in the initial years. Thereafter, each state will share in the financial burden of the expanded coverage.

In January 2015, the Commonwealth expanded Medicaid eligibility for individuals with incomes below 138% of the FPL under a Medicaid demonstration waiver called Healthy Pennsylvania. The Commonwealth then withdrew its waiver and implemented a traditional Medicaid expansion under HealthChoices. The transition from Healthy Pennsylvania to HealthChoices was completed in the summer of 2015. Pennsylvanians ages 19 to 64 with incomes up to 138% of the FPL are eligible for coverage under HealthChoices. Eligibility for Medicaid has been expanded in New Jersey to cover individuals with income at or below 133% of the FPL.

In New Jersey, for Supplemental Security Income (“SSI”) recipients and other Medicaid-eligible groups not enrolled in a managed care program, hospitals are reimbursed for inpatient services using DRG rates. These rates are based on the average cost of hospital care for Medicaid patients at New Jersey hospitals. Because hospitals are reimbursed the median rate per case, there can be no assurance that Medicaid revenues will cover expenses for Medicaid patients. Further reduction in Medicaid payments and/or the conversion of Medicaid recipients to managed care Medicaid coverage would reduce the amount of reimbursement that the System receives for providing services to Medicaid beneficiaries. There can be no assurances that the System can reduce the costs associated with treating Medicaid patients to offset these potential reimbursement reductions.

Inpatient Services. Since July 1984, Medicaid payment for acute care services in the Commonwealth has been based on a prospective payment system similar to the federal Medicare MS DRG-based prospective payment system explained above. As discussed above, Act 49 overhauled the DRG system used for Medicaid reimbursement.

Capital Expenditures. Payment for capital costs (including depreciation and interest, but excluding such costs for moveable equipment) has been integrated into a comprehensive prospective payment system for both capital costs and operating costs of providing inpatient services. There is no assurance that Medicaid reimbursement levels for capital depreciation and interest will be adequate to satisfy the capital requirements of the System.

Outpatient Services. Medicaid generally pays for hospital outpatient services rendered based on the lower of the usual charge to the general public for the same service or the Medicaid maximum allowable fee, or the upper limit established by Medicare or Medicaid.

Inpatient Mental Health and Rehabilitation Services. Medicaid provides payment for inpatient mental health and rehabilitation services rendered to eligible recipients by private psychiatric hospitals and rehabilitation distinct part units at a per diem rate.

HealthChoices. The HealthChoices program requires Medicaid recipients in certain regions of the Commonwealth to enroll in managed care plans. Under HealthChoices, Medicaid recipients receive physical health services through one managed care organization and behavioral health services through another managed care

organization. The implementation of HealthChoices results in providers contracting with the managed care organizations which are responsible for providing health services to Pennsylvania Medicaid recipients. Like any private managed care plan, HealthChoices’ programs attempt to negotiate lower fee schedules with their contracted health care providers. There can be no assurance that the System will be successful in contracting with the assigned managed care organizations or that the reimbursements from these managed care organizations will be sufficient to cover the costs of delivering care to Pennsylvania’s Medicaid recipients at the System going forward.

Other PADHS Funding. Also, as a result of the national class action tobacco settlement, PADHS has created an uncompensated care pool to provide grants to hospitals that meet certain levels of uncompensated care. PADHS began funding these grants in 2002. There can be no assurance that this resource will be available at current levels, if at all, in the future.

Audits, Exclusions, Fines and Enforcement Actions. Continuing the trend of enhanced program integrity enforcement under the Health Care Reform Act, RAC audits were extended to Medicaid providers beginning in April 2011. Health care facilities participating in Medicaid may be subject to audits and retroactive audit adjustments with respect to reimbursement claimed under those programs. Because such claims can be large or small amounts, it is impossible to predict the effect of such claims. Any such future adjustments could be material. Under certain circumstances, payments made may be determined to have been made as a consequence of improper claims subject to the federal False Claims Act or other federal statutes, subjecting the provider to civil or criminal sanctions. It is unknown what, if any, impact Medicaid RAC reviews will have on the revenues of the System.

State Children’s Health Insurance Program

The State Children’s Health Insurance Program (“SCHIP”) provides federal matching funds to states that cover 65% to 84% of the costs of health care coverage, primarily for low-income children. CMS administers SCHIP, but each state creates its own program based on minimum federal guidelines, or the state may apply for a waiver, which allows the state to create its own program using the federal funds, but often with different criteria for eligibility.

Pennsylvania’s CHIP program fully covers children and teens in households with income levels up to 208% of FPL, and subsidizes insurance coverage in households with income levels up to 314% of FPL. In 2015, Governor Wolf extended Pennsylvania’s CHIP program through 2017.

New Jersey’s SCHIP program, NJ FamilyCare, covers children in households with income levels up to 350% of FPL. Under New Jersey’s waiver program, NJ FamilyCare also covers parents and guardians with income levels up to 133% of FPL. Because of the state budget shortfall in New Jersey, eligibility requirements are subject to change. NJDHS submitted a comprehensive Medicaid waiver to the federal government, which was approved on October 2, 2012, and makes several eligibility, payment, and delivery reforms to NJ Family Care that may have an adverse effect upon the revenues of the System. The waiver lasts for five years, but may be extended.

While generally considered to be beneficial for both patients and providers because it reduces the number of uninsured children, it is difficult to assess the fiscal impact of SCHIP payments on the System and its affiliates. Moreover, each state must periodically submit its SCHIP plan to CMS for review to determine if it meets the federal requirements. If a state does not meet the federal requirements, it may lose its federal funding for its program. From time to time Congress and/or the President seek to expand or contract SCHIP. MACRA authorized an extension of the SCHIP program through September 30, 2017. The loss of federal approval for a state’s program or a reduction in the amounts available under SCHIP could have an adverse impact on the financial condition of the System and its affiliates.

New Jersey Regulatory Issues

Health care providers are subject to a variety of New Jersey State law issues as described below:

False Claims. The New Jersey Insurance Fraud Prevention Act (“FPA”) prohibits a person’s or entity’s submission of false or misleading claims for payment or approval by an insurance company, and allows New Jersey to recover substantial damages from persons or entities that knowingly present or cause to be presented a false or misleading claim for payment or approval by an insurance company. Any person or entity that violates the FPA may be liable for, among other things, a penalty of $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation. In addition to or as an alternative to the civil sanctions provided in the FPA, the Attorney General of New Jersey may bring a criminal action under applicable statutes.

Health Care Claims Fraud. N.J.S.A. 2C:21 4.3 and N.J.S.A. 2C:51 5 complement the FPA and prohibit a practitioner (a physician or health care professional as defined by the statute) from submitting of bills or claims for payment reimbursement of health care services that contain false, fictitious, fraudulent and misleading statements of material fact, or omissions of material fact. In addition to other criminal penalties allowed by other applicable laws, under this body of law, a practitioner may be guilty of the crime of health care claims fraud. Practitioners can be guilty of a crime in the second or third degree depending upon the severity of the claims fraud, may be subject to a fine of up to five times the pecuniary benefit obtained or sought to be obtained, and may be subject to imprisonment, if convicted. A practitioner may, in some cases, also have his or her license revoked or suspended.

State False Claims Act. Effective March 13, 2008, the New Jersey False Claims Act authorizes a person to bring an action against any other person who knowingly causes New Jersey to pay a false claim. A person who violates this law is subject to civil penalties in the amounts set forth in the federal False Claims Act and be liable for treble damages. The Act contains “whistleblower” provisions similar to the federal Civil False Claims Act. The Act also amends the existing Medicaid fraud statute so that civil penalties for Medicaid fraud committed under that statute are consistent with, and supplement, those under the New Jersey False Claims Act.

The potential imposition of large monetary penalties, criminal sanctions, and the significant costs of mounting a defense, create serious pressures to settle on providers who are targets of false claims actions or investigations. Therefore, an action under the FPA or the New Jersey False Claims Act could have a material adverse financial impact on the System, regardless of the merits of the case.

State Anti-Kickback Law. The New Jersey Board of Medical Examiners’ regulations contain provisions which prohibit Board licensees from, directly or indirectly, giving or receiving from any licensed or unlicensed source a gift of more than nominal (negligible) value, or any fee, commission, rebate, bonus or other compensation however denominated, which a reasonable person would recognize as having been given or received in appreciation for or to promote certain conduct by a licensee, including making or receiving a referral to or from another for professional services. Provisions of New Jersey law make it a criminal offense to offer, solicit or receive any kickback, rebate or bribe in order to induce business for which reimbursement is provided under the Medicaid or other State health care programs. Violation of New Jersey Anti-Kickback Law may lead to civil and criminal penalties, as well as exclusion from the Medicaid program. Each member of the System attempts to comply with the provisions of these regulations. However, at the present time, there can be no assurance that a member of the System or the physicians with which it has relationships with will not be found to have violated these State Anti- kickback prohibitions. The mere allegation of such a violation, or if such violation were found to have occurred, or any sanctions imposed, could have a material adverse effect upon the operations and financial condition of the System.

State Anti-Referral Law. The New Jersey law governing referrals by physicians, which is commonly referred to as the “Codey Law”, and regulations promulgated thereunder by the New Jersey Board of Medical Examiners (the “BME”), prohibit the referral of a patient for “health care services” provider by practitioners who have, or whose immediate family members have, a “significant beneficial interest” in an entity providing such services. A “health care services” provider includes an entity that provides on an inpatient or outpatient basis testing or diagnosis, or treatment of human disease or dysfunction or dispensing of drugs or medical devices for the treatment of human disease or dysfunction, and also includes the following businesses: bioanalytical laboratory; pharmacy; home health care agency; home infusion therapy company; rehabilitation facility; nursing home; hospital; or facility which provides radiological or other diagnostic imaging services; physical therapy services; ambulatory surgery; or ophthalmic services. A “significant beneficial interest” means any “financial interest”, including an equity or ownership interest in a practice or a commercial entity holding itself out as offering health care services. A “financial interest”, in turn, means any monetary interest held by a Board licensee personally or through immediate

family in a health care service to which the Board licensee’s patients are referred, other than the ownership of space leased to the entity under prevailing rates or any interest held in publicly traded securities. There are various exceptions to these prohibitions and some of the defined terms. Violations of the Codey Law could result in civil and criminal penalties and could also result in a physician’s loss of his or her license to practice medicine in New Jersey. Violations of the Codey Law could be a basis for a claim under the New Jersey False Claims Act or the FPA by a third party payor based upon the implied false certification theory.

Health Claims Authorization Processing and Payment Act. Carriers and health care providers must comply with New Jersey’s Health Claims Authorization, Processing and Payment Act (“HCAPPA”) which contains provisions relating to handling of claims, claims payment appeals, prior authorization processes, utilization management (“UM”) appeals rights and obligations, and information about clinical guidelines and claims submissions procedures. Carriers and health care providers have an obligation to meet certain requirements of the HCAPPA with respect to both claims payment and the establishment of an independent claims arbitration program to be administered through the New Jersey Department of Banking and Insurance. No assurance can be given at this time as to the impact, if any, of the provisions of the HCAPPA to the operations and financial condition of the System.

Certificate of Need in New Jersey

New Jersey law requires a health care facility, under certain circumstances, to obtain a Certificate of Need from the New Jersey Department of the Health prior to the initiation of certain new health care services, bed additions, bed reductions, or conversions, and certain transfers of ownership. The existence of Certificate of Need requirements may limit the ability of the System to initiate certain types of projects or services which might enhance their competitive position or revenue sources. Over the past several years, relaxation of Certificate of Need rules have allowed health care providers to expand certain activities without adhering to the more rigorous requirements previously imposed. One of the purposes of these changes is to increase opportunities for competition in the health care market. Although these changes may increase opportunities of the System to provide additional services, they also may increase its exposure to competition from other health care providers.

Other New Jersey Legislation

In 2008, the New Jersey State Legislature enacted several pieces of legislation adopting reforms that were aimed at improving the financial condition of New Jersey hospitals and preserving access to care for residents of New Jersey. The reforms included the creation of stabilization grants for hospitals in danger of reducing services or closing, mandating training of hospital board members on the delivery of health care services, requiring annual public meetings of hospital boards, limiting the amount that hospitals may charge low-income uninsured patients, and authorizing the New Jersey Department of Health to monitor the financial performance of hospitals and to intervene in the management of financially distressed hospitals. In February 2013, New Jersey elected a fully federally run exchange under the PPACA. In 2013, New Jersey expanded coverage of its Medicaid program under the PPACA. The federal government will fully fund the expansion for the first three years and after that New Jersey will become responsible for covering a percentage of the cost of the expansion, increasing each year until 2020 when it becomes responsible for covering 10% of the expanded coverage. However, future legislative action is required in order to make the Medicaid expansion permanent.

Third-Party Reimbursement

A significant portion of the net patient service revenue of the clinical component of the System is received from the Health Plan, three different Blue Cross plans, Coventry and other non-governmental agencies, which provide third-party reimbursement for patient care on the basis of various formulae. Renegotiations of such formulae and changes in such reimbursement systems may reduce such third-party reimbursements to the System. The reimbursement currently paid by these payors is likely to be subject to more restrictions in the future, and there can be no assurance that such payments will be adequate to cover the cost of care for the beneficiaries in the future.

Certain private insurance companies contract with hospitals on an exclusive or preferred provider basis, and some insurers have introduced plans known as preferred provider organizations (“PPOs”). Under these plans, there may be financial incentives for subscribers to use only those hospitals and physicians which contract with the plans.

Under an exclusive provider plan, which includes most health maintenance organizations (“HMOs”), private payors limit coverage to those services provided by network hospitals and physicians. With this contracting authority, private payors may direct patients away from hospitals not in the network by denying coverage for services provided by them.

Most PPOs and HMOs currently pay hospitals on a discounted fee-for-service basis or on a discounted fixed rate per day of care. The discounts offered to HMOs and PPOs may result in payment at less than actual cost, and the volume of patients directed to a hospital under an HMO or PPO contract may vary significantly from projections. Therefore, the financial consequences of such arrangements cannot be predicted with certainty and may be different from current or prior experience. Some HMOs offer or mandate a “capitation” payment method under which hospitals are paid a predetermined periodic rate for each enrollee in the HMO who is “assigned” to, or otherwise directed to receive care at, a particular hospital. In a capitation payment system, the hospital assumes an insurance risk for the cost and scope of care given to such HMO’s enrollees. If payment under an HMO or PPO contract is insufficient to meet the hospital’s costs of care, or if use by enrollees materially exceeds projections, the financial condition of the hospital may be adversely affected.

There is no assurance that contracts of the System or its physicians with Blue Cross plans, HMOs, PPOs or other payors will be maintained or that other similar contracts will be obtained in the future, or that payments from such payors will be sufficient to cover all of the costs of the System or its physicians in providing hospital services to their beneficiaries. Failure to execute and maintain such contracts could have the effect of reducing the patient base or gross revenues of the System. Conversely, participation may maintain or increase the patient base, but may result in reduced payments.

The System also may be affected by the financial instability of HMOs and other third-party payors with which the System contracts and/or from which it receives reimbursement for furnished health care services. For example, if the regulators place a financially-troubled HMO into rehabilitation under State law, or if a third-party payor files for protection under the federal bankruptcy laws, it is unlikely that health care providers will be reimbursed in full for services furnished to enrollees of the HMO or third-party payor. Also, health care providers may be required by law or court order to continue furnishing health care services to the enrollees of an insolvent HMO or third-party payor, even though the providers may not be reimbursed in full for such services.

Increasingly, physician practice groups, independent practice associations and other physician management companies have become a part of the process of negotiating payment rates to hospitals by managed care plans. This involvement has taken many forms but typically increases the competition for limited payment resources from managed care plans. For example, it is increasingly common for managed care plans to enter into contracts with physicians that may give physicians incentives in patient care decisions which may result in reduced admissions and procedures for the System.

Any new payment methods implemented by the Medicare and Medicaid programs in response to the Health Care Reform Act provisions are likely to drive similar changes in the private payer market. Programs designed to encourage coordination of care, value-based purchasing and quality outcomes will likely evolve in the private payer market.

Effect of Health Care Reform on the Insurance Market. The Health Care Reform Act includes insurance market reforms that, among other things, require individual and group health insurance plans to offer coverage (including renewability) on a guaranteed basis. The Health Care Reform Act prohibits pre-existing conditions limitations, certain coverage limitations, lifetime and annual dollar limits for essential health benefits, and requires coverage of certain preventive health benefits. Beginning in 2014, every individual is required to enroll in a health plan through an employer, a federal government health program such as Medicare, Medicaid or Tricare, or purchase insurance through a health insurance exchange established by the state or run by the federal government, or pay a tax penalty. Pennsylvania has opted to allow the federal government to run its health insurance exchange. Individuals who do not enroll for coverage, and employers with over fifty full time employees who do not offer affordable and adequate coverage, are subject to tax penalties beginning in 2014. Individuals who do not enroll for coverage, and large employers who do not offer affordable and adequate coverage, will be subject to tax penalties. The Obama administration delayed enforcement of the employer mandate until 2015. It is unclear at this time

whether the tax penalties will result in substantial compliance with the mandate to obtain insurance, and whether the provision requiring individuals to obtain coverage will withstand court challenges.

The Health Care Reform Act establishes the criteria for new Qualified Health Plans (“QHPs”) that may participate in the state run exchanges. A QHP must meet certain minimum essential coverage requirements. Minimum essential coverage requirements may be offered at one of four levels of coverage: bronze, silver, gold or platinum. Each QHP must agree to offer at least one plan at the silver and gold level. The Health Care Reform Act sets forth the minimum coverage offered under each plan level and limits the variations in premiums that may be charged for exchange coverage on the basis of age and tobacco use. A QHP must also be certified by each exchange through which the plan is offered, must be licensed in each state where it offers insurance, and the QHP must limit cost sharing with the insured.

Under the Health Care Reform Act, individuals with family income under 400% of the FPL are eligible for subsidized premiums, deductibles and co-pays for coverage purchased on the exchange. Initially, only individuals and small employers will be able to access coverage through the exchanges. Starting in 2017, large employers will also be able to use the exchanges to provide employer-based coverage to their employees. Although existing health insurance plans may continue to offer coverage in the individual and employer group markets, coverage will not satisfy an individual’s mandate unless the plan meets the Health Care Reform Act’s qualified health plan requirements. At this time, it is not possible to project what impact the exchanges will have on competition in the insurance markets, the cost of coverage for employers, reimbursement rates for hospitals and physicians or the number of uninsured patients that the System will still need to treat.

Uncompensated Care

Although the System attempts to assure payment or reimbursement for most of the care it renders, it provides a substantial amount of uncompensated care to indigents. Obligations to provide uncompensated care can arise from laws and regulations that may require the System to provide care without regard to a patient’s ability to pay for such care. Increased unemployment or other adverse economic conditions could increase the proportion of patients who are unable to pay all or any of the costs of their care.

While the Health Care Reform Act should reduce uncompensated care by expanding health care coverage to a larger portion of the population, improvements to coverage and access will not be available immediately. Current reimbursement for Medicaid services does not always cover the cost of care and the expansion of the Medicaid program will not eliminate entirely the uncompensated care provided by the organization. In addition, the Medicaid program is dependent on the continued ability of federal and state funding, which could be curtailed in the future in response to growing budget deficits at all governmental levels. The continued availability, comprehensiveness of coverage and adequacy of reimbursement for care for the indigent and disabled cannot be assured in the future.

Regulatory Environment

The System and the health care industry in general are subject to regulation by a number of governmental agencies, including those that administer the Medicare and Medicaid programs, federal, state and local agencies responsible for administration of health care planning programs, and other federal, state and local governmental agencies. These laws and regulations require that hospitals meet various detailed standards relating to the adequacy of medical care, equipment, personnel, information technology, patient confidentiality, operating policies and procedures, maintenance of adequate records, utilization, rate setting, compliance with building codes and environmental protection laws, and numerous other matters. Failure to comply with applicable regulations can jeopardize a hospital’s licenses, ability to participate in the Medicare and Medicaid programs, and ability to operate as a hospital. These laws and regulations, as well as similar laws and regulations now in effect, and the adoption of additional laws and regulations in these and other areas could have an adverse effect on the System’s ability to generate revenues in sufficient amounts to timely pay the Series 2017 Bonds. Some of these laws and regulations are discussed below.

Federal False Claims Act and Civil Money Penalties Law. There are multiple federal laws concerning the submission of inaccurate or fraudulent claims for reimbursement and errors or misrepresentations on cost reports

by hospitals and other providers. The coding, billing and reporting obligations of Medicare providers are extensive, complex and highly technical. In some cases, errors and omissions by billing and reporting personnel may result in liability under the federal False Claims Act or similar laws, exposing a health care provider to civil and criminal monetary penalties, as well as exclusion from participation in the Medicare and Medicaid programs.

The federal False Claims Act prohibits knowingly submitting a false or fraudulent claim for payment to the United States. This statute is violated if a person acts with actual knowledge, or in deliberate ignorance or reckless disregard of the falsity of the claim. Penalties under the federal False Claims Act currently include fines of up to $11,000 per violation occurring prior to November 2, 2015 and up to $21,563 (subject to annual escalations based on the Consumer Price Index) per violation occurring on or after November 2, 2015, plus treble damages, potentially resulting in penalties aggregating in the multiple millions of dollars for ongoing claims submission errors. Anyone who knowingly makes a false statement or representation in any claim to Medicare, Medicaid or other federally funded programs may be subject to criminal penalties, including fines and imprisonment. Moreover, PPACA revised the Social Security Act to state that retention of Medicare, Medicaid and other federally funded overpayment more than 60 days after the overpayment is identified constitutes a federal False Claims Act violation. PPACA also provides that a violation of the Anti-Kickback law is also deemed to be a federal False Claims Act violation. CMS issued final regulations effective March 14, 2016, implementing PPACA’s provisions for Medicare Part A and B providers and suppliers, which expand the overpayment reporting and return obligations, and include a 6-year look- back period, a change from the former 4-year look-back period. The final rule departed from the federal False Claims Act’s well-established requirement of “actual knowledge,” “reckless disregard,” or “deliberate ignorance” to provide that the 60-day deadline for reporting a Medicare overpayment is triggered whenever an entity has determined “or should have determined through the exercise of reasonable diligence” that there was an overpayment. Rule-making has not been initiated to implement the PPACA provision as it relates to provider obligations under traditional Medicaid. However, the PPACA provision is self-implementing, meaning that all persons that it covers have an obligation to report and refund overpayments within the time limit set out in the statute. On May 19, 2014, CMS issued a final rule implementing the above PPACA provision for Medicare Part C and D. That final rule also includes a 6-year look-back provision. On June 1, 2015, CMS published a proposed rule covering (among other things) the return of overpayments by Medicaid managed care plans.

The federal False Claims Act includes “whistleblower” provisions under which a person who believes that someone is violating the federal False Claims Act can file a sealed complaint against the alleged violator in the name of the United States government. The nature of the allegations is not revealed to the target during the time the DOJ investigates the complaint and determines whether to join in the suit. The initial sealing period is for 60 days but is often extended for months or even years while the DOJ conducts its investigation. If the DOJ decides not to join in the suit, the original whistleblower nonetheless can proceed. If the case is successful, the whistleblower is entitled to between 15% and 30% of the proceeds of any fines or damages paid, the percentages vary depending on whether or not the United States has joined the suit. Although the federal False Claims Act has been in effect for many years, in recent years there has been a significant increase in the number of whistleblower allegations filed under the federal False Claims Act, a large number of which involve the health care and pharmaceutical industries. Additionally, on April 29, 2013, CMS issued a proposed rule that would increase the reward for a successful whistleblower, which is intended to incentivize individuals to report suspected fraud. On December 5, 2014, CMS adopted a final rule, which included a statement that it “may finalize provisions relating to the Incentive Reward Program in future rule making.” There has been no further action on this proposed rule to date.

On May 9, 2014, the OIG issued a proposed rule that provided, in part, that there would be no statute of limitations period applicable to the OIG’s exclusion authority, unlike the OIG’s other administrative remedies which have a six-year statute of limitations, even when the exclusion is based on a violation of another statute that has a specific limitations period. The OIG reasoned that federal False Claims Act cases often take longer than six years after the underlying conduct to resolve. If finalized, health care entities could find themselves subject to exclusion long after an underlying violation has been resolved. The proposed rule also expands the OIG’s authority to impose permissive exclusions pursuant to PPACA.

On June 16, 2016, the United States Supreme Court decided Universal Health Services v. United States ex rel. Escobar. This case analyzed whether a violation of the FCA occurs when a defendant submitting a claim that includes specific representations about the goods or service provided, fails to disclose non-compliance with material statutory, regulatory or contractual requirements that makes those representations misleading with respect to those

goods or services (the implied false certification theory). The Supreme Court ruled that the implied false certification theory can be a basis for liability under the FCA and liability under the FCA, for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payments.

The Civil Money Penalties Law under the Social Security Act (“CMP Law”) provides for the imposition of civil money penalties against any person who submits a claim to Medicare, Medicaid or any other federal health care program that the person knows or should know: (a) is for items or services not provided as claimed; (b) is false or fraudulent; (c) is for services provided by an unlicensed or uncertified physician or by an excluded person; (d) represents a pattern of claims that are based on a billing code higher than the level of service provided; or (e) is for services that are not medically necessary. Penalties under the CMP Law include a fine of $10,000-$50,000 for each item or service claimed, damages of up to three times the amount claimed for each item or service, and exclusion from participation in the federal health care programs. The CMP Law also provides for the imposition of penalties against a hospital that knowingly makes a payment to a physician as an inducement to reduce or limit services provided to federal program beneficiaries. On May 12, 2014, the OIG issued a proposed rule that would codify expanded conduct covered by the CMP pursuant to PPACA. New prohibited acts include: (a) failing to grant OIG timely access to records; (b) ordering or prescribing while excluded when the excluded person knows or should know that the items or services may be paid for by a Federal healthcare program; (c) making false statements, omissions, or misrepresentations in an enrollment or similar bid or application to participate in a Federal healthcare program; (d) failing to report and return a known overpayment; and (e) making or using a false record or statement that is material to a false or fraudulent claim. If an excluded individual is employed/contracted with and he or she provides items or services that are not separately billed, the OIG will calculate penalties based on the number of days of employment/contract with a penalty of not more than $10,000 per day. Finally, the proposed rule provides for a default penalty of up to $10,000 for each day a person fails to report and return an overpayment after the 60- day window under the federal False Claims Act, but the OIG asked for input on whether the penalty should be $10,000 for each item or service for which there was an identified overpayment. This provision would allow the OIG to impose penalties even when the DOJ or a whistleblower could not make the showing under the federal False Claims Act that the defendant “knowingly and improperly” avoided repayment.

Under an interim final rule published on June 14, 2016, the penalty amounts were increased using the Consumer Price Index to account for inflation. This rule also clarified that CMPs may be imposed for upcoding claims. The rule also proposes changes to the definition of “knowing.” Historically, regulations have applied a ‘‘knows or should know’’ standard of proof with regard to false claims and other prohibited acts. The ‘‘should know’’ standard historically placed a duty on providers to use reasonable diligence to ensure that claims submitted to the government are true and accurate. Under the revised definition for ‘‘should know or should have known’’, individuals and entities would only be liable under the CMP authority if they acted with actual knowledge, or with reckless disregard or deliberate ignorance of information supporting the truth or falsity of a claim or other fraud. No specific intent to defraud would be required. The rule also added that the term ‘‘knowingly’’ will be applied to the presentment of a claim under the CMP statute consistent with the standard of knowledge set forth in the False Claims Act.

The threats of large monetary penalties and exclusion from participation in Medicare, Medicaid and other federal health care programs, and the significant costs of mounting a defense, create serious pressures on providers who are targets of false claims actions or investigations to settle. Therefore, an action under the False Claims Act, CMP Law or Program Fraud Civil Remedies Act could have an adverse financial impact on the Obligated Group, regardless of the merits of the case.

State False Claims Act. The federal government provides financial incentives for states that pass their own version of a false claims act, with the primary purpose of reducing fraud in state Medicaid programs. At this time, Pennsylvania does not have its own false claims act.

“Fraud and Abuse” Laws and Regulations. Federal law (known as the Anti-Kickback Law) prohibits the knowing and willful offer, solicitation, payment or receipt of remuneration in exchange for or as an inducement to make or influence a referral of a patient for goods or services, or the purchase, lease, order or arrangement for the provision of goods or services, that may be reimbursed under Medicare, Medicaid or other health benefit programs funded by the federal government. The scope of the Anti-Kickback Law is very broad, and it potentially implicates

many practices and arrangements common in the health care industry, including space and equipment leases, personal services contracts, purchase of physician practices, joint ventures, and relationships with vendors. Penalties for violation of the Anti-Kickback Law include criminal prosecution, civil penalties of up to $50,000 and damages of up to three times the amount of the illegal remuneration, as well as exclusion from the federal health care programs.

Federal safe harbor regulations describe certain arrangements that will be exempt from prosecution or other enforcement action under one of the federal laws prohibiting referrals in exchange for remuneration. In the fall of 2006, CMS added two new safe harbors to the existing anti-kickback regulations. One safe harbor protects certain arrangements involving the distribution of electronic prescribing technology to physicians and the other protects the provision of information technology necessary to create electronic health records. The new rule with respect to prescribing technology classifies technology necessary and used solely to receive and transmit any prescription information as protected non-monetary remuneration. The final safe harbor involving electronic health records software protects arrangements the provide physicians with information technology and training services necessary and used predominantly to create, maintain, transmit, or receive electronic health records.

The Health Care Reform Act amended the intent requirement to provide that a person need not have actual knowledge of the Anti-Kickback law or specific intent to commit a kickback violation, to violate the statute. Penalties for the failure to grant timely access to HHS were also added by the Health Care Reform Act.

As the exceptions are narrowly drawn, there can be no assurances that the System will not be found to be in violation of the Anti-Kickback Law. If such a violation were found, any sanctions imposed could have a material adverse effect upon the future operations and financial condition of the System.

Restrictions on Referrals. Current federal law (the “Stark Law”) prohibits a physician who has a financial relationship with an entity that provides certain health services from referring Medicare and Medicaid patients to that entity for the provision of such health services, with limited exceptions. These restrictions currently apply to referrals for a number of health services and goods, including clinical laboratory services, physical therapy services, occupational therapy services, radiology or other diagnostic services, durable medical equipment, radiation therapy services, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics and prosthetic devices, home health services, outpatient prescription drugs, and inpatient and outpatient hospital services. The Stark Law also prohibits an entity that receives a prohibited referral from filing a claim or billing for the services arising out of that prohibited referral.

The Stark Law strictly prohibits specific referral arrangements and the accompanying claims for payment from Medicare or Medicaid by the provider unless an exception applies. Sanctions for violations of the Stark Law include refunds of the amounts collected for services rendered pursuant to a prohibited referral, civil money penalties of up to $15,000 for each claim arising out of such referral, plus up to three times the reimbursement claimed, and exclusion from the Medicare and Medicaid programs. The Stark Law also provides for a civil penalty of up to $100,000 for entering into an arrangement with the intent of circumventing its provisions. In addition, knowing violation of the Stark Law may also serve as the basis for liability under the False Claims Act. The types of financial arrangements between a physician and an entity that trigger the self-referral prohibitions of the Stark Law are broad, and include ownership and investment interests and compensation arrangements.

As required under the Health Care Reform Act, CMS released a protocol under which health care providers can make self-disclosures of actual and potential Stark violations, with reduced penalties for self-disclosed violations. CMS released this protocol on September 23, 2010.

Although the Stark Law only applies to Medicare, a number of states have passed similar statutes pursuant to which similar types of prohibitions are made applicable to all other health plans or third-party payors. Pennsylvania currently has a disclosure law, Act 1988-66, that requires an osteopathic physician referring a patient for health-related services (tests, pharmaceuticals, appliances or devices) to a facility or entity in which he has an ownership interest to disclose that interest prior to making the referral, and to notify the patient of his freedom to choose an alternate provider. Ownership interests include proprietary or beneficial interests through which the physician earns or has the potential to earn income, or which produce a direct or indirect economic benefit. The Pennsylvania General Assembly has introduced a state self-referral law in various sessions but has not yet adopted

such legislation. However, should the state assembly choose to enact a state self-referral law in the future, the System and its providers will be required to comply.

Because of the complexity of the Stark Law and the evolving nature of quality improvement and cost-reduction efforts, there can be no assurances that the System will not violate the Stark Law. If such violation were found to have occurred, any sanctions imposed could have a material adverse effect upon the future operations and financial condition of the System.

Expanded Enforcement Activity under HIPAA. Congress enacted The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) in August 1996 as part of a broad health care reform effort. Among other things, HIPAA established a program administered jointly by the Secretary of HHS and the United States Attorney General designed to coordinate federal, state and local law enforcement programs to control fraud and abuse in connection with the federal health care programs. In addition, HIPAA also increased funding for health care fraud enforcement activity, enabling the OIG to substantially expand its investigative staff and the Federal Bureau of Investigation to increase the number of agents assigned to health care fraud. The result has been a dramatic increase in the number of civil, criminal and administrative prosecutions for alleged violations of the laws relating to payment under the federal health care programs, including the Anti-Kickback Law and the False Claims Act. This expanded enforcement activity, together with the whistleblower provisions of the False Claims Act, have significantly increased the likelihood that all health care providers, including the System, could face inquiries or investigations concerning compliance with the many laws governing claims for payment and cost reporting under the federal health care programs.

HIPAA’s Privacy and Security Requirements. In addition to the expanded enforcement activity noted above, the “Administrative Simplification” provisions of HIPAA mandate the use of uniform standard electronic formats for certain administrative and financial health care transactions, the adoption of minimum security standards for individually identifiable health information maintained or transmitted electronically, and compliance with privacy standards adopted to protect the confidentiality of personal health information. The Administrative Simplification provisions apply to health care providers, health plans, and health care clearinghouses, and their agents and subcontractors referred to as Business Associates (collectively, the “Covered Entities”). HHS recently issued final regulations strengthening many aspects of the privacy and security rules under HIPAA so that they are more aligned with the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”). The final rules change certain requirements for covered entities and establish rules that now apply directly to their vendors that handle protected health information (PHI) and qualify as business associates under HIPAA. A Covered Entity and its business associates must make reasonable efforts to use, disclose and request only the minimal amount of protected health information needed to accompany the intended use. HIPAA confidentiality provisions extend not only to patient medical records, but also to a wide variety of healthcare clinical and financial settings where patient privacy restrictions often impose new communication, operational, accounting and billing restrictions. These confidentiality provisions add costs and create potentially unanticipated sources of legal liability.

Various requirements of HIPAA apply to virtually all health care organizations, and significant civil and criminal penalties may result from a failure to comply with the Administrative Simplification regulations. Compliance requires changes in information technology platforms, major operational and procedural changes in the handling of data, and vigilance in the monitoring of ongoing compliance with the various regulations. The financial costs of compliance with the Administrative Simplification regulations are substantial.

The HITECH Act. The American Recovery and Reinvestment Act of 2009 (“ARRA”) appropriated approximately $20 billion for the development and implementation of health information technology standards and the adoption of electronic health care records. The law also significantly expanded the HIPAA privacy and security provisions applicable to Covered Entities and their business associates. The law provides that individuals be notified when there is a breach of their unsecured electronic personal health information, increases civil monetary and criminal penalties for HIPAA violations, and authorizes the state attorneys general to enforce its provisions. Each Covered Entity must report any breach involving over 500 individuals in a state to HHS and the local media. All other breaches must be reported annual to HHS. The financial costs of continuing compliance with HIPAA and the Administrative Simplification regulations are substantial and will increase as a result of the ARRA amendments.

ARRA also includes HITECH Act, which contains a number of provisions that affect HIPAA’s privacy regulations that provide generally that Covered Entities must keep a person’s personal health information private. The HITECH Act limits a Covered Entity’s discretion in determining what health care information about a person may be properly disclosed under the HIPAA privacy regulations.

Covered Entities that use an “electronic health record” are required to account for disclosures of information that are currently not subject to the accounting requirements, including disclosures for treatment, payment and health care operations. In addition, if a Covered Entity maintains an electronic health record, individuals have a right to receive a copy of the protected health information maintained in the record in an electronic format. Again, the Secretary of HHS is charged with developing guidance and implementing regulations for these requirements.

The HITECH Act includes provisions requiring Covered Entities to agree to a patient request to restrict disclosure of information to a health plan, if the information pertains solely to an item or service for which the provider was paid out of pocket in full. The HITECH Act also includes a prohibition on the payment or receipt of remuneration in exchange for protected health information without specific patient authorization, except in limited circumstances, and places additional restrictions on the use and disclosures of protected health information for marketing communications and fundraising communications.

In the event of an unauthorized disclosure of protected health information, Covered Entities now are required to notify the affected individuals, HHS and sometimes the media of the unauthorized disclosure, depending on the nature of the breach, the type of unauthorized disclosure and its scope.

The HITECH Act revises the civil monetary penalties associated with violations of HIPAA, and provides state attorneys general with authority to enforce the HIPAA privacy and security regulations in some cases, through a damages assessment of $100 per violation or an injunction against the violator. The revised civil monetary penalties range: (a) in the case of violations due to willful neglect, from a minimum of $10,000 or $50,000 per violation depending on whether the violation was corrected within 30 days of the date the violator knew or should have known of the violation, and (b) in the case of all other violations, from a minimum of $100 to $1,000 per violation.

Covered entities and business associates are required to be compliant with the HIPAA final regulations by September 23, 2013. The System is actively engaged in continuing compliance efforts with HIPAA and HITECH regulations. However, no guarantee can be made that the System will remain HIPAA compliant in the future.

Coding Changes. Effective March 1, 2017, the coding standards used by health care providers and payers to classify diseases and causes of death are changing. These changes may be costly to physicians and hospitals and will require significant planning, training and updates to the software and systems of hospitals at substantial cost to the hospital and providers.

Emergency Medical Treatment and Active Labor Act. In 1986, Congress enacted the Emergency Medical Treatment and Active Labor Act (“EMTALA”), in response to allegations of inappropriate hospital transfers of indigent and uninsured emergency patients. EMTALA imposes strict requirements on hospitals in the treatment and transfer of patients with emergency medical conditions.

EMTALA requires hospitals to provide a medical screening examination to any individual who comes to the hospital’s emergency department for treatment, without regard to ability to pay, to determine whether the individual suffers from an emergency medical condition within the meaning of EMTALA. A participating hospital may not delay providing a medical screening examination in order to inquire about method of payment or insurance status. If an emergency medical condition is present, the hospital must provide such additional medical examination and treatment as may be required to stabilize the emergency medical condition. If the hospital deems it in the best interest of the individual to transfer the individual to another medical facility, the treating physician must execute a transfer certificate complying with the standards of EMTALA and must provide a medically appropriate transfer.

In regulations, CMS has extended the application of EMTALA beyond the hospital emergency department to any individual who is on hospital property and requests an examination or treatment, including individuals who are anywhere on the hospital’s main campus, in a hospital owned ambulance, or in a facility off the main campus that has been determined by CMS to be a department of the hospital. Off-campus departments might include, for example, urgent care centers, primary care clinics and physical therapy and radiology facilities. These regulations have been narrowed somewhat to clarify that while off-campus departments are obligated to comply with EMTALA, hospitals are not required to locate additional personnel to off-campus departments to be on standby for possible emergencies. Rather, in those cases where the necessary emergency personnel are not routinely present on site, appropriate protocols for the handling of emergency cases (for example, contact with the main hospital campus for direction, or transfer to an appropriate facility), must be established.

EMTALA imposes significant costs on hospitals, including the costs of treatment of individuals who may not be able to pay for such services, costs of development and implementation of protocols concerning medical screening examinations and stabilization and appropriate transfers and, in some cases, costs associated with assuring on-call availability of specialty physicians. In addition, the expansion of the requirements of EMTALA to off-campus departments may result in significant costs in the training of personnel and the development of protocols for screening, stabilization and transportation of patients.

If a hospital violates EMTALA, whether knowingly and willfully or negligently, it is subject to a civil money penalty of up to $50,000 per violation. Failure to satisfy the requirements of EMTALA may also result in termination of the hospital’s provider agreement with Medicare. In addition, EMTALA creates a private cause of action for individuals who suffer personal harm as a result of an EMTALA violation, and for any hospital that suffers financial loss as a result of another hospital’s violation of EMTALA. Enforcement activity with respect to EMTALA violations has increased dramatically in recent years, and because of the broad interpretation of the reach of EMTALA, there can be no assurance that the System will not have been found to have violated EMTALA, and if such a violation were found, that any sanctions imposed would not have a material adverse effect upon the future operations and financial condition of the System.

Quality Reporting and Compliance Requirements. The Deficit Reduction Act of 2005 (“DRA”) imposed significant new quality reporting initiatives for hospitals. The System is required to submit quality performance measures; the penalty for hospitals not reporting quality measures is a two percentage point reduction in the market basket update for that fiscal year. The Health Care Reform Act expands those reporting obligations.

The DRA established requirements for states participating in the Medicaid program to impose obligations on health care providers and others that receive at least $5 million annually in Medicaid payments to establish written policies and procedures to educate their employees (and certain contractors and agents) and to provide detailed information about the federal False Claims Act, the federal Program Fraud Civil Remedies Act, various other federal and state laws pertaining to civil or criminal penalties for false claims and statements, any whistleblower protections provided under such laws, the role of such laws in preventing and detecting fraud, waste and abuse, and the provider (or other party’s) policies and procedures that are in place for the prevention and detection of fraud, waste and abuse. Additionally, covered health care providers and other applicable parties are required to make specific revisions to their existing employee handbooks to incorporate the above items, and to specifically disseminate pertinent information regarding these items to all employees and certain categories of contractors and agents making sure that covered contractors and agents agree to the adoption of certain policies and procedures. These DRA mandates went into effect on January 1, 2007. Because compliance with these DRA requirements is a condition of payment under Medicaid, providers and other covered parties that do not adequately update their compliance policies, handbooks and other training materials or otherwise abide by these requirements run the risk of losing their entitlement to receive Medicaid reimbursements to which they otherwise would be entitled and/or risk potential liability under the False Claims Act and other federal and state fraud and abuse authorities.

Environmental Laws Affecting Health Care Facilities. Hospitals are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations that address, among other things, hospital operations or facilities and properties owned or operated by hospitals. In their role as owners and/or operators of properties or facilities, hospitals may be subject to liability for investigating and remedying any hazardous substances that have come to be located on the property, including any such substances that may have

migrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants, or contaminants. For these reasons, hospital operations are particularly susceptible to the practical, financial, and legal risks associated with compliance with such laws and regulations. Such risks may result in damage to individuals, property, or the environment; may interrupt operations and/or increase their cost; may result in legal liability, damages, injunctions or fines; or may trigger investigations, administrative proceedings, penalties or other governmental agency actions. There can be no assurance that the System will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the System.

Transparency in Pricing. The Health Care Reform Act requires hospitals to establish and make public a list of the hospital’s standard charges for items and services, including MS-DRGs. A 2006 executive order was issued requiring the same public reporting of cost and quality data at four federal agencies. CMS also has made “outcomes” reporting a condition of Medicare participation. These requirements are examples of a trend in which hospitals will be required to divulge proprietary information to the general public in order to participate in federal health care programs. The 2015 inpatient PPS rule requires hospitals to make public a list of their standard changes in response to an inquiry. The disclosure of proprietary information may have a negative impact on the System’s ability to gain advantages in negotiations with payors. This, in turn, could negatively influence the System’s revenues. The Health Care Reform Act includes various public disclosure obligations for financial arrangements between hospitals, physicians, imaging centers, and pharmaceutical and medical device manufacturers. Due to the relative novelty of these disclosure requirements, it is impossible to predict the effect, if any, that cost and outcomes reporting will have on the System’s finances.

Future Federal Legislation. The System anticipates that the federal government’s health care reform initiatives will result in substantial new legislation, regulation, and other actions that will continue the trend toward reduced reimbursement for hospital services and more pervasive regulation of operations. At present, no determination can be made concerning whether, or in what form, such legislation could be introduced and enacted into law. Similarly, the impact of future cost control programs and future regulations upon the forecasted financial performance of the System cannot be determined at this time.

Any future changes to the Medicare and Medicaid programs could result in substantial reductions in the amounts of public and private payments to hospital providers in the future, which could substantially reduce the revenues available to the System. Any reduction in the levels of payment in these government payment programs could substantially adversely affect the System’s financial condition and its ability to fulfill its obligations.

Medical Care Availability and Reduction of Error Act. In March 2002, the Commonwealth of Pennsylvania enacted the Medical Care Availability and Reduction of Error Act (the “Mcare Act”). The Mcare Act includes significant patient safety initiatives, professional liability tort reforms, professional liability insurance reforms, and administrative requirements that imposes numerous burdens on health care providers in the Commonwealth.

Under the Mcare Act, hospitals are required to develop and implement patient safety plans, appoint patient safety officers, form patient safety committees, and engage in mandatory reporting of serious events, incidents, and infrastructure failures in the hospital. Furthermore, hospitals are required to provide written notice to patients affected by serious events. Hospitals, ambulatory surgical centers, and birth centers are subject to administrative fines of $1,000 per day for failure to comply with the patient safety requirements of the Mcare Act. The administrative provisions under the Mcare Act require physicians in the Commonwealth to report to the appropriate licensing board each time they are named in a lawsuit, and provide for additional civil penalties of up to $10,000 for violations of the Mcare Act by licensees.

The Mcare Act also eliminated the Pennsylvania Medical Professional Liability Catastrophe Loss Fund (the “CAT Fund”) and established the Medical Care Availability and Reduction of Error Fund (the “Mcare Fund”). The liabilities of the CAT Fund, which were estimated at over two billion dollars, were transferred into the Mcare Fund and were paid through the imposition of annual assessments on health care providers in the Commonwealth until all liabilities were satisfied. The Mcare Fund provides coverage for professional liability claims in excess of a basic limit of insurance, and participation in the Mcare Fund is mandatory for licensed health care providers. The

administrative and financial burdens imposed on health care providers by the Mcare Act are substantial, and there can be no assurance that compliance with the Mcare Act will not have a material adverse effect upon the future operations and financial condition of the System. Continued funding of the Mcare program is uncertain.

Regulatory Inquiries

The laws and regulations governing federal reimbursement programs and the laws governing the health care industry generally (such as the False Claims Act, the Civil Money Penalties Law, the Anti-Kickback Law and the Stark Law) are complex and subject to varying interpretations, and the System is subject to contractual reviews and program audits in the normal course of business. Penalties for violations of federal regulations governing health care providers can be severe, including treble damages, fines, and suspension from federal reimbursement programs such as Medicare and Medicaid. Federal agencies have initiated nationwide investigations into several areas of concern, including, among others: (i) teaching hospitals, (ii) home health care services, (iii) investigational devices, (iv) laboratory billing, and (v) cost reporting. The System expects that the level of review and audit to which it and other health care providers are subject will increase. The System has compliance programs that are designed to detect and correct potential violations of laws and regulations applicable to its programs. Regulatory authorities have discretion to assert claims for noncompliance with applicable requirements based upon their interpretation of those requirements. Because these complex program requirements are subject to varying interpretations and because, in some instances (e.g., the Anti-Kickback Law and the Stark Law), there is little clear regulatory or judicial guidance, there can be no assurance that regulatory authorities will not challenge the System’s compliance with these requirements and assert claims or penalties, and it is not possible to determine the impact (if any) any such claims or penalties would have upon the System.

Corporate Compliance

In contrast to a government-imposed corporate compliance plan that may be instituted pursuant to the federal government’s investigation of a health care provider, a voluntary corporate compliance plan is instituted by a health care provider to, among other things, put into place effective internal controls that promote adherence to various federal and state laws regulating the health care industry. The Office of Inspector General’s Compliance Program Guidance for Hospitals was released in February 1998 and supplemented in January 2005. The OIG believes that the adoption and implementation of voluntary compliance programs by hospitals significantly advances the prevention of fraud, abuse and waste in federal, state and private health plans. In fact, the OIG may consider the existence of an effective compliance plan that is instituted before a governmental investigation, when negotiating a settlement with a health care provider.

Maintenance of Tax-Exempt Status

The Corporation, as well as certain other System Affiliates (collectively referred to as the “Tax-exempt System Affiliates”) have been determined to be tax-exempt organizations described in Section 501(c)(3) of the Code. Maintaining that status is contingent upon compliance with general rules promulgated in the Code and related regulations regarding the organizations and operation of tax-exempt entities, including their operation for charitable and educational purposes and their avoidance of transactions that would cause their assets to inure to the benefit of private persons. The Internal Revenue Service (“IRS”) has indicated that it intends to issue “compliance checks” relating to post-issuance compliance of tax-exempt bonds issued for exempt organizations.

As tax-exempt organizations, the Tax-exempt System Affiliates are limited in their use of practice income, guarantees, reduced rent on medical office space, below-market rate interest loans, joint venture programs and other means of recruiting and maintaining physicians. The IRS scrutinizes a broad variety of contractual relationships commonly entered into by hospitals and affiliated entities and has issued detailed hospital audit guidelines suggesting that field agents scrutinize numerous activities of hospitals in an effort to determine whether any action should be taken with respect to limitations on, or revocation of, their tax-exempt status of assessment of additional tax. The Tax-exempt System Affiliates conduct diverse operations involving private parties and have entered into arrangements, directly or through affiliates, that are of the kind that the IRS has indicated that it will examine in connection with audits of tax-exempt hospitals. Therefore, there can be no assurances that certain of their transactions would not be challenged by the IRS.

The IRS has issued limited guidance that addresses joint ventures and other common arrangements between exempt health care organizations and non-exempt individuals or entities. The Tax-exempt System Affiliates believe that their arrangements with private persons and entities are generally consistent with guidance by the IRS, but there can be no assurance concerning the outcome of an audit or other investigation given the limited authority interpreting the range of activities under taken by the Tax-exempt System Affiliates.

The IRS has taken the position that hospitals that are in violation of the Anti-Kickback Law may also be subject to revocation of their federal tax-exempt status. As a result, tax-exempt entities such as the Tax-exempt System Affiliates that have, and will continue to have, extensive transactions with physicians are subject to an increased degree of scrutiny and perhaps enforcement by the IRS.

On March 31, 2011, the IRS and OIG released guidance addressing the collaboration between health care providers that will result from Health Care Reform initiatives, such as ACOs. The IRS has assured tax-exempt organizations that participation in an ACO with for-profit entities will not jeopardized the organization’s tax-exempt status and the OIG will create a waiver program for certain federal fraud and abuse statutes that may be implicated by these arrangements.

Although the Tax-exempt System Affiliates have covenanted to maintain their status as tax-exempt organizations, loss of tax-exempt status would likely have a significant adverse effect on any such organization and its operations. Any suspension, limitation or revocation of the tax-exempt status of the Tax-exempt System Affiliates or assessment of significant tax liability could have a material adverse effect on the Tax-exempt System Affiliates and might lead to the loss of tax exemption of interest on the Series 2017 Bonds.

Various state and local governmental bodies in Pennsylvania have also challenged the tax-exempt status of health care organizations and have sought to remove the exemption of property from real estate taxes of part or all of the property of various nonprofit institutions on the grounds that a portion of such property was not being used to further the charitable purposes of such organizations or that the organizations did not provide sufficient care to indigent persons so as to warrant exemption from taxation as a charitable institution. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements that are not favorable to the organization. Because of the uncertainty surrounding these local and judicial rulings, the Pennsylvania General Assembly proposed and passed a joint resolution in June, 2013, to amend the Constitution of the Commonwealth of Pennsylvania that would allow the General Assembly to establish uniform standards and determine qualifications as institutes of public charity. Such an amendment would need to be approved by the voters.

It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of exempt organizations. Since such actions and proposals have been made, they have been vigorously challenged and contested. There can be, however, no assurance that future changes in the laws and regulations of the federal, state or local governments will not materially and adversely affect the operations and revenues of the System by requiring it to pay income or real estate taxes.

There have also been numerous Congressional hearings in the past several years held by the House Ways and Means Committee, the Senate Finance Committee and other committees investigating various activities and practices of tax-exempt and other health care organizations, including hospital pricing systems, hospital billing and collection practices, unaudited business income and prices charged to uninsured patients. It cannot be determined at this time whether any legislation will be enacted in response to congressional hearings and investigations and, if so, what form any such legislation would take and what its impact would be on the Tax-exempt System Affiliates.

Other legislative changes or judicial actions with respect to matters relating to the tax-exempt status of nonprofit corporations, including the provision of free care to the indigent and the exemption from property taxes of such corporations, could be enacted. There can be no assurance that the future changes in federal, state or local laws, rules, regulations and policies governing tax-exempt entities will not have adverse effects on the future operations of the Tax-exempt System Affiliates.

The Health Plan has been determined to be a tax-exempt social welfare organization under Internal Revenue Code Section 501(c)(4), which describes organizations that are primarily engaged in promoting the common good and general welfare of the community. Recent court decisions and guidance provided by and then

retracted by the Internal Revenue Service create uncertainty as to whether health maintenance organizations, such as the Health Plan, can maintain a tax exemption under Section 501(c)(4).

Intermediate Sanctions

The Code Section 4958 (“Intermediate Sanctions”) imposes penalty excise taxes in cases where an exempt organization is found to have engaged in an “excess benefit transaction” with a “disqualified person”. Such penalty excise taxes may be imposed in lieu of revocation of exemption or in addition to such revocation in cases where the magnitude or nature of the excess benefit calls into question whether the organization has continued to function as a charity. The tax is imposed on the disqualified person receiving the excess benefit. An additional tax may be imposed on any officer, director, trustee or other person having similar powers or responsibilities who knowingly participated in the transaction willfully or without reasonable cause.

“Excess benefit transactions” include transactions in which a disqualified person receives unreasonable compensation for services or receives other economic benefit from the organization that exceeds fair market value. “Disqualified persons” include “insiders” such as board members and officers, senior management, and members of the medical staff, who in each case are in a position to substantially influence the affairs of the organization; their family members; and entities which are more than 35% controlled by a disqualified person. The legislative history sets forth Congress’ intent that compensation of disqualified persons shall be presumed to be reasonable if it is: (1) approved by disinterested members of the organization’s board or compensation committee; (2) based upon data regarding comparable compensation arrangements paid by similarly situated organizations; and (3) adequately documented by the board or committee as to the basis for its determination. A presumption of reasonableness will also arise with respect to transfers of property between the exempt organization and disqualified persons if a similar procedure with approval by an independent board is followed.

Intermediate Sanction penalties can also be assessed in situations where the exempt organization, or an entity controlled by the organization, provides an economic benefit to a disqualified person without maintaining contemporaneous written substantiation of the organization’s intent to treat the benefit as compensation. If the written contemporaneous substantiation requirements are not satisfied and unless the organization can establish that it provided the economic benefit in exchange for consideration other than the performance of services (i.e., a bona fide loan), the IRS shall deem such transactions as an “automatic” excess benefit transaction without regard to whether: (1) the economic benefit is reasonable; (2) any other compensation the disqualified person may have received is reasonable; or (3) the aggregate of the economic benefit and any other compensation the disqualified person may have received is reasonable. There is no defense to the assessment of automatic excess benefit penalties.

The imposition of penalty excise tax in lieu of revocation based upon a finding that an exempt organization engaged in an excess benefit transaction is likely to result in negative publicity and other consequences that could have a material adverse effect on the operations, property, or assets of the organization.

Other Legislative and Regulatory Actions

The System is subject to regulation, certification and accreditation by various federal, state and local government agencies and by certain nongovernmental agencies such as the Joint Commission. No assurance can be given as to the effect on future hospital operations of existing laws, regulations and standards for certification or accreditation or of any future changes in such laws, regulations and standards.

Legislative proposals which could have an adverse effect on the System include: (a) any change in the taxation of not-for-profit corporations or in the scope of their exemption from income or property taxes; (b) limitations on the amount or availability of tax-exempt financing for charitable organizations described in Section 501(c)(3) of the Code; (c) regulatory limitations affecting the ability of the System to undertake capital projects or develop new services; and (d) a requirement that not-for-profit health care institutions pay real estate property tax and sales tax on the same basis as for-profit entities.

Antitrust

The System, like other providers of health care services, is subject to antitrust laws. Those laws generally prohibit agreements that restrain trade and prohibit the acquisition or maintenance of a monopoly through anticompetitive practices. The legality of particular conduct under the antitrust laws generally depends on the specific facts and circumstances and cannot be predicted in advance. Antitrust actions against health care providers have become increasingly common in recent years. Antitrust liability can arise in a number of different contexts, including medical staff privilege disputes, third party payor contracting, joint ventures and affiliations between health care providers, and mergers and acquisitions by health care providers. Actions can be brought by federal and state enforcement agencies seeking criminal and civil penalties and, in some instances, by private plaintiffs seeking damages for harm from allegedly anticompetitive behavior.

Judicial decisions have permitted physicians who are subject to disciplinary or other adverse actions by a hospital at which they practice, including denial or revocation of medical staff privileges, to seek treble damages from the hospital under the federal antitrust laws. The Federal Health Care Quality Improvement Act of 1986 provides immunity from liability for discipline of physicians by hospitals under certain circumstances, but courts have differed over the nature and scope of this immunity. In addition, hospitals occasionally indemnify medical staff members who incur costs as defendants in lawsuits involving medical staff privilege decisions. Court decisions have also permitted recovery by competitors claiming harm from a hospital’s use of its market power to obtain unfair competitive advantage in expanding into ancillary health care businesses. Antitrust liability in any of these contexts can be substantial, depending upon the facts and circumstances involved.

In 1993, the United States Department of Justice and the Federal Trade Commission issued “Statements of Antitrust Enforcement Policy in the Health Care Area”, and these statements have been revised from time to time. The statements generally describe certain analytical principles which the agencies will apply to certain factual situations and also establish certain “antitrust safety zones”. Conduct within the safety zones will not be challenged by the agencies, absent extraordinary circumstances. Many activities frequently engaged in by health care providers fall outside of the zones but are not challenged, and failure to fall within a safety zone does not mean that a participant will be investigated or prosecuted, or even that the activity violated the antitrust laws. A new safety zone is proposed related to the formation of ACOs as discussed earlier. There can be no assurance that federal or state enforcement authorities or private parties will not assert that the System, or any transaction in which it is involved, is in violation of the antitrust laws.

Licensing, Surveys and Accreditations

Health care facilities, including the System, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. Those requirements include, but are not limited to, requirements relating to Medicare and Medicaid participation and payment, state licensing agencies, private payors, the Joint Commission on Accreditation of Healthcare Organizations, the National Labor Relations Board and other federal, state and local government agencies. Renewal and continuance of certain of these licenses, certifications and accreditations is based on inspections, surveys, audits, investigations or other reviews. These activities are generally conducted in the normal course of business of health care facilities. Nevertheless, an adverse result could be the cause of loss or reduction in a facility’s scope of licensure, certification or accreditation or reduce payments received. The System currently expects to renew or maintain all currently held licenses, certifications and accreditations. However, there can be no assurance that the requirements of present or future laws, regulations, certifications, and licenses will not materially and adversely affect the operations of the System.

Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other Performance Measures

Health plans, Medicare, Medicaid, employers, trade groups and other purchasers of health services, private standard-setting organizations and accrediting agencies increasingly are using statistical and other measures in efforts to characterize, publicize, compare, rank and change the quality, safety and cost of health care services provided by hospitals and physicians. Published rankings (such as “score cards”), “pay for performance”, “never-events” and other financial and non-financial incentive programs are being introduced to affect the reputation and revenue of hospitals and the members of their medical staffs and to influence the behavior of consumers and

providers such as the System. Currently prevalent are measures of quality based on clinical outcomes of patient care, reduction in costs, patient satisfaction and investment in health information technology. Measures of performance set by others that characterize a hospital negatively may adversely affect its reputation and financial condition.

International Classification of Diseases, 10th Revision Coding System

On October 1, 2015, Medicare changed its billing and coding system to ICD-10. The code set has been expanded from a combination of five numbers and letters to a combination of nine numbers and letters. ICD-10 has greatly increased the specificity required when billing Medicare for services rendered. ICD-9 contained approximately 13,000 codes and ICD-10 has increased the number of codes to approximately 68,000. In an effort to assist providers with the transition to ICD-10, CMS is initially allowing flexibility with coding. For a period of one year, ending September 30, 2016, there was no denial or audit based solely on the specificity of the ICD-10 code as long as the ICD-10 code used is from an appropriate family of codes. Thereafter, accurate ICD-10 coding is mandatory. It is expected that the transition to ICD-10 will delay payments to providers. The new required level of specificity in coding may negatively impact the reimbursement amounts received by the System.

Medical Professional Liability Insurance Market

Deteriorating underwriting results have generated substantial premium increases and coverage reductions in the medical professional liability insurance marketplace in recent years. A rise in claim severity nationwide coupled with the lower investment returns available to insurers have resulted in substantial reductions in medical professional liability insurance capacity. Several major medical professional liability insurance carriers have been forced into rehabilitation and/or liquidation, or have voluntarily withdrawn from this line of business. The insurance carriers who are still writing medical professional liability coverage are requiring substantial premium increases, reductions in the breadth of coverage afforded by the policy(ies), more stringently enforced policy terms, and increases in required deductibles or self-insured retentions. Health care entities that have self-funded programs are also experiencing similar difficulties with respect to fronting carriers, reinsurance on their captive insurance companies and/or with respect to insurance placements excess of the primary coverage layers. Furthermore, insurance carrier insolvencies are forcing health care providers to either repurchase insurance coverage from new carriers at substantially higher rates, or self-insure exposures for which they had previously purchased insurance.

The effect of these developments has been to increase the operating costs of hospitals, including those of the System. In addition, the dramatic increase in the cost of professional liability insurance may have the effect of causing established physicians to leave the most heavily affected geographical regions, including Pennsylvania, and of preventing new physicians from establishing their practices in the System’s region. There can be no assurance that the unpredictability and increasing severity of jury awards and claims payouts, the reduction of coverage availability, and/or the rising cost of professional liability insurance coverage will not adversely affect the operations or financial condition of the System.

Insurance Coverage Limits

The System may be required to maintain prescribed levels of professional liability and property hazard insurance. The System believes that present insurance coverage limits are sufficient to cover any reasonably anticipated malpractice or property hazard exposures. No assurance can be given, however, that the System will always be able to procure or maintain such levels of insurance in the future.

The System is occasionally named as a defendant in malpractice actions and there remains a risk that individual or aggregate judgments or settlements will exceed the System’s coverage limits, or that some allegations or damages will not be covered by the System’s existing insurance coverage. To the extent that the professional liability insurance coverage maintained by the System is inadequate to cover settlements or judgments against them, claims may have to be discharged by payments from current funds and such payments could have a material adverse impact.

Physician Relations

The primary relationship between a hospital and physicians who practice in it is through the hospital’s organized medical staff. Medical staff bylaws, rules and policies establish the criteria and procedures by which a physician may have his or her privileges or membership curtailed, denied or revoked. Physicians who are denied medical staff membership or certain clinical privileges, or who have such membership or privileges curtailed, denied or revoked often file legal actions against hospitals. Such actions may include a wide variety of claims, some of which could result in substantial uninsured damages to a hospital. In addition, failure of the hospital governing body to oversee adequately the conduct of its medical staff may result in hospital liability to third parties. The System is subject to such risks.

Technology and Services

Scientific and technological advances, new procedures, drugs and appliances, preventive medicine, occupational health and safety and outpatient healthcare delivery may reduce utilization and revenues of the System in the future. Technological advances in recent years have accelerated the trend toward the use by hospitals of sophisticated, and costly, equipment and services for diagnosis and treatment. The acquisition and operation of certain equipment or services may continue to be a significant factor in hospital utilization, but the ability of the System to offer such equipment or services may be subject to the availability of equipment or specialists, governmental approval, the ability to finance such acquisitions or operations, or reimbursement at levels sufficient to support the cost of such equipment or services.

Fluctuations in Market Value of Investments

Earnings on its investments have historically provided the System an important source of cash flow and capital appreciation to support its programs and services, to finance its capital expenditure investments and to build its cash reserves. Although the System’s overall financial returns on its investments have been positive over recent years, historically the value of both debt and equity securities has fluctuated and, in some instances, the fluctuations have been quite significant. No assurances can be given that the market value of the System’s investments will continue to grow, or even remain at its current level and there is risk that it may actually decline at some time in the future.

Potential Effects of Bankruptcy

If the System were to file a petition for relief under the federal Bankruptcy Code, the filing would act as an automatic stay against the commencement or continuation of judicial or other proceedings against the petitioner and its property.

Any petitioner for relief may file a plan for the adjustment of its debts in a proceeding under the federal Bankruptcy Code which could include provisions modifying or altering the rights of creditors generally, or any class of them, secured or unsecured. The plan, when confirmed by the court, would bind all creditors who had notice or knowledge of the plan and discharge all claims against the petitioner provided for in the plan. No plan may be confirmed unless certain conditions are met, including that the plan is in the best interests of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims will be deemed to have accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

Derivative Products

The System has used interest rate hedging arrangements in connection with certain prior obligations. Such arrangements are used to manage exposure to interest rate volatility, but may expose the System to additional risks. Although minimum credit ratings are required for counterparties, this does not eliminate the risk that a counterparty may fail to honor its obligations.

Swap agreements are subject to periodic “mark-to-market” valuations. A swap agreement may, at any time, have a positive or negative value to the System. If the System were to choose to terminate a swap agreement or if a swap agreement were terminated pursuant to an event of default or a termination event as described in the swap agreement, the System could be required to pay a termination payment to the swap provider, and such payment could adversely affect the System’s financial condition.

Derivative instruments are susceptible to credit risk based on the credit of the swap counterparties on such derivative instruments. A default by a swap counterparty could reduce the amount of funds available to pay principal and interest on existing obligations. An organization bearing counterparty concentration risk, or a large portion of its hedging arrangements with a single counterparty relative to its overall portfolio, exposes the organization to potential amplified losses.

Enforceability of Certain Covenants

The System is obligated to exercise all control it may have over its subsidiaries to cause them to pay, loan or otherwise transfer to the System amounts necessary to pay debt service on the Series 2017 Bonds as the same becomes due and payable. The agreement by the System may not be enforceable to the extent such funds (i) are requested to make payments on any Series 2017 Bonds which are issued for a purpose not consistent with the charitable purposes of the affiliate from which such payment is required or which are issued for the benefit of any entity other than a tax-exempt organization; (ii) are requested to be made from any property which is donor restricted or which is subject to a direct or express trust which does not permit the use of such property for such payments; or (iii) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the affiliate from which such payment is required. Due to the absence of clear legal precedent in this area, the extent to which the property of any affiliates of the System currently falls within the categories referred to above cannot be determined and could be substantial.

There is no clear precedent in the law as to whether transfers from an affiliate in order to pay debt service on bonds issued for the benefit of another affiliate may be voided by a trustee in bankruptcy in the event of a bankruptcy of the transferring affiliate or pursuant to state fraudulent conveyances statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under certain state fraudulent conveyances statutes, a creditor of a related guarantor may avoid any obligation incurred by a related guarantor, if, among other factors, (i) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty, and (ii) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or certain state fraudulent conveyances statutes, or the guarantor is undercapitalized.

Application by courts of the tests of “insolvency”, “reasonably equivalent value” and “fair consideration” has resulted in a conflicting body of case law. It is possible that, in an action to force one affiliate of the System to pay debt service on bonds issued for the benefit of the System or for another affiliate of the System, a court might not enforce such a payment in the event it is determined that the affiliate is analogous to a guarantor, that fair consideration or reasonably equivalent value of such guarantee was not received and that the incurrence of such obligation has rendered and will render the transferring affiliate insolvent or the transferring affiliate is or will thereby become undercapitalized.

There exists common law authority and authority under state statutes for the ability of the courts to terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes. Such a court action may arise on the court’s own motion or pursuant to a petition of a state attorney general or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses.

Factors Affecting Real Estate Tax Exemption

In recent years various State and local legislative, regulatory and judicial bodies have reviewed the exemption of nonprofit corporations from real estate taxes. Various State and local government bodies have challenged with increasing frequency and success the tax-exempt status of such institutions and have sought to remove the exemption of property from real estate taxes of part or all of the property of various nonprofit institutions

on the grounds that a portion of such property was not being used to further the charitable purposes of the institution. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements. No assurance can be given that the System will retain its real estate tax exemptions without challenge throughout the term of the Series 2017 Bonds.

Security and Enforceability of Obligations Under the Master Indenture

The joint and several obligation described herein of each member of the System to make payments of debt service on the Series 2017 Note, and the obligation of each member of the System to cause Designated Affiliates to transfer funds to such Member for the purpose of making debt service payments on an Obligation, the proceeds of which were not loaned or otherwise made available to or used for the benefit of such member of the System or Designated Affiliate, may not be enforceable to the extent that (i) such payments will be made on an Obligation issued for a purpose that is not consistent with the charitable purposes of the organization from which such payment or transfer is requested; (ii) the transfer of funds from a Designated Affiliate to provide for such payment, or the payment on such obligation by another member of the System, may contradict charitable trust principles applicable to such Designated Affiliate or member of the System; (iii) such payments will be made from any property that is donor-restricted or that is subject to a direct or express trust that does not permit the use of such property for such payments or transfers; (iv) such payments would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the organization from which such payment or transfer is requested; or (v) such payments would be made pursuant to any loan violating applicable usury laws. Due to the absence of clear legal precedent in this area, the extent to which the property of any member of the System or any Designated Affiliate or other Affiliate may be transferred as described above cannot be determined and could be substantial.

A member of the System may not be required to make payments on an obligation and neither a Designated Affiliate nor an Affiliate may be required to transfer funds to a member of the System for the purpose of making debt service payments on an obligation, in either case if such obligation is issued by or for the benefit of another organization, to the extent that any such payment or transfer would render such paying or transferring organization insolvent or would conflict with, not be permitted by or be subject to recovery for the benefit of other creditors of such organization under applicable fraudulent conveyance, bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights. There is no clear precedent in the law as to whether such payments or transfers may be voided by a trustee in bankruptcy in the event of a bankruptcy of such Member, Designated Affiliate or Affiliate or by third-party creditors in an action brought pursuant to fraudulent conveyances statutes of the states in which such Member, Designated Affiliate or Affiliate is incorporated or doing business. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under fraudulent conveyance statutes of the states in which the members of the System, Designated Affiliates and Affiliates are incorporated or doing business, a creditor of a guarantor may avoid any obligation incurred by a guarantor, if, among other bases therefore, (i) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty, and (ii) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or fraudulent conveyance statutes of such states, or the guarantor is undercapitalized.

Application by courts of the tests of “insolvency”, “reasonably equivalent value” and “fair consideration” has resulted in a conflicting body of case law. It is possible that, in an action to compel any member of the System to pay debt service on the Series 2017 Note or other Obligation issued by or for the benefit of another organization or to compel a Designated Affiliate or Affiliate to transfer funds for such purposes, a court might not enforce such obligation in the event it is determined that such paying or transferring organization is analogous to a guarantor and that fair consideration or reasonably equivalent value for such guaranty was not received and that the incurrence of such obligation has rendered and will render the paying or transferring organization insolvent or the paying or transferring organization is or will thereby become undercapitalized.

In addition to the foregoing, common law authority and authority under Commonwealth statutes authorize courts to terminate the existence of a not-for-profit corporation or to supervise its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes or has taken some action which either renders it unable to carry out such purposes or has violated such purposes. Such court action may arise on the court’s own motion or pursuant to a petition of the Attorney General of the Commonwealth or such other persons who have interests different from those of the general public, pursuant to the

common law and statutory power to enforce charitable trusts and to see to the application of the funds of charitable trusts to their intended charitable uses.

Facilities

The facilities of the System Affiliates are not general-purpose buildings and generally would not be suitable for industrial or commercial use. Such facilities are not pledged as security for the Obligations or the Series 2017 Bonds. It could be difficult to find a buyer or lessee for such facilities, and, upon a default, the Trustee or the Master Trustee may not obtain an amount equal to the aggregate liabilities of the System (including liabilities in respect of the defaulted Series 2017 Bonds then outstanding) from the sale or lease of such facilities, whether pursuant to a judgment against any System Affiliate or otherwise.

Amendments to Master Indenture, Indenture and Loan Agreement

Certain amendments (including a replacement or substitution) to the Master Indenture may be made with the consent of the holders of not less than a majority of the principal amount of outstanding Obligations, some of whom may be holders of Additional Obligations. Certain amendments to the Indenture may be made with the consent of the owners of not less than a majority of the outstanding principal amount of the Series 2017 Bonds outstanding under the Indenture and Loan Agreement. Such amendments may adversely affect the security of the owners of the Series 2017 Bonds. See “THE MASTER INDENTURE—SUPPLEMENTAL MASTER INDENTURE—Note and Document Substitution” in Appendix C hereto.

Risk Factors Relating to Geisinger Health Plans

The Series 2017 Bonds are secured by the Series 2017 Note, which are obligations of the Corporation. The ability of the Corporation to meet its obligations depends, in large part, on the financial condition of the Designated Affiliates, including the Health Plan, Geisinger Indemnity Insurance Company and Geisinger Quality Options (collectively, the “GHPs”). The future financial condition of the GHPs could be affected adversely by, among other things, legislation, regulatory actions, regulatory requirements concerning the maintenance of adequate reserves, increased competition from other health care insurers, increased demand for health care services, and demographic changes.

Dependence on Employer Groups. Recently, many employer groups have consolidated their health care programs by reducing the number of health care options offered to employees. Since the GHPs primarily contract with a large number of small employers, the loss of multiple employer groups could have a material adverse effect on the GHPs. The System management believes that the GHPs are well positioned to serve major employer groups by offering a wide variety of products, including a health maintenance organization, point of service plans, preferred provider options, and indemnity products; however, there can be no assurances that the GHPs will be retained by any employer or that the trend toward consolidation will not adversely affect the GHPs.

Competition. The managed care industry is highly competitive and has experienced significant changes in recent years, primarily due to rising health care costs. Large employers and other purchasers of health care services have demanded a broad spectrum of insurance products and health care service options from a variety of managed care plans doing business in the Commonwealth. While the GHPs strategy is to develop competitive products and to increase cost-effectiveness, there can be no assurance that this strategy will be successful. The impact of Health Care Reform through the creation of state run health insurance exchanges, beginning in 2014, cannot be determined at this time, but this may increase competition for the GHPs.

Government Relations. The GHPs are highly regulated by the Commonwealth and the federal government. The Department of Insurance issues HMO certificates of authority, and regulates the overall operation of HMOs in the Commonwealth which includes the requirement that HMOs maintain minimum financial reserves, review of subscriber and provider contracts, approval of premium rates, financial reporting requirements and mandated benefits. The Department of Health regulates delivery of health care services and has oversight authority over operational matters such as complaint/grievance, quality assurance requirements and continuity of health care.

The GHPs are subject to federal regulatory standards for its Medicare Advantage and Federal Employee Health Benefits Program products such as minimum benefits, consumer representation on HMOs’ policy making body, financial accountability and other organizational/operational matters. At the federal level, the GHPs are subject to HIPAA and the Mental Health Parity Act and would be impacted by proposed legislation such as the Physician Antitrust Exemption. Additional mandated benefits at the federal level will impact the System’s ability to be market competitive. It is impossible to predict the effect, if any, of governmental regulation of the GHPs.

Tax Status. The Health Plan is exempt from federal taxation pursuant to Section 501(c)(4) of the Code. The IRS has indicated that certain activities of tax-exempt health maintenance organizations may be inconsistent with their tax-exempt statuses under the Code. A determination that the Health Plan is no longer an entity described under Section 501(c)(4) of the Code would subject net earnings of the Health Plan to federal income taxation. Management of the System believes that such tax may be material.

Affiliation, Merger, Acquisition and Divestiture

The System Affiliates evaluate and pursue potential acquisition, merger and affiliation candidates as part of the overall strategic planning and development process. As part of its ongoing planning and property management functions, the Corporation reviews the use, compatibility and business viability of many of the operations of the System Affiliates, and from time to time the Corporation may pursue changes in the use of, or disposition of, the facilities. Likewise, the System Affiliates occasionally receive offers from, or conduct discussions with, third parties about the potential acquisition of operations or properties which may become subsidiaries or affiliates of the Corporation in the future, or about the potential sale of some of the operations and properties which are currently conducted or owned by the System Affiliates. Discussions with respect to affiliation, merger, acquisition, disposition or change of use of facilities are held from time to time with other parties. These may be conducted with acute care hospital facilities, other health care providers, and insurers, and may relate to potential affiliation with System Affiliates. As a result, it is possible that the current organizations and assets of the System Affiliates may change from time to time.

Mergers and similar transactions carry inherent risks, including, but not limited to, risk that all merged entities will not perform in accordance with management’s expectations, risk of potential difficulties arising in connection with the integration of operations and risk of human resource challenges potentially jeopardizing key staff retention. There can be no assurance that the System will be successful in their ability to minimize and effectively manage such risks.

Charity Care: Litigation Related to Charity Care

Hospitals are permitted to acquire tax-exempt status because the provision of health care has historically been treated as a “charitable” enterprise. Consistent with this status, federal and state tax authorities are beginning to demand that tax-exempt hospitals justify their favored treatment by providing more charitable care and other community benefits. In addition, challenges to the tax-exempt status of hospitals are being made by private parties. Class action lawsuits filed against non-profit hospitals on the judicially unprecedented theory that these hospitals breached contracts with federal and state governments by not providing sufficient public benefit to justify their tax- exempt status. These claims targeted the practice of certain non-profit hospitals of charging uninsured patients more for services than uninsured patients and aggressively seeking payment from these uninsured patients for these services. To date, all proceedings in federal court have either been dismissed or remanded to state courts, where several cases are currently pending. To date, at the state court level, there has been only one case in which a written opinion has been issued that is favorable to these claims. In that case, an Illinois state court denied defendant hospitals’ motions to dismiss and allowed these claims to proceed to resolve the factual issues underlying the challenged practices.

Other Risks

Bond Ratings. There is no assurance that the ratings assigned to the Series 2017 Bonds will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price for and marketability of the Series 2017 Bonds. See the information herein under the caption, “RATINGS”.

Trading Market for the Series 2017 Bonds. There can be no assurance that there will be a secondary market for the purchase or sale of the Series 2017 Bonds. From time to time there may be no market for them depending upon prevailing market conditions, including the financial condition or market position of firms who may constitute the secondary market, the evaluation of the System’s capabilities and the financial condition and results of operations of the System.

Risks Related to Outstanding Variable Rate Bonds, Private Placement Bonds and Other Obligations. Certain outstanding obligations of the Corporation secured under the Master Indenture are variable rate obligations, the interest rates on which could rise. Such interest rates vary on a periodic basis and some obligations may be converted to a fixed interest rate. This protection against rising interest rates is limited, however, because the System would be required to continue to pay interest at a variable rate until it is permitted to convert the obligations to a fixed rate pursuant to the terms of the applicable transaction documents. In addition, may health care entities, have incurred indebtedness purchased by private placement purchasers in non-public transactions. Such indebtedness generally bears interest at an initial rate and is subject to mandatory tender at the end of the initial holder’s purchase period. Similar to the failure to extend or replace a credit facility, the failure to remarket private placement bonds could result in such obligations bearing interest at a penalty rate or default rate, increasing the debt service obligation.

The applicable providers of credit enhancement and the purchasers of private placement bonds often are the beneficiaries of covenants in addition to those set forth in the Master Indenture. Bondholders may not be informed of the terms of such covenants and these additional covenants could restrict the ability of the System to enter into certain transactions and the violation of such covenants could result in an event of default under the applicable additional agreement which may result in a default under the Master Indenture.

In addition, the Corporation may enter into interest rate swap agreements (which may be secured under the Master Indenture) under which the Corporation would pay a variable rate of interest and will receive a fixed rate of interest on the notional amount thereof. The variable rate may increase or decrease based upon an independent index.

Other Risk Factors Generally Affecting Health Care Facilities. In the future, the following factors, among others, may adversely affect the operations of the System Affiliates to an extent that cannot be determined at this time:

• Hospitals are major employers, combining a complex mix of professional, quasi professional, technical, clerical, housekeeping, maintenance, dietary and other types of workers in a single operation. As with all large employers, the System Affiliates bear a wide variety of risks in connection with their employees. These risks include strikes and other related work actions, contract disputes, discrimination claims, personal tort actions, work-related injuries, exposure to hazardous materials and other risks that may flow from the relationships between employer and employee or between physicians, patients and employees. Many of these risks are not covered by insurance, and certain of them cannot be anticipated or prevented.

• Competition from other hospitals and other facilities now or hereafter located in the respective service areas of the facilities operated by the System Affiliates may adversely affect revenues of the System Affiliates. Development of health maintenance and other alternative health delivery programs could result in decreased usage of inpatient hospital facilities and other facilities operated by the System Affiliates.

• Cost availability and sufficiency of any insurance such as medical professional liability, directors’ and officers’ liability, property, automobile liability, worker’s compensation and commercial general liability coverage that health care facilities of a similar size and type generally carry.

• Adoption of a national healthcare program.

• Cost and availability of energy.

• Potential depletion of the Medicare trust fund.

• The occurrence of terrorist activities or natural disasters may damage some or all of the facilities, interrupt utility service to some or all of the facilities or otherwise impair the operation of some or all of the facilities operated by the System Affiliates or the generation of revenues from some or all of such facilities.

• Scientific and technological advances, new procedures, drugs and appliances, preventive medicine, occupational health and safety and outpatient health care delivery may reduce utilization and revenues of the facilities. Technological advances in recent years have accelerated the trend toward the use by hospitals of sophisticated and costly equipment and services for diagnosis and treatment. The acquisition and operation of certain equipment or services may continue to be a significant factor in hospital utilization, but the ability of the System Affiliates to offer such equipment or services may be subject to the availability of equipment or specialists, governmental approval or the ability to finance such acquisitions or operations.

• Reduced demand for the services of the System Affiliates that might result from decreases in population in their respective service areas.

• Increased unemployment or other adverse economic conditions in the service areas of the System Affiliates which would increase the proportion of patients who are unable to pay fully for the cost of their care.

• Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the System Affiliates.

• Regulatory actions which might limit the ability of the System Affiliates to undertake capital improvements to their respective facilities or to develop new institutional health services.

• Imposition of wage and price controls for the health care industry.

• Changes in the governmental requirements concerning how patients are treated. These regulations are embodied in patients’ bills of rights and similar programs being promulgated with greater frequency, and changes in licensure requirements. All of these programs can increase the cost of doing business and consequently adversely affect the financial condition of the System.

LITIGATION

There is no litigation of any nature pending or threatened against the Authority or any member of the System at the date of this Official Statement to restrain or enjoin the issuance, sale, execution or delivery of the Series 2017 Bonds, or in any way contesting or affecting the validity of the Series 2017 Bonds or any proceedings of the Authority or the Obligated Group taken with respect to the issuance or sale thereof, or the pledge or application of any moneys or the security provided for the payment of the Series 2017 Bonds or the existing powers of the Authority or the Obligated Group.

TAX EXEMPTION

In the opinion of Ballard Spahr LLP, Bond Counsel, interest on the Series 2017 Bonds is excludable from gross income for purposes of federal income tax under existing laws as enacted and construed on the date of initial

delivery of the Series 2017 Bonds, assuming the accuracy of the certifications of the Authority and the Corporation and continuing compliance by the Authority and the Corporation with the requirements of the Internal Revenue Code of 1986 (the “Code”). Interest on the Series 2017 Bonds is not an item of tax preference for purposes of individual or corporate federal alternative minimum tax (“AMT”); however, interest on Series 2017 Bonds held by a corporation (other than an S corporation, regulated investment company or real estate investment trust) may be indirectly subject to federal AMT because of its inclusion in the adjusted current earnings of the corporate holder. Bond Counsel expresses no opinion regarding other Federal tax consequences relating to ownership or disposition of, or the accrual or receipt of interest on, the Series 2017 Bonds.

Certain of the Series 2017 Bonds may be offered at a premium (“original issue premium”) over their principal amount. For federal income tax purposes, original issue premium is amortizable periodically over the term of a Series 2017 Bond through reductions in the holder’s tax basis for the Series 2017 Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Amortization of premium does not create a deductible expense or loss. Holders should consult their tax advisers for an explanation of the amortization rules.

Certain of the Series 2017 Bonds may be offered at a discount ("original issue discount") equal generally to the difference between public offering price and principal amount. For federal income tax purposes, original issue discount on a Series 2017 Bond accrues periodically over the term of the Series 2017 Bond as interest with the same tax exemption and alternative minimum tax status as regular interest. The accrual of original issue discount increases the holder's tax basis in the Series 2017 Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Holders should consult their tax advisers for an explanation of the accrual rules.

The Series 2017 Bonds are exempt from personal property taxes in Pennsylvania, and interest on the Series 2017 Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax, under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date of initial delivery of the Series 2017 Bonds.

Changes in Federal and State Tax Law

From time to time, there are Presidential proposals, proposals of various federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to herein or adversely affect the marketability or market value of the Series 2017 Bonds or otherwise prevent holders of the Series 2017 Bonds from realizing the full benefit of the tax exemption of interest on the Series 2017 Bonds. Further, such proposals may impact the marketability or market value of the Series 2017 Bonds simply by being proposed. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to indebtedness issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the Series 2017 Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Series 2017 Bonds would be impacted thereby.

Purchasers of the Series 2017 Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Series 2017 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any proposed or pending legislation, regulatory initiatives or litigation.

CONTINUING DISCLOSURE

The Corporation has agreed, pursuant to the terms of a continuing disclosure agreement, to provide secondary market disclosure with respect to the Series 2017 Bonds as required by Rule 15c2-12, as amended, under the Securities Exchange Act of 1934, as amended (the “Continuing Disclosure Agreement”). The form of the Continuing Disclosure Agreement is attached hereto as Appendix E.

The Corporation did not post on the Municipal Securities Rulemaking Board’s Electronic Municipal Market System (“EMMA”) with respect to certain outstanding bonds notification of two rating changes in 2012 associated with downgrades of certain liquidity facility providers and one rating change in 2014 associated with an upgrade upon a substitution of a liquidity facility provider.

In 2012 and 2013, one of the Corporation's recently acquired, controlled affiliates filed its annual financial information, including its audited financial report, one and 48 days, respectively, after the filing deadline. In 2012, another of the Corporation’s recently acquired, controlled affiliates failed to file notice of a rating change associated with a downgrade of such affiliate. In each case, the respective affiliate’s EMMA filings were required under a continuing disclosure undertaking entered into by such affiliate prior to its acquisition by the Corporation, and each instance of non-compliance occurred prior to its acquisition by the Corporation.

The Corporation is committed to providing all required continuing disclosure information to EMMA and has adopted policies and procedures intended to ensure ongoing compliance with its continuing disclosure undertakings.

UNDERWRITING

The Series 2017A-1 Bonds are being purchased by J.P. Morgan Securities LLC (“J.P. Morgan”) on behalf of itself and the other underwriters indicated on the cover page of this Official Statement (the “Underwriters”) and the Series 2017A-2 Bonds are being purchased by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) on behalf of itself and the other Underwriters, pursuant to one or more purchase contracts. J.P. Morgan, as senior managing Underwriter for the Series A-1 Bonds, has agreed to purchase the Series 2017A-1 Bonds at an aggregate purchase price of $______, which equals the aggregate principal amount of the Series 2017A-1 Bonds plus an aggregate original issue premium of $______. MLPF&S, as senior managing Underwriter for the Series 2017A-2 Bonds, has agreed to purchase the Series 2017A-2 Bonds at an aggregate purchase price of $______, which equals the aggregate principal amount of the Series 2017A-2 Bonds plus an aggregate original issue premium of $______. The Underwriters will receive a fee of $______and a fee of $______from the Corporation in connection with the offering and sale of the Series 2017A-1 and Series 2017A-2 Bonds, respectively. The purchase contract(s) for the Series 2017 Bonds provides that the Underwriters will purchase all of the Series 2017 Bonds if any are purchased, and the Corporation agrees in such purchase contract(s) among other things, to indemnify the Underwriters against certain losses, claims, damages and liabilities arising out of incorrect statements or information contained in or omitted from the Official Statement. The Corporation has also agreed, in the purchase contract(s) and a separate agreement, to indemnify the Authority against all losses, claims, damages and liabilities arising out of incorrect statements or information contained in or omitted from the Official Statement.

The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the Corporation, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Corporation.

J.P. Morgan, one of the Underwriters of the Series 2017 Bonds, has entered into negotiated dealer agreements (each, a “Dealer Agreement”) with each of Charles Schwab & Co., Inc. (“CS&Co.”) and LPL Financial LLC (“LPL”) for the retail distribution of certain securities offerings, including the Series 2017 Bonds, at the original issue prices. Pursuant to each Dealer Agreement, each of CS&Co. and LPL may purchase the Series 2017

Bonds from J.P. Morgan at the original issue price less a negotiated portion of the selling concession applicable to any Series 2017 Bonds that such firm sells.

Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association, which conducts its municipal securities sales, trading and underwriting operations through the Wells Fargo Bank, NA Municipal Products Group, a separately identifiable department of Wells Fargo Bank, National Association, registered with the Securities and Exchange Commission as a municipal securities dealer pursuant to Section 15B(a) of the Securities Exchange Act of 1934.

Wells Fargo Bank, National Association (“WFBNA”), one of the underwriters of the Series 2017 Bonds, has entered into an agreement (the “Distribution Agreement”) with its affiliate, Wells Fargo Advisors, LLC (“WFA”), for the distribution of certain municipal securities offerings, including the Series 2017 Bonds. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting or remarketing agent compensation, as applicable, with respect to the Series 2017 Bonds with WFA. WFBNA also utilizes the distribution capabilities of its affiliates, Wells Fargo Securities, LLC (“WFSLLC”) and Wells Fargo Institutional Securities, LLC (“WFIS”), for the distribution of municipal securities offerings, including the Series 2017 Bonds. In connection with utilizing the distribution capabilities of WFSLLC, WFBNA pays a portion of WFSLLC’s expenses based on its municipal securities transactions. WFBNA, WFSLLC, WFIS, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company.

Jefferies LLC (“Jefferies”), an Underwriter of the Series 2017 Bonds, has entered into an agreement (the “Agreement”) with E*TRADE Securities LLC (“E*TRADE”) for the retail distribution of municipal securities. Pursuant to the Agreement, Jefferies will sell Series 2017 Bonds to E*TRADE and will share a portion of its selling concession compensation with E*TRADE.

FINANCIAL ADVISOR

The Corporation has retained Melio & Company, LLC, Northfield, Illinois, as an independent, registered financial advisor in connection with the issuance of the Series 2017 Bonds. Although Melio & Company has assisted in the preparation of this Official Statement, Melio & Company was not and is not obligated to undertake, and has not undertaken to make, an independent verification and assumes no responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.

INDEPENDENT AUDITORS

The consolidated financial statements of Geisinger Health System as of June 30, 2016 and 2015, and for the fiscal years then ended, included in Appendix B hereto, have been audited by KPMG LLP, independent auditors, as stated in their report appearing in Appendix B.

RATINGS

The Series 2017 Bonds have been assigned a rating of “Aa2” (negative outlook) and “AA” (stable outlook) by Moody’s Investors Service, Inc. and S&P Global Ratings, a division of S&P Global Inc. (“S&P”), respectively. These ratings reflect only the view of the rating agencies. A rating is not a recommendation to buy, sell or hold securities. There is no assurance that the ratings will remain in effect for any given period of time or that a rating will not be revised downward or withdrawn entirely by the rating agency providing the same if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the ratings for the Series 2017 Bonds may have an adverse effect on the market price of such Series 2017 Bonds.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

Causey Demgen Moore, P.C. (the “Verification Agent”) will independently verify, and issue a report thereon, the arithmetical accuracy of the computations included in schedules provided to them by the Underwriters indicating the sufficiency of the anticipated receipts from the United States Treasury Obligations deposited under to the escrow funds, together with an initial cash deposit, to pay the redemption prices of and interest on the Refunded Bonds on and prior to their respective redemption dates. Such verification will be based solely on assumptions and information supplied by the Underwriters. Furthermore, the Verification Agent will have restricted its procedures to verifying the arithmetical accuracy of such computations and will not have made any study or evaluation of the assumptions and information on which the computations were based and, accordingly, will not express an opinion on such assumptions and information, the reasonableness of such assumptions, or the achievability of future events. Such verification report will be relied upon by Bond Counsel in rendering its opinions with respect to the defeasance of the Refunded Bonds.

LEGAL MATTERS

Certain legal matters incident to the authorization, issuance and sale of the Series 2017 Bonds will be passed upon by Ballard Spahr LLP, Philadelphia, Pennsylvania, Bond Counsel, whose approving opinion with respect to the Series 2017 Bonds will be delivered with such Series 2017 Bonds. Certain legal matters will be passed upon for the Authority by its counsel, Marks, McLaughlin & Dennehy, Danville, Pennsylvania; for the Obligated Group by its Chief Legal Officer, David Felicio, Esquire, Danville, Pennsylvania and by its counsel, Ballard Spahr LLP, Philadelphia, Pennsylvania; and for the Underwriters by their counsel, Hawkins Delafield & Wood LLP, New York, New York.

CERTAIN RELATIONSHIPS

Ballard Spahr LLP, serves as Bond Counsel to the Authority, and Marks, McLaughlin & Dennehy, serves as counsel to the Authority. Both Ballard Spahr LLP, and Marks, McLaughlin & Dennehy, represent GHS from time to time.

A portion of the proceeds of the Series 2017 Bonds is being applied to retire the Term Loan provided to the Corporation by Bank of America, N.A., the corporate parent of MLPF&S, the senior managing underwriter for the Series 2017A-2 Bonds and an Underwriter for the Series 2017A-1 Bonds.

One or more of the Underwriters or their affiliates has served, is serving and expects to serve as advisor or counterparty to the Obligated Group in hedging transactions unrelated to the Series 2017 Bonds.

One or more affiliates of the Underwriters have served, are serving and expect to serve as lenders to the Obligated Group in lending transactions unrelated to the Series 2017 Bonds.

OTHER MATTERS

The Corporation has furnished all information herein relating to the members of the System. The Authority has furnished only the information included herein under the caption “THE AUTHORITY”. The Depository Trust Company has furnished only the information included herein under the caption “THE SERIES 2017 BONDS— Book-Entry-Only System”. Any statements herein involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.

The foregoing descriptions of provisions of the Series 2017 Bonds, the Indenture, the Loan Agreement, the Master Indenture, the Twenty-Seventh Supplemental Indenture, and the Series 2017 Note, the summaries of certain provisions of certain documents included in Appendix C hereto, and all references to other materials not purported to be quoted in full, are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all other provisions thereof. For a complete statement of the provisions of the Indenture, the Loan Agreement, the Master Indenture, the Twenty-Seventh Supplemental Indenture, and the Series 2017 Note, reference

is made to the documents in their entireties, copies of which are available for inspection at the principal corporate trust office in Philadelphia, Pennsylvania of the Trustee.

The attached Appendices A through E are integral parts of this Official Statement and should be read in their entirety together with the foregoing.

The circulation of this Official Statement has been duly authorized by the Authority and the execution, delivery and circulation of this Official Statement has been approved by the Corporation.

GEISINGER AUTHORITY

By:/s/ Chairman APPROVED:

GEISINGER HEALTH

By: /s/ Authorized Signer and Executive Vice President, Finance and Treasurer

APPENDIX A

INFORMATION CONCERNING GEISINGER HEALTH SYSTEM

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INTRODUCTION TO GEISINGER HEALTH SYSTEM

Overview

Geisinger Health System1 is a physician-led, integrated health services organization that has as its main components:

1. An array of health services providers, including seven acute-care hospitals with multiple campuses: • Geisinger Medical Center (“GMC”) – main campus in Danville, PA and acute-care campus in Shamokin, PA • Geisinger Wyoming Valley Medical Center (“GWV”) – main campus in Wilkes-Barre, PA and outpatient campus in South Wilkes-Barre, PA • Community Medical Center d/b/a Geisinger – Community Medical Center (“GCMC”) – Scranton, PA • Geisinger – Bloomsburg Hospital (“GBH”) – Bloomsburg, PA • Geisinger – Lewistown Hospital (“GLH”) – Lewistown, PA • Holy Spirit Hospital of the Sisters of Christian Charity referred to as Geisinger Holy Spirit Hospital (“GHSH”) – Camp Hill, PA • AtlantiCare Regional Medical Center, Inc. (“ARMC”) – two hospital campuses in Atlantic City, NJ and Pomona, NJ; 2. A multispecialty physician group practice; 3. Geisinger Health Plans (“GHPs”); and 4. Geisinger Commonwealth School of Medicine (“GCSOM”) – Scranton, PA.

Geisinger operates in 45 of Pennsylvania’s 67 counties, with a significant presence in central, south-central and northeastern Pennsylvania, outside the major metropolitan areas, and in seven counties in southern New Jersey. As of December 31, 2016 and for the twelve months then ended, Geisinger cared for approximately 1,005,000 patients and managed over 557,000 health plan members, approximately 260,000 of whom were both patients and members resulting in a unique population managed of approximately 1,302,000 people.

Geisinger at a Glance2

Physician Practice Managed Care Provider Facilities Medical School Group Companies Multispecialty group 557,463 members 2,220 licensed hospital 399 medical students practice beds 105 graduate students 1,697 employed 344 skilled nursing physicians practicing facility beds at 216 clinic sites 91 chemical dependency beds

1 Throughout this document the terms “Geisinger Health System”, “Geisinger” or “System” shall refer to the entire healthcare system comprised of Geisinger Health as parent and all subsidiary corporate entities. 2 Statistics listed here are as of December 31, 2016, except for Medical School statistics which are as of the 2017 spring semester. Licensed beds exclude nursery and rehabilitation beds and include neonatal intensive care beds.

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Geisinger’s physician group practice and provider facilities are referred to as the “Clinical Enterprise.” See “CLINICAL ENTERPRISE SERVICE AREA – Geisinger Clinical Enterprise Regional Demographics” for a description of the five defined service area regions for Geisinger.

History

Geisinger had its beginnings in the small community of Danville located in central Pennsylvania along the northern branch of the Susquehanna River. There, in 1915, Abigail A. Geisinger founded the George F. Geisinger Memorial Hospital in memory of her husband. The new hospital was designed as a comprehensive healthcare institution that would offer specialized medical care to people in the rural areas of central Pennsylvania.

Unlike most healthcare systems, which evolved with a hospital focus, Geisinger’s history and tradition is that of a physician-led and physician-driven healthcare organization. This tradition began when Mrs. Geisinger brought Dr. Harold Foss, a Mayo Clinic trained physician, to be her hospital’s first chief of staff. Today, Geisinger is regarded as a national model of healthcare delivery centered on a sophisticated multispecialty group practice. Geisinger’s strategy of integrating physicians and hospitals has expanded to include the management of health and the financing of healthcare services through its wholly-controlled health maintenance organization (“HMO”), GHPs. The strategy expanded further in 2017 when GCSOM became the newest member of Geisinger.

STRATEGY

The first 100 years of the Geisinger story began with a modest rural health facility which grew to a nationally relevant health system recognized for innovation in how it pays for and delivers care. During the past five years, the System’s revenues doubled and Geisinger added the South-Central Region of Pennsylvania and the New Jersey Service Area. In January 2017, Geisinger added a school of medicine. All while the healthcare industry continues to change.

Through this change, Geisinger remains committed to core strategic aims that propelled it over the last decade, while refocusing on the basics of compassionate care for patients and members.

Geisinger summarizes its purpose, values and corporate strategy as follows:

Purpose - Everything we do is about caring – for our patients, our members, our students, our Geisinger family of physicians and employees, and our communities.

Values - At Geisinger we value: • Kindness – We strive to treat everyone as we would hope to be treated ourselves. • Excellence – We treasure colleagues who humbly strive for excellence. • Learning – We share our knowledge with the best and brightest to better prepare the caregivers of tomorrow. • Innovation – We constantly seek new and better ways to care for our patients, our members, our students, our communities and the nation.

Corporate Strategy: • Patient & Member Experience - Pursue a consumer-first approach and be closer and more responsive to patient and member preferences than anyone in the market. • Geisinger Family – Create an engaging and empowering work environment supported by inspirational leadership committed to accountability, nimbleness, and implementation.

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• Market Leadership - Deliver superior value for patients and members, where value is defined as quality and experience relative to cost. The ability to create value depends on continued care delivery innovation. • Financial Health – Maintain a sustainable operating margin to continuously invest in Geisinger’s purpose by taking clinical and financial accountability for the health of populations served.

This strategy statement, together with Geisinger’s strong fiduciary and management leadership, is designed to continue to advance Geisinger as a regional and national healthcare leader, demonstrating the potential to fundamentally change how care is delivered and paid for while bringing value to patients, payers, providers, and regional employers.

Through innovations, such as ProvenHealth Navigator®, ProvenCare® and now ProvenExperienceTM, Geisinger leads a national movement to reward clinical care based on best practices, improved clinical outcomes and patient satisfaction. ProvenHealth Navigator, a close collaboration between GHPs and Geisinger Clinic (“Clinic”), a 501(c)3 nonprofit corporation which operates a multispecialty medical practice, is the System’s patient-centered medical home initiative. ProvenHealth Navigator encourages a transition away from treatment of episodic illness and toward a comprehensive, coordinated primary care approach. The program is structured to empower patients to be more informed about their health, better able to navigate the health care system and more equipped to make educated decisions about their healthcare options.

ProvenCare, also a collaborative effort between Clinic and GHPs, relies on the redesign of healthcare processes and Geisinger’s advanced electronic health record (“EHR”) to create and standardize evidence-based, best-practices of healthcare delivery across a portfolio of acute episodic care and chronic diseases. Findings show that the program significantly improves quality, maximizes safety and reduces costly hospital readmissions and health complications.

Geisinger’s ProvenExperience application for smart phones offers patients an opportunity to provide feedback on their healthcare experience and request a full or partial refund of out-of-pocket healthcare expenditures based on the outcome of their patient experiences. The goal of this first-of-its-kind program is to process refund requests in the greater context of patient feedback helping Geisinger uncover opportunities to improve the patient experience. In November 2015, U.S. News & World Report called the ProvenExperience application “the latest, and perhaps most radical, innovation of a system recognized for continually reinventing medical care.”

Health Information Technology

Geisinger uses technology to improve the patient experience. With the decision in 1995 to purchase and implement an EHR, Geisinger initiated the provision of real-time clinical information and EHR decision support tools. Initially, Geisinger expanded its EHR implementations in its inpatient facilities at GMC and GWV with modules for computer-assisted provider order entry, provider documentation, a new inpatient pharmacy system and an electronic medication administration record. In addition, department specific modules for emergency department, operating room, obstetrics, oncology and health information management were also deployed to support workflow needs.

The MyGeisinger portal was added which provides patients with the capability to communicate with their providers, schedule appointments, review their lab and other results, and view their clinical notes. Approximately one-half of Geisinger patients are active users of the MyGeisinger portal. In early 2014, a mobile platform was implemented to allow clinicians easier access to EHR information. Additional EHR

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acute-care implementations have occurred over the past five years with the merger or acquisition of additional health systems. Also, in the spirit of transparency, Geisinger partnered with Beth Israel Deaconess Medical Center in Boston and Seattle’s Harborview Medical Center to study and adopt OpenNotes® a program that lets patients see the same clinical notes clinicians write about them. OpenResults® followed in a similar way, sharing lab results and diagnostic tests with patients as soon as the tests become available, sometimes even before the doctor has had a chance to review these items.

Geisinger is a national model for successful implementation of health information technology. Along with regional partners, Geisinger formed KeyHIE, Keystone Health Information Exchange, Inc., a regional health information organization and nonprofit corporation, to electronically connect regional healthcare professionals with clinical information on shared patients, designed to ensure the best, safest, and most convenient patient care. An implementation grant from the Agency for Healthcare Research and Quality helped to start this effort. State and federal funds from the Office of the National Coordinator for Health Information Technology have since been obtained to ensure continued collaborations.

On the foundation of its combined inpatient and ambulatory EHR system, in 2006 Geisinger invested in an enterprise data warehouse, a central repository of integrated data from different sources. Over 24 major sources of data are available for reporting and analysis. Leadership and service line dashboards have been developed over time to meet the operational needs of the organization. In 2015, Geisinger further invested into a unified data architecture, a hedged data environment that took advantage of big data and traditional relational database management platforms. Big data refers to large, unstructured and/or complex data sets that are difficult to analyze with traditional data processing applications. Perishable data such as blood pressures in septic patients can be processed in real-time, and returned with insight to the bedside. This new core data competency creates value from the ability to search through unstructured data (e.g., clinical notes), and create better care models.

MyCode Community Health Initiative

Cutting-edge research in the areas of genetics and precision medicine is helping Geisinger to advance clinical knowledge and bring promising treatments to the forefront. A growing footprint is allowing the System to provide people with the care they need, where and when they need it.

Geisinger’s MyCode Community Health Initiative has received signed consent forms from more than 137,000 patients to use their samples for research. Over 97,000 Geisinger patients have provided blood and/or tissue samples to be genetically sequenced. DNA samples from over 61,000 patients have already been sequenced. The study includes the ability to reconnect sequencing results with participants and share medically actionable results. To date, approximately 3.5% of participants with sequenced samples received medically actionable information. The sequenced DNA data is combined with each participant’s medical record to provide Geisinger researchers with information to investigate new approaches to disease control, diagnosis and treatment. As part of a partnership with Regeneron Pharmaceuticals, MyCode plans to collect samples from more than 250,000 patients whose de-identified genomic data will help to improve patient care and speed drug discovery and development.

In October 2016, Geisinger was named one of four new healthcare provider organizations (“HPOs”) to participate in the Precision Medicine Initiative (“PMI”) Cohort Program, a landmark longitudinal research initiative of the National Institutes of Health (“NIH”) that aims to engage one million or more U.S. participants to improve the ability to prevent and treat disease based on individual differences in lifestyle, environment and genetics. Geisinger will operate as an enrollment center to help create a unique research cohort for the PMI Cohort Program.

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Combined, the four new HPOs will receive initial funds of $5.5 million to begin recruitment and build infrastructure.

Springboard Health

In January 2017, the System introduced Springboard Health, a population health initiative that includes a focus on the social determinants of health. The social determinants of health include factors like housing, transportation, safety, education and food. The initiative seeks to take new approaches to improve the health of an entire community. Springboard Health will initially target health improvements in Scranton, Pennsylvania by collaborating with local stakeholders to target issues such as hunger, inadequate housing and drug addiction. Once tested and optimized, these initiatives are expected to be shared with other communities facing similar issues. Geisinger will also make available MyCode Community Health Initiative services to identify genetic disorders.

Achieving Excellence Performance Initiative

In May 2016, Geisinger retained the services of McKinsey & Company (“McKinsey”), a global management consulting firm, to help design the next generation operating model. As a result, Geisinger launched an initiative called Achieving Excellence aimed at increasing the System’s operating margin while simultaneously improving quality, patient safety, patient satisfaction and employee engagement.

To date, McKinsey and Geisinger’s senior leadership team have reviewed several revenue enhancement and cost reduction initiatives and more are forthcoming. These initiatives include improving patient access, redesigning care and inpatient flow, improving alignment between GHPs and the Clinical Enterprise, increasing growth in GHPs’ Medicare Advantage and Pennsylvania Medical Assistance (“Medicaid”) business lines, reducing enterprise pharmacy and supply chain expense, and optimizing information technology.

When completed, Achieving Excellence is expected to result in significant operating margin improvement that can be sustained through applying Lean management strategies to the daily work of staff, physicians and managers. Lean management is a business methodology that aims to eliminate waste and produce more efficient operations. Some of the Achieving Excellence initiatives have already become operational, but most improvements require several months to implement before financial improvement is recognized.

BRIEF DESCRIPTION OF GEISINGER AFFILIATES WITH SIGNIFICANT OPERATIONS

Below is a list of the System’s principal affiliates with brief descriptions. Geisinger believes the list includes those affiliates that have a material operating impact on the System. The list does not include all affiliates of Geisinger Health.

Geisinger Health sometimes d/b/a Geisinger Health Foundation: a 501(c)(3) nonprofit corporation that serves as the ultimate corporate parent and coordinates and supervises the activities of all System affiliated entities. Geisinger Health is not a licensed healthcare provider, nor does it provide healthcare services to patients. Geisinger Health serves to ensure the System affiliated entities have adequate financial resources to fulfill their missions and to initiate and administer grant and philanthropic support programs for all Geisinger entities.

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AtlantiCare Behavioral Health, Inc. (“ABH”): a 501(c)(3) nonprofit corporation providing outpatient mental health, substance abuse/addiction recovery services and family care services to residents of southeastern New Jersey. ABH is controlled by AtlantiCare Regional Health Services, Inc. (“ARHS”).

AtlantiCare Health Services, Inc. (“AHSI”): a 501(c)(3) nonprofit corporation providing hospice, outpatient lab, homecare services, as well as operating a medically integrated fitness center and landlord of surgical and medical office suites. AHSI is controlled by ARHS.

AtlantiCare Physician Group, PA (“APG”): a federally nonprofit New Jersey professional corporation physician group practice that shares the corporate mission of AtlantiCare Health System, Inc. (“AHS”) and affiliates (collectively “AtlantiCare”). APG is controlled by AHS.

AtlantiCare Regional Medical Center, Inc.: a 501(c)(3) nonprofit corporation operating acute-care hospitals in Atlantic City and Pomona, NJ and a satellite emergency department in Hammonton, NJ. ARMC is controlled by ARHS.

AtlantiCare Surgery Center, LLC (“ASC”): a New Jersey limited liability company operating freestanding ambulatory surgical centers located in Atlantic, Cape May, and Ocean counties in New Jersey. AHSI and ARMC hold a 30% and 10% membership interests, respectively, in ASC with the remaining 60% membership held by independent physicians throughout the community.

Community Medical Center d/b/a Geisinger – Community Medical Center: a 501(c)(3) nonprofit corporation owning and operating an acute-care hospital in Scranton, PA. GCMC is controlled by Geisinger Health.

English Creek Assurance, Ltd. (“ECA”): a wholly owned for-profit subsidiary of AHS domiciled in Bermuda which provides insurance coverage for medical, legal and general liability to AHS affiliates.

Family Health Associates of Geisinger – Lewistown Hospital (“FHA”): a 501(c)(3) nonprofit corporation which operates a multi-specialty group practice in Lewistown, PA. FHA is controlled by Geisinger Health.

Geisinger Assurance Company, LTD (“GAC”): a for-profit company domiciled in the Cayman Islands which provides reinsurance of liabilities arising out of System activities, including medical, legal and general liability. Geisinger Health is the sole shareholder.

Geisinger – Bloomsburg Health Care Center (“GBHCC”): a 501(c)(3) nonprofit corporation operating a long-term care nursing home in Bloomsburg, PA. GBHCC is controlled by Geisinger Health.

Geisinger – Bloomsburg Hospital: a 501(c)(3) nonprofit corporation owning and operating a community-based, acute-care hospital in Bloomsburg, PA. GBH is controlled by Geisinger Health.

Geisinger Clinic: a 501(c)(3) nonprofit corporation which operates a multi-specialty group medical practice. Clinic provides physician staff for patient care, education, and clinical research and operates CareWorks convenient care clinics and CareSite pharmacies. Clinic is controlled by Geisinger Health and is the largest of the four physician practice groups currently operating within the System.

Geisinger Commonwealth School of Medicine: a 501(c)(3) nonprofit community-based medical college and graduate degree-granting institution. GCSOM main campus is located in Scranton, PA. GCSOM is controlled by Geisinger Health.

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Geisinger Community Health Services (“GCHS”): a 501(c)(3) nonprofit corporation designed to conduct charitable, scientific and educational activities for the citizens of the communities served by the System including the provision of healthcare services in a patient’s place of residence. GCHS is a Medicare-certified home health agency. GCHS is controlled by Geisinger System Services (“GSS”).

Geisinger Health Plan (“GHP”): a 501(c)(4) nonprofit health maintenance corporation providing various health insurance product lines. GHP is controlled by Geisinger Health.

Geisinger Indemnity Insurance Company (“GIIC”): a for-profit corporation providing indemnity health insurance. Geisinger Health is sole shareholder.

Geisinger – Lewistown Hospital: a 501(c)(3) nonprofit corporation owning and operating a community-based, acute-care hospital in Lewistown, PA. GLH is controlled by Geisinger Health.

Geisinger Medical Center: a 501(c)(3) nonprofit corporation operating a tertiary/quaternary care teaching hospital in Danville, PA, Geisinger Shamokin Area Community Hospital (“GSACH”), a campus of Geisinger Medical Center, in Shamokin, PA, and a separate outpatient ambulatory campus also in Danville, PA. GMC is controlled by Geisinger Health.

Geisinger Quality Options, Inc. (“GQO”): a wholly owned for-profit subsidiary of Geisinger Health providing indemnity health insurance. Geisinger Health is sole shareholder.

Geisinger System Services: a 501(c)(3) nonprofit support service corporation providing financial services, human resources, information systems, internal audits, legal services, strategic planning, healthcare transformation, marketing, public relations, and facilities services to Geisinger affiliates. GSS is controlled by Geisinger Health.

Geisinger Wyoming Valley Medical Center: a 501(c)(3) nonprofit corporation operating an acute- care, community-based hospital in Wilkes-Barre, PA, and an ambulatory campus located in south Wilkes- Barre, PA. GWV is controlled by Geisinger Health.

Holy Spirit Hospital of the Sisters of Christian Charity referred to as Geisinger Holy Spirit Hospital: a 501(c)(3) nonprofit corporation owning and operating an acute-care, community-based hospital in Camp Hill, PA. GHSH is controlled by Holy Spirit Health System (“HSHS”).

Marworth d/b/a Geisinger Marworth Treatment Center (“Marworth”): a 501(c)(3) nonprofit residential alcohol and chemical dependency detoxification and rehabilitation facility in Waverly, PA, with an inpatient center and outpatient and family addiction treatment programs. Marworth is controlled by Geisinger Health.

Mountain View Nursing Home, Inc. d/b/a Mountain View Care Center (“MVCC”): a 501(c)(3) nonprofit corporation operating long-term care, skilled nursing and rehabilitation facility in Scranton, PA. MVCC is controlled by Geisinger Health.

Spirit Physician Services, Inc. referred to as Geisinger Holy Spirit Medical Group (“GHSMG”): a 501(c)(3) nonprofit corporation which operates a multi-specialty group practice in Harrisburg, PA and surrounding communities. GHSMG is controlled by HSHS.

West Shore Advanced Life Support Services, Inc. referred to as Geisinger Holy Spirit EMS (“GHS EMS”): a 501(c)(3) nonprofit corporation which provides ambulance and medical transport services across central Pennsylvania. GHS EMS is controlled by HSHS.

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xG Health Solutions, Inc. (“xG”): a Delaware corporation representing a collaboration between Geisinger Health and Oak Investment Partners offering consulting, healthcare analytics and care management services to help healthcare provider and insurer organizations become high-performing population health management systems by offering solutions based primarily upon Geisinger’s methods, experience, and innovations. Geisinger Health is a shareholder.

Corporate Structure

The organizational structure of the System, as set forth in the following chart, reflects the strategic goal of operating as a fully integrated health system whose corporate components share the common goals of managing and improving the health of its patients, members and students while recognizing and respecting the corporate identity of each entity. This integration links the areas of physicians, hospitals/clinics, healthcare insurance and medical education.

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Designated Affiliates

Under the Master Indenture, Geisinger Health is required to cause each Designated Affiliate, and to use reasonable efforts to cause each of its other System Affiliates, to pay, loan or otherwise transfer to Geisinger Health such amounts as are necessary to make all payments on Obligations issued under the Master Indenture when due. This requirement is limited by applicable legal, regulatory and contractual obligations of the Designated Affiliates and the System Affiliates. (See the information under the captions “SECURITY FOR THE BONDS” and “BONDHOLDERS’ RISKS” in the forepart of this Official Statement.) The following list sets forth the Designated Affiliates and the cities in which their principal facilities or primary operations are located:

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Designated Affiliates Principal Location AtlantiCare Behavioral Health, Inc. Egg Harbor Twp., NJ AtlantiCare Foundation, Inc. Egg Harbor Twp., NJ AtlantiCare Health Engagement, Inc. Egg Harbor Twp., NJ AtlantiCare Health Services, Inc. Egg Harbor Twp., NJ AtlantiCare Health System, Inc. Egg Harbor Twp., NJ AtlantiCare Regional Health Services, Inc. Egg Harbor Twp., NJ AtlantiCare Regional Medical Center, Inc. Egg Harbor Twp., NJ Community Medical Center d/b/a Geisinger – Community Medical Center Scranton, PA English Creek Assurance, Ltd Hamilton HM DZ Bermuda Geisinger Assurance Company, Ltd George Town, Grand Cayman, BWI Geisinger – Bloomsburg Health Care Center Bloomsburg, PA Geisinger – Bloomsburg Hospital Bloomsburg, PA Geisinger Clinic Danville, PA Geisinger Commonwealth School of Medicine Scranton, PA Geisinger Community Health Services Danville, PA Geisinger Health d/b/a Geisinger Health Foundation Danville, PA Geisinger Health Plan Danville, PA Geisinger Indemnity Insurance Company Danville, PA Geisinger Insurance Corporation, Risk Retention Group Burlington, VT Geisinger – Lewistown Hospital Lewistown, PA Geisinger Medical Center Danville, PA Geisinger Medical Management Corporation Danville, PA Geisinger Quality Options, Inc. Danville, PA Geisinger System Services Danville, PA Geisinger Wyoming Valley Medical Center Wilkes-Barre, PA Holy Spirit Health System Camp Hill, PA Holy Spirit Hospital of the Sisters of Christian Charity Camp Hill, PA Marworth d/b/a Geisinger Marworth Treatment Center Waverly, PA Mountain View Nursing Home, Inc. d/b/a Mountain View Care Center Scranton, PA West Shore Advanced Life Support Services, Inc. Camp Hill, PA

The Abigail Geisinger Trust

Abigail A. Geisinger constructed the original hospital, which opened in 1915, and within two years transferred the original hospital and certain real property located in Danville, PA to the Scranton Trust Company (now part of PNC Bank, N.A.), as trustee (the “Geisinger Trustee”), under an Indenture of Trust. PNC Bank, N.A., was appointed the successor Geisinger Trustee as of June 30, 2000, subject to the terms and conditions of a Trustee Agreement effective June 30, 2000, as amended and restated. Under the terms of the Trustee Agreement, Geisinger Health and GMC are required to notify the Geisinger Trustee prior to amending their articles of incorporation and Geisinger Health is required to notify the Geisinger Trustee prior to relinquishing control of GMC, selling, transferring or otherwise disposing of all, or substantially

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all, of GMC’s assets. The Geisinger Trustee’s approval is not required in connection with the issuance of the Series 2017 Bonds.

GOVERNANCE

Geisinger Health exercises control over all the corporate entities comprising the System while recognizing and respecting their corporate identities. The objective of these corporate control features is to ensure both integration and coordination of key business operations. Geisinger Health is governed by a board of directors of no less than nine and no more than nineteen members. There are currently fourteen board members, one of whom serves in an ex-officio capacity. In addition to its oversight responsibilities, Geisinger Health conducts an ongoing fundraising development program for itself and other nonprofit corporations within the System.

Board of Directors

Name Position Years of Principal Affiliation Service John C. Bravman, PhD Chair 5 President, Bucknell University Heather M. Acker Vice Chair 3 Executive Vice President & CFO, Gentex Corporation Eugene Arnone Board Member 2 President, Arnone Associates Karen Davis, PhD Board Member 12 Director, Roger C. Lipitz Center for Integrated Health Care Johns Hopkins Bloomberg School of Public Health Robert Dietz Board Member 3 Retired President & COO, Gannett Fleming, Inc. David T. Feinberg, MD, MBA Ex-Officio 2 President & CEO, Geisinger William R. Gruver Board Member 9 Professor, Bucknell University Jeff Jacobson Board Member 5 President, Jacobson Hat Co. Thomas H. Lee, Jr., MD, MSc Board Member 11 Chief Medical Officer, Press Ganey Associates, Inc. Virginia McGregor Board Member 5 Community Leader Robert E. Poole Board Member 11 Chairman, President & CEO, S&A Custom Built Homes William E. Sordoni Board Member 3 President & CEO, Sordoni Construction Services, Inc. Christopher B. Sullivan Board Member 3 President & CEO, Primus Technologies Corp. Gail R. Wilenski, PhD Board Member 7 Economist & Senior Fellow, Project HOPE

Executive Leadership

Geisinger’s management structure reflects its intent to operate as a fully-integrated healthcare services organization. Executive leadership provides oversight and direction to the service line leaders, as well as management for GHPs, GCSOM, for-profit businesses, and support services.

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David T. Feinberg, MD, MBA is president and chief executive officer of Geisinger. A longtime champion of the patient experience, Dr. Feinberg has introduced Geisinger’s latest evolution of its ProvenCare portfolio, ProvenExperience.

Triple-board certified by the American Board of Psychiatry and Neurology in child, adolescent and addiction psychiatry, Dr. Feinberg earned his undergraduate degree at the University of California, Berkeley, and graduated with distinction from the University of Health Sciences/Chicago Medical School. He earned a master of business administration from Pepperdine University.

Named to the 100 Most Influential People in Healthcare as well as the Top Ten of the 50 Most Influential Physician Executives and Leaders by Modern Healthcare, Dr. Feinberg’s numerous awards and recognitions include Alpha Omega Alpha Medical Honor Society; Medical Center CEO of the Year Healthcare Leadership Award; Leadership, Vision and Commitment Honoree by the National Health Foundation; Distinguished Fellow of the American Psychiatric Association; and the Cancro Academic Leadership Award from the American Academy of Child & Adolescent Psychiatry. Dr. Feinberg is a well- known national speaker, especially on the subject of patient experience, and has published numerous articles.

Prior to joining Geisinger, Dr. Feinberg served as CEO of University of California at Los Angles’ (“UCLA”) hospitals and associate vice chancellor of UCLA Health Sciences, as well as president of UCLA Health System.

Amy B. Brayford is the executive vice president, chief human resource officer and chief of staff to the president and chief executive officer of Geisinger. She has been a member of the Geisinger team since 1997, serving in several human resource capacities including operations manager, associate vice president and vice president. Ms. Brayford leads the organization-wide human resources strategy and is the senior leader working with development and board relations.

A graduate of Bloomsburg University, she earned her master’s degree at Ithaca College in Ithaca, NY. Prior to joining Geisinger, she served as a quality coordinator at the Pennsylvania Department of Transportation, adult education instructor at the Schuylkill Intermediate Unit and adjunct professor at Harrisburg Area Community College. Ms. Brayford is a past member of the Bloomsburg University College of Business Advisory Board.

Kevin F. Brennan, CPA, FHFMA, is executive vice president of finance, chief financial officer of Geisinger and treasurer of Geisinger Health since 1995. As chief financial officer, he is responsible for all System financial operations and directs key functions including: strategic financial management, treasury management, revenue cycle, financial reporting, budgeting, third party contracting, compliance, payroll, accounts payable, tax, decision support, financial systems workforce management, corporate insurance, safety and enterprise risk.

From 1981 through 1991, Mr. Brennan served in chief financial officer roles at teaching hospitals, primarily in multi-entity systems within the mid-Atlantic region. From 1991 through 1995, Mr. Brennan served as the regional vice president, finance and vice president, managed care with the Franciscan Health System with responsibilities covering eight hospitals and affiliates in the mid-Atlantic region.

Mr. Brennan holds a master of business administration degree in healthcare administration and a bachelor of science degree in business administration, both from LaSalle University in Philadelphia. He has been a certified public accountant since 1979 and is a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants. He is a fellow of the

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Healthcare Financial Management Association (“HFMA”) since 1992 and serves as the Secretary-Treasurer on the National Board of Directors of HFMA.

David J. Felicio is executive vice president and chief legal officer, leading a team of attorneys responsible for providing all legal services at Geisinger. He has been in-house counsel for the health system since 1989, served as chief legal officer since 2002, and executive vice president since 2015.

Mr. Felicio earned his undergraduate degree from Boston University and a juris doctorate degree from Temple University School of Law. He began his legal career as a prosecutor with the Commonwealth of Pennsylvania, and then joined the firm of Duane Morris and Heckscher where he was a litigator defending healthcare providers in medical malpractice cases.

Mr. Felicio is a Fellow of the Pennsylvania Bar Foundation and member of the Pennsylvania Bar Association.

David H. Ledbetter, PhD, FACMG, is executive vice president and chief scientific officer at Geisinger. He came to Geisinger from Emory University School of Medicine, where he was the Robert W. Woodruff Professor and director of the Division of Medical Genetics in the Department of Human Genetics.

Dr. Ledbetter previously held academic and leadership positions at the University of Chicago, the National Center for Human Genome Research at the NIH and Baylor College of Medicine. He is a graduate of Tulane University and earned his doctorate at the University of Texas-Austin.

After his early discovery of the genetic cause of Prader-Willi syndrome and Miller-Dieker syndrome, Dr. Ledbetter has focused his research efforts on discovering the underlying etiology of childhood developmental disabilities such as autism. He has been a participant and leader in the Human Genome Project since its inception in 1990 with a focus on the translation of new genomics technologies into clinically useful genetic tests for early diagnosis, intervention and prevention of disease.

His current research interests include leveraging the genomics data generated during routine patient care for knowledge generation and integration of this information into EHRs in a clinically useful manner.

Lynn Miller, MBA, is executive vice president, clinical operations, for Geisinger. In her current role, Ms. Miller is responsible for the operations of the System’s Clinical Enterprise and population health that includes the hospitals; multispecialty group practices including physicians, researchers and advanced practitioners; primary and specialty care clinic sites; urgent care and after-hours clinics; outpatient surgery centers; home and hospice services; and retail pharmacies.

Ms. Miller has been with Geisinger since 1989. She previously served as chief administrative officer of GMC. During her tenure, she developed programs that produced a significant improvement in operating margin; directed the planning and construction of a $100 million addition incorporating a new acuity adaptable mode of care; implemented a hospital inpatient EHR system and achieved Magnet status by the American Nurse Credentialing Center (“ANCC”).

In addition to hospital operations, Ms. Miller has experience in hospital-based human resources, finance, business office management and information technology, as well as home health and long-term care environments.

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Ms. Miller serves on the Boards of the Danville Child Development Center, Pennsylvania State System of Higher Education, Evangelical-Geisinger Health, LLC, ARHS and HSHS.

Ms. Miller has a master of business administration degree from Loyola College and a bachelor of science in psychology from Elizabethtown College.

Dominic Moffa, MBA, FACHE, is Geisinger’s executive vice president and chief strategy officer, responsible for strategic planning, business development, corporate communications, government relations, and mergers and acquisitions.

He transitioned to his system-wide role from AtlantiCare where he served in numerous leadership positions since 1986, including senior vice president, administration, and most recently as executive vice president. Mr. Moffa was responsible for system-level strategic growth at AtlantiCare and played an instrumental role in the organization earning the prestigious Malcolm Baldrige National Quality Award in 2009.

Prior to joining AtlantiCare, he was vice president of health facilities, assistant vice president for hospital affairs, and planning coordinator for West Jersey Health System (now part of Virtua Health) in Camden, NJ.

Mr. Moffa earned his undergraduate degree at St. Joseph’s University in Philadelphia and a Master of Business Administration at Temple University. He is a past Fellow of the Health Care Advisory Board Executive Fellowship Program and graduate of the American Heart Association (“AHA”) Health Care Transformation Fellowship Class. A member of the AHA Society for Healthcare Strategy and Market Development, he is a Fellow of the American College of Healthcare Executives.

Susan M. Robel, RN, BSN, MHA, NEA-BC, is executive vice president, system chief nursing officer and system chief patient experience officer.

Ms. Robel began her professional career at Geisinger in 1983 as a staff nurse in psychiatric and medical/surgical nursing. From 1986-1995, Ms. Robel held various middle management positions in the medical/surgical units and psychiatric units at GMC. From there, Ms. Robel moved on in July 1996 to become a nursing resource engineering facilitator for the “Geisinger 2000” project, focusing on the development and implementation of a patient-focused inpatient care delivery model. In March 1998, Ms. Robel assumed the role of assistant vice president, nursing services, where she assisted the chief nursing officer in the successful implementation of care delivery and productivity systems. In August 2000, she was promoted to vice president, nursing at GMC where she became responsible for nursing professional standards and patient care in the Central Region of the System and in July 2001, Ms. Robel’s role was expanded to chief administrative officer, chief nursing officer.

Currently, she collaborates with the executive vice president, chief medical officer and chief operating officer of the Clinical Enterprise to lead the Clinical Enterprise for the entire System and integrate best practice nursing standards throughout. She co-leads the patient experience efforts for the System, partnering with campus leaders, nurse leaders and other colleagues to outperform patient experience benchmarks and develop/enhance the patient experience cultures. A member of the board of trustees of the Nightingale Awards of Pennsylvania and the Pennsylvania Action Coalition, which focuses on the future of nursing in Pennsylvania, Ms. Robel actively participates in networking and events through the American Nurses Association, Pennsylvania Organization of Nurse Leaders, American Organization of Nurse Leaders, Hospital and Health System Association of Pennsylvania and the Pennsylvania State Nurses Association.

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Ms. Robel holds a diploma in nursing from the Pottsville Hospital School of Nursing as well as a bachelor of science in nursing degree from The Pennsylvania State University. She also earned a master in health administration from Wilkes University. Ms. Robel is board certified by the ANCC as an NE-BC in 2008 and NEA-BC in 2009.

Jaewon Ryu, MD, JD, is Geisinger’s executive vice president and chief medical officer. A Diplomate of the American Board of Emergency Medicine, Dr. Ryu previously served as President of Integrated Care Delivery for Humana in Louisville, Kentucky, where he was responsible for Humana’s owned and joint ventured care delivery practices, as well as Transcend, a management services organization assisting affiliated practices to adopt population health under value-based reimbursement.

Prior to Humana, he served as the Chief Medical Officer at the University of Illinois Hospital & Health Sciences System in Chicago. Dr. Ryu has also held various leadership roles at Kaiser-Permanente, the Centers for Medicare and Medicaid Services, and as a White House Fellow at the Department of Veterans Affairs. He was also a practicing corporate healthcare attorney in the Los Angeles office of the firm McDermott, Will & Emery.

Dr. Ryu has served in various advisory roles including board positions with MCCI and JenCare, both clinic/management services organizations managing the financing and delivery of care for Medicare Advantage members under full-risk payment models. He has also served on the board of directors of the White House Fellows Foundation and Association.

He earned his undergraduate degree from Yale University and his medical and law degrees from the University of Chicago. Dr. Ryu completed his internship and residency training in emergency medicine at Harbor-UCLA Medical Center.

Steven J. Scheinman, MD, is president and dean of GCSOM and Geisinger’s chief academic officer and executive vice president. He was formerly professor of medicine and pharmacology at SUNY Upstate Medical University, where he served for eight years as senior vice president and dean of the College of Medicine. Board-certified in internal medicine and nephrology, Dr. Scheinman has earned international prominence for his research into the genetics of inherited kidney diseases and kidney stones. He has published peer-reviewed articles, reviews, and book chapters on topics related to kidney disease and genetics. For most of his career he was principal investigator on grants funded by the NIH, AHA and other agencies. He has been an invited speaker at numerous national and international meetings and a visiting professor at many prominent universities across the United States and abroad.

Dr. Scheinman has served on review boards for the NIH, AHA, American Society of Nephrology, American Federation for Clinical/Medical Research, and National Kidney Foundation, among others. He is a fellow of the American College of Physicians and the American Society of Nephrology, and is an elected member of the American Society for Clinical Investigation. He was a gubernatorial appointee to the New York State Council on Graduate Medical Education, and has served on several advisory boards to the Commonwealth of Pennsylvania and national boards related to medical education. He currently serves on the board of the National Resident Match Program and on the board’s executive committee.

Dr. Scheinman holds an A.B., summa cum laude, from Amherst College in Massachusetts and received his medical degree with honors from Yale University. He completed his residency in internal medicine at Yale-New Haven Hospital, was chief resident in internal medicine at SUNY Upstate Medical Center and completed fellowships in nephrology at SUNY Upstate Medical Center and Yale-New Haven Hospital.

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David Tilton, MBA, FACHE, is executive vice president and chief integration officer of Geisinger. In this role, he leads performance excellence efforts and develops and assists with key external relationships.

Mr. Tilton retired as president and chief executive officer of AtlantiCare on June 30, 2016 before beginning his new System role. He joined AtlantiCare in 1987 and was named president of both ARMC campuses in 1993. Instrumental in the development of AtlantiCare as a regional health system, he was named executive vice president and chief operating officer in 2005 and president and CEO in 2007. During his leadership tenure, ARMC reorganized its structure, governance, and organizational mindset around population health management. A highlight of his career is the Malcolm Baldrige National Quality Award that AtlantiCare earned in 2009.

He is chair of the board of the Health Research & Educational Trust, an affiliate of the American Hospital Association, and has been included multiple times in the Becker’s Hospital Review lists of Hospital and Health System CEOs to Know. A Fellow of the American College of Healthcare Executives, Mr. Tilton earned his undergraduate degree at Rider University and a master of business administration at Rutgers University.

Steven R. Youso is president and chief executive officer of GHPs since 2014. Mr. Youso has more than 35 years of diverse experience in both the financing and delivery of healthcare.

Prior to joining GHPs, he most recently served as the chief administrative officer at Security Health Plan, a 225,000-member health plan in Wisconsin. During his tenure at Security Health Plan, Mr. Youso focused on the “triple aim” objectives of improving the healthcare experience for patients (including quality and satisfaction), improving the health of populations, and reducing the per capita cost of healthcare. Mr. Youso also served in various roles at Blue Cross and Blue Shield of Minnesota including vice president of sales and community accounts and vice president of health system development.

Mr. Youso also has extensive experience in clinical operations. He began his career as the assistant administrator at Ladd Memorial Hospital & Nursing Home in Wisconsin. He was also the administrator for Gateway Family Health Clinic, branch clinic director for Beta Medical Management and administrator of the River Valley Clinic, all in Minnesota.

Mr. Youso is a graduate of Concordia College in Moorhead, Minn., with a bachelor of arts degree in business and healthcare administration. He is a board member of the Greater Susquehanna Valley United Way, Sunbury, PA, and Alliance of Community Health Plans and America’s Health Insurance Plans, both based in Washington, D.C.

MAJOR BUSINESS COMPONENTS

Geisinger Acute-Care Hospitals and Treatment Center

Geisinger Medical Center

GMC, with 517 staffed beds as of December 31, 2016, is the anchor of the System’s Central Region, operating the largest regional-referral, tertiary/quaternary-care teaching hospital throughout central and northeastern Pennsylvania. GMC’s core strategy is to advance the continued development of its tertiary and quaternary programs, providing some of the most advanced technology in the country. Physicians throughout Pennsylvania refer complex cases to GMC, and GMC also receives frequent referrals from New York, New Jersey, Maryland, Virginia and Florida. GMC operates a full-time hospitalist program. The

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hospitalists work in conjunction with admitting and referring physicians to care for patients admitted to the medical center. GMC is a Magnet hospital as designated by the ANCC.

The recruitment of top physicians from across the country has facilitated the offering of a wide range of services characteristic of a tertiary care referral hospital through its extensive list of clinical departments.

Through its commitment to high quality emergency care, GMC maintains an active Level I Regional Trauma Center with additional qualifications in pediatrics (one of only four in Pennsylvania). Life Flight®, an air ambulance medical service, provides Geisinger staff trained in advanced life support that supplements the trauma program and the neonatal intensive care unit (“NICU”).

GMC’s Hospital for Advanced Medicine (“HfAM”) operates as a “hospital within a hospital” model providing numerous benefits including: streamlined care delivery and improved quality by creating a more comprehensive, coordinated and smooth continuum of care, which creates added value and convenience for the patient and family. The HfAM strategically provides GMC with the opportunity to leverage expertise and achieve high-end visibility for selected service lines, thereby increasing market share. The HfAM includes a cardiac catheterization suite, an orthopedic inpatient unit, an endoscopy suite, endovascular/hybrid operating rooms and an expanded interventional radiology suite.

In 2016, a laboratory building designed to enhance testing and increase labor efficiency by centralizing laboratory disciplines located throughout the GMC campus was completed. In 2017, an expansion of the Geisinger Woodbine Lane outpatient ambulatory campus was completed to include ophthalmology, family medicine and pediatrics. The expansion also includes providing additional services in dermatology, orthopedics and imaging. Additionally, a new onsite pharmacy slated to open May 1, 2017 will add to the convenience for patients. To accommodate the additional services, a three-story parking garage was built.

GSACH, acquired in 2012, operates as a campus of GMC with fully integrated services. GSACH operates as an open-staff community physician model including physicians employed by Clinic.

GMC’s footprint provides for patient services on or proximal to the GMC campus in Danville. These facilities and services include:

GSACH – an acute-care hospital serving the primary and secondary needs of Northumberland county. GSACH is equipped with a 24-hour emergency department, related diagnostic services and outpatient surgeries. Additionally, a short-stay skilled nursing unit is available for post-acute- care needs.

Janet Weis Children’s Hospital — a pediatric tertiary hospital where specialists provide their expertise in various medical fields, including oncology, neurosurgery, neonatology, cardiology and cardiovascular surgery.

Geisinger Woodbine Lane — an outpatient facility located in Danville, PA, provides various outpatient services, including same-day surgery, dermatology and Mohs skin cancer surgery, an interventional pain center, rehabilitation and sports medicine, ophthalmology, family medicine and pediatrics.

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Geisinger – Knapper Clinic — a center which houses Geisinger’s Cancer Institute, including the most highly skilled and knowledgeable physicians, nurses and cancer specialists in the region, providing cancer care, research, prevention, clinical trial, treatment and education.

HealthSouth Rehabilitation Hospital — a facility that includes physical, occupational, speech and other therapy programs in individualized care plans. This partnership between the System and HealthSouth Corporation provides comprehensive inpatient and outpatient care.

House of Care – a home-away-from-home offering low-cost lodging for adult cancer patients and their families while undergoing treatment at GMC.

Geisinger Wyoming Valley Medical Center

GWV, with 260 staffed beds as of December 31, 2016, is a tertiary, acute-care hospital and regional referral center serving the healthcare needs of northeastern Pennsylvania. It is an open-staff hospital located in Plains Township, near Wilkes-Barre.

GWV, including its Geisinger South Wilkes-Barre ambulatory campus (“GSWB”), GCMC and a series of regional clinics, anchor the System’s Northeastern Region. GWV offers an expanding range of services through multiple clinical departments. The hospitalists work in conjunction with admitting and referring physicians to care for patients admitted to the medical center.

The GWV main campus is home to the Henry Cancer Center. This facility develops cancer prevention strategies, cultivates cancer research, and provides access to advanced treatment and clinical trials for people in northeastern Pennsylvania. The 55,000 square-foot facility is dedicated to the multidisciplinary delivery of cancer care through comprehensive consultation, diagnosis, and treatment for a full range of cancer related diagnoses including hematology, medical oncology and radiation therapy.

The Pearsall Heart Hospital at GWV offers a full spectrum of inpatient and outpatient cardiac services and research and is an accredited chest pain center. Treatments performed at the Pearsall Heart Hospital include diagnostic cardiology, coronary artery by-pass surgery, advanced valve repair and replacement, cardiac rehabilitation, electrophysiology, and a variety of interventional cardiology procedures including angioplasty, angio-jet, cardiac stent placement, and left ventricular device assist services. In the current fiscal year, the Pearsall Heart Hospital began to offer transapical valvular repair, a percutaneous method to repair valves as opposed to traditional open-heart surgery.

The Janet Weis Children’s Hospital Pediatrics Unit at GWV provides children and their parents access to a full-time pediatric hospitalist program and board-certified pediatric specialists. The medical center’s obstetrics and gynecology department is home to a licensed nursery, obstetric-operating suites, and a team of childbirth practitioners and educators. Additionally, a NICU opened in November 2011 and an expansion of the inpatient obstetrics and gynecology inpatient facilities was also completed in 2012.

In 2008, a new critical care building was opened. This new facility is comprised of an expanded emergency services department and a new surgical suite. The surgical suite supports image retrieval, robotics, interventional equipment and minimally invasive surgery and is designed to accommodate future surgical technologies. The critical care building also houses an intensive care unit affording patients the latest critical care technologies, including electronic intensive care unit remote monitoring. In February 2013, an additional floor of the critical care building opened housing a progressive care unit.

Geisinger purchased GSWB in December 2005 as an open-staff, acute-care hospital located in Wilkes-Barre, PA. GSWB initially became a short-stay, acute-care hospital in 2008. In July 2009, GSWB

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merged into GWV and transitioned to a regional ambulatory campus with a state-of-the-art inpatient rehabilitation unit while operating under the GWV license.

The GSWB campus is home to a multi-specialty surgery suite offering a range of services including plastic surgery, ophthalmology, general surgery, urology, vascular, colorectal surgery, podiatry and orthopaedics. The campus is also home to a short-stay inpatient unit. The GSWB campus has a fully accredited sleep disorders center specializing in the evaluation, diagnosis and treatment of abnormal sleep/wake rhythms of both adults and pediatric patients. An interventional pain management center opened in July 2008, offering specialized treatment programs for patients with chronic pain. In January 2007, Geisinger’s Janet Weis Children’s Hospital opened its first pediatric urgent care center on the GSWB campus. The center offers extended hours and provides care to patients ranging in age from newborn through 18 years of age for a wide variety of minor conditions. When the GSWB emergency department closed, GWV continued to meet the community’s needs with the opening of an adult urgent care center. The GSWB campus also continues to offer outpatient general diagnostic services such as laboratory, computerized tomography, general radiology and ultrasound.

GWV leases space on the GSWB campus to an unaffiliated non-profit organization operating a hospice unit. The GSWB campus is also home to both private and employed physician offices, with several primary care and specialist clinics providing services to the community.

Community Medical Center d/b/a Geisinger-Community Medical Center

GCMC, with 293 staffed beds as of December 31, 2016 is an acute, tertiary-care hospital serving the healthcare needs of northeastern Pennsylvania. It is an open-staff hospital located in Scranton, PA.

GCMC offers an expansive range of services through multiple clinical departments: medicine, anesthesia, neurosciences, general surgery, orthopaedics, advanced heart and vascular care, emergency medicine, diagnostic imaging services, gastrointestinal laboratory, podiatry, pediatrics, women’s services, pain management, wound care and additional outpatient general diagnostic services such as laboratory, general radiology and ultrasound. GCMC is home to Scranton’s only trauma center and adult inpatient behavioral health unit. In addition, the county’s only certified primary stroke care center is also located at GCMC.

In June 2013, GCMC broke ground on an expansion project that was completed in the summer of 2015. The $100 million expansion included an operating suite, a re-designed intensive care unit, an enhanced and expanded lobby and additional clinical and physician office space. The operating suite was upgraded with state-of-the-art surgical equipment including video integration and a hybrid operating room. There is a pre-operative area, post-anesthesia care unit and a new electrophysiology laboratory. Additionally, the intensive care unit has been upgraded with private rooms affording patients the latest critical care technologies including electronic intensive care unit remote monitoring.

The expansion at GCMC is part of Geisinger’s commitment to enhance clinical programs, increase physician recruitment, expand and improve facilities and implement new information systems in Scranton and its surrounding communities. An upgrade to GCMC’s technology infrastructure, including integration into Geisinger’s EHR system, was completed in February 2013.

An additional investment of $23.6 million in the Mt. Pleasant primary care facility in Scranton was completed in May of 2014. The addition of this facility allowed GCMC to provide same day, evening and weekend appointments in a broad range of primary care and specialties including family practice, women’s health, pediatrics, pediatric specialty care, bariatrics, endocrinology, gastrointestinal nutrition, gastroenterology, internal medicine, otolaryngology, rheumatology, and surgery. The site also includes

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ancillary services such as radiology, lab and a CareSite Pharmacy. Further investments to expand the endoscopy suite and to open a comprehensive cancer center were made in 2016.

Since GCMC joined Geisinger, physicians have been recruited to work at GCMC or to be based in the Scranton area. They encompass a wide array of specialties including surgical and medical in both adult and pediatric practices. With the growth of critical care service, eICU® capabilities were added to the existing GCMC ICU, making it the first ICU in the Scranton area to have that advanced capability. The eICU program’s team of Geisinger critical care physicians and nurses remotely analyze patient data from monitors, life support systems, EHRs, medical orders and other sources to assist the critical care staff at GCMC. In October 2014, Geisinger acquired Viewmont Medical Services, a multidisciplinary, multisite, ancillary care system as well as the practices of PrimeMed, a primary care group in Lackawanna county. Those physicians are contracted with Geisinger via a professional services agreement to continue practicing in those sites.

Geisinger - Bloomsburg Hospital

GBH, with 68 staffed beds as of December 31, 2016, is an acute/psychiatric care hospital serving Columbia county and surrounding communities in central Pennsylvania. GBH operates as an open-staff community physician model in addition to admission from physicians employed by Clinic.

GBH is located approximately 10 miles east of GMC. GBH complements GMC by offering easy access to a wide variety of programs and services including a 24-hour emergency department, complete inpatient surgery and hospitalization, 24-hour hospitalist services, same day surgery, cardiology and cardiac rehabilitation, emergency medicine, full diagnostic testing and procedures through on-site laboratory and radiology services, maternity services and education classes as well as pediatric care, physical therapy, orthopaedic, respiratory and psychiatric services.

In January 2016, GBH began to offer medical services customized for geriatric patients in the form of a 10-bed Acute Care for the Elderly program. The program provides elderly care for patients who suffer from dementia or delirium and/or are at risk of functional decline during hospitalization.

In March 2017, a $1.1 million renovation of the labor and delivery department at GBH was completed. The project increased the number of private patient rooms with an updated look and state of the art equipment which will improve the overall patient experience.

Geisinger - Lewistown Hospital

On November 1, 2013, the former Lewistown Hospital became part of the System and changed its name to Geisinger - Lewistown Hospital. GLH, with 123 staffed beds as of December 31, 2016, is an acute- care, community hospital serving the residents in Mifflin and Juniata counties as well as residents of Centre, Perry, Snyder and Huntingdon counties.

GLH, with its sole community hospital designation from Medicare, provides a wide variety of essential services including inpatient, outpatient, wellness and community services. These services include 24-hour emergency, surgical, and diagnostic services including 24-hour hospitalist, tele-ICU, tele-burn and tele-stroke services. Major services provided at GLH include: oncology, radiation therapy, maternity, imaging, general, neurological and orthopedic surgery, on-site laboratory, IV infusion, sleep lab, wound center, cardiology, nuclear medicine, cardiac rehab, interventional pain clinic and inpatient psychiatric services. Since its affiliation with Geisinger, GLH has added bariatric surgery and health practitioners representing a range of specialties from family medicine, internal medicine, oncology, pain management, cardiology, infectious disease and general/cardiovascular surgery. Renovations to upgrade the emergency

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and imaging departments were completed in 2016. Renovations to the endoscopy center and endoscopy clinic are expected to be completed in 2017.

Holy Spirit Hospital referred to as Geisinger Holy Spirit Hospital

On October 1, 2014, the former HSHS and affiliates (now referred to collectively as “Geisinger Holy Spirit”) became part of the System. Geisinger Holy Spirit includes: GHSH, GHSMG, GHS EMS and other small affiliates.

GHSH, an acute-care community hospital with 299 staffed beds as of December 31, 2016, provides a wide variety of services including inpatient, outpatient, wellness and community services. These services include 24-hour emergency, surgical, and diagnostic services including 24-hour hospitalist, ICU, and stroke services. Major services provided at GHSH include: general and interventional cardiology, cardiothoracic surgery, oncology, radiation therapy, maternity, imaging, general surgery, neurological and orthopedic surgery, on-site laboratory, IV infusion, sleep lab, wound center, nuclear medicine, cardiac rehab, and inpatient and outpatient psychiatric services. Since its affiliation with Geisinger, GHSH has added bariatric surgery and health practitioners representing a range of specialties from family medicine, pediatrics, pulmonary medicine, plastic surgery, vascular surgery and trauma. Renovations to upgrade the emergency department and establish a level 2 trauma center are expected to be completed in May 2017.

AtlantiCare Regional Medical Center

ARMC, with 530 staffed beds as of December 31, 2016, is a regional health care provider with hospital divisions in Atlantic City, New Jersey (“City Campus”) and Pomona, New Jersey (“Mainland Campus”), a satellite emergency department in Hammonton, New Jersey and multiple ambulatory locations throughout Atlantic and Cape May counties in southeastern New Jersey. The Mainland Campus of ARMC is a regional medical center and is home to several centers of clinical excellence, including the Heart Institute, the Joint Institute and the region’s only NICU. The Mainland Campus also provides an array of other inpatient and outpatient services including obstetrics, gynecology, and inpatient psychiatric services. The City Campus of ARMC is a teaching hospital and is the home of the region’s only Level II Trauma Center and Comprehensive Stroke Center, as well as regional psychiatric crisis center, a comprehensive center for surgical weight loss and an array of other inpatient and ambulatory healthcare services.

In 2015, ARMC opened the Rothman Institute Pavilion at its Mainland Campus. The two-story expansion included private patient bays, a post anesthesia care unit, a new hybrid operating room, and general cardiothoracic operating rooms. The project also included renovations of the intensive care and cardiovascular care units, expanding the waiting area for operating rooms, a new reception area, lobby and gift shop.

Geisinger Marworth Treatment Center

Marworth, with 91 staffed beds as of December 31, 2016, is an inpatient specialty treatment center with a broad-based outpatient program for the treatment of alcohol and chemical dependency. Marworth, located in Waverly, PA, is nationally recognized for treating healthcare, firefighters, and law enforcement professionals.

Geisinger Physician Group Practices

The following medical staff profile as of December 31, 2016 reflects the 1,697 physicians employed by Geisinger in four corporations, Clinic, APG, GHSMG and FHA, and 77 flex locum tenens physicians working at Geisinger. Many physicians practice in more than one specialty. In addition to the

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employed physicians and flex locum tenens, there are 662 non-employed medical staff with admitting and clinical privileges to practice at Geisinger hospitals.

Of the top ten admitting physicians, no individual exceeds two percent of overall admissions except for psychiatry, which designates a single physician for all admissions.

As a multi-disciplinary group practice, Geisinger is highly dependent on its ability to recruit and retain specialists and sub-specialists. To ensure that Geisinger can provide tertiary and quaternary care, including such complex programs as liver and pancreas transplants, brain tumor, open heart surgery, plus trauma services, Geisinger has instituted a significant physician recruitment program with demonstrable results.

The organization’s physician recruitment department staff partners with outside recruiters when necessary. However, for the most part, recruitment is based on physician networking that is supported by direct opportunities for participation in translational and basic science research, medical education plus the prospect of developing innovative care models.

The information below describes each company within the group practices.

Geisinger Clinic

Clinic’s multispecialty physician group medical practice is one of the largest ambulatory care programs in Pennsylvania. The physician staff is organized both by clinical institutes and service lines and is dedicated to improving the health of the people of Pennsylvania through an integrated system of health services based upon a balanced program of patient care, education, research, and community service. Clinic’s mission is to serve the members of the community with healthcare services, research and education. Members of the group practice admit to hospitals and nursing homes within the Geisinger service area. To that end, a system-wide initiative to improve access to care is currently under way and has been aided by investments in patient scheduling through on-line scheduling via MyGeisinger and Zocdoc, which are web based software that enhances the current scheduling process.

Physician practice growth continues through recruitment efforts as well as acquisitions. In central Pennsylvania, recent additions have expanded specialized ophthalmology/retina care in Williamsport, and cancer care services in Lewisburg and Selinsgrove, providing the community with care in closer proximity to their homes.

Geisinger continues its evolution of specialty care in northeastern Pennsylvania with successful leadership recruitments in neurosciences (Brain and Spine Tumor Institute), surgical oncology, cardiovascular, general and minimally invasive surgery, trauma services (Level II), and orthopaedic trauma both at GWV and GCMC. The expansion of the Henry Cancer Center, and the addition of the Critical Care Building, the addition of a Level II NICU unit and the expansion of emergency services at GWV are evidence of Geisinger’s investment and commitment in the Northeastern Region to keep care in the community. The acquisition of Advanced Cardiology Specialists in Scranton expands cardiology services in the Northeastern Region and complements Clinic’s existing physician base. The primary care service line expanded its footprint with a newly renovated facility in Pittston to support growth. An alignment with a private group of primary care physicians practicing in Lackawanna and Wayne counties serves the greater Scranton market.

Clinic maintains a significant presence in the Western Region with physician offices in State College, Bellefonte, Lewistown and Philipsburg. Geisinger’s ambulatory care campuses, Grays Woods and Scenery Park, in the State College area serve as anchors of the Western Region for the System’s

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network of primary care and specialty providers, including an ambulatory surgical center hosting operating rooms and expanded procedural space. Clinic entered agreements with private orthopaedists and ophthalmologists to operate at the Grays Woods in keeping with Geisinger’s vision of providing the right care at the right place in the safest lowest cost environment as well as supporting community needs.

Clinic continues to focus on the delivery of high quality, cost efficient care to the population it serves. In collaboration with GHPs, innovation efforts have focused on expanding the number of ProvenCare initiatives, the expansion of the advanced medical home to both primary and specialty care, including employment of physicians dedicated to practicing within skilled nursing facilities at independent nursing homes working on innovations including transition of care. In addition, Clinic offers convenient, affordable healthcare for non-emergent medical services via CareWorks clinics located throughout northeastern and central Pennsylvania. Most recently, Clinic has expanded the use of telemedicine (technology enabled medical consultations) at both community hospitals and local physician offices through telestroke, tele-echo, teleconsults, “ask-a-doc”, as well as the development of the eICU capability at four hospitals.

Family Health Associates of Geisinger – Lewistown Hospital

Acquired in tandem with GLH, FHA operates its multi-specialty practice in Geisinger’s Western Region of Pennsylvania, predominately in the Lewistown service area of Mifflin, Juniata and Perry counties. It is complemented with approximately 24 providers and offers primary and specialty care in a community setting. The physicians are integrated into the larger Clinic practice and quality performance expectations are aligned with those of Clinic.

Geisinger Holy Spirit Medical Group

GHSMG’s 135 full-time equivalent (“FTE”) physician group, serves the South-Central Region of Pennsylvania and provides primary and specialty care in Dauphin, Cumberland and Perry counties. The practice is under development wherein programmatic growth is a primary focus attainable through aggressive recruitment and strategic acquisitions to aid demand for services in this market. Efforts within the group practice are to improve access to primary care as well as enhanced service excellence and employee engagement. Geisinger’s EHR was recently implemented at GHSMG allowing for further integration and service maximization for patients.

AtlantiCare Physicians Group

APG offers a full range of urgent, primary and specialty care services throughout the New Jersey Service Area. APG is comprised of approximately 280 FTE providers. The group’s plan to expand services is dependent upon successful recruitment and access to care, as well as providing a standardized consumer experience across the group practice.

RESEARCH

The Sigfried and Janet Weis Center for Research (the “Weis Center”) is a state-of-the-art basic science laboratory facility on the GMC campus whose primary mission is to conduct original and innovative research focusing on laboratory research and research training and supporting the clinical staff in their research programs. Staff and senior scientists, research scientists, and support personnel investigate a range of topics in cardiovascular biology, genomics, cancer and developmental biology, with a focus mainly on molecular and cellular mechanisms. The Weis Center also provides training in laboratory research to postdoctoral and clinical fellows, residents and students.

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The Henry Hood Center for Health Research, a facility located on the GMC campus, opened in March 2007. Its mission is to discover and validate efficient, accessible, and effective means of improving and protecting health, focusing on outcomes research, rural health policy, environmental health, EHR safety, and genomics. Research is conducted throughout Geisinger in both its dedicated research centers and institutes, as well as in its clinical departments and service lines. The major focus on research activity and leadership are research centers that serve as home to full time investigators in basic, translational, and health service research which provide facilities, sophisticated research equipment, and administrative support to foster innovative and collaborative research.

Geisinger has received national recognition for its work within its Genomic Medicine Institute, which partners with patients, healthcare providers and researchers worldwide to enhance the quality of life through research, education and clinical care innovation in genomic medicine. The institute conducts innovative research in genetics, genomics and family history to enhance the quality of life and improve healthcare value for patients.

GEISINGER HEALTH PLANS

Three companies comprise what is known as GHPs: GHP, a traditional HMO; GQO, a preferred provider organization (“PPO”) plan; and GIIC, which operates as a third-party administrator (“TPA”) and offers administrative-only services. All three companies are licensed by the Pennsylvania Department of Insurance and operate in central and northeastern Pennsylvania.

GHP has been accredited for quality by the National Committee for Quality Assurance (“NCQA”) since 1993. GHP’s HMO, PPO and Geisinger Gold’s HMO are among the highest-rated private and Medicare health plans in the nation according to NCQA’s Private and Medicare Health Insurance Plan Ratings 2016-2017. In addition, Geisinger Gold’s HMO received 4.5 out of 5 stars, rating among the top Medicare health plans for quality and performance by the Center for Medicare and Medicaid Services’ annual star ratings.

As part of an integrated health system, GHPs and the System’s Clinical Enterprise have an overlap of GHPs members who also access the System’s providers and facilities. Through this overlap, GHPs is able to channel experience, knowledge and funds to pursue projects with the System. This relationship allows GHPs and the System to collaborate to develop new innovative programs to provide better care and to quickly implement these innovations. This knowledge is then expanded to include all GHPs members and the System’s patients.

To improve the health of its members, GHPs provides disease management programs to coordinate care for those with chronic conditions, such as diabetes, congestive heart failure, osteoporosis, and asthma. These programs have attained national recognition by various employers, health management organizations and industry groups, and were the result of a collaboration of expertise between GHPs and providers in the System.

The ProvenCare program is another example where GHPs maximizes the resources of the System to provide innovative programs that are designed to improve members’ health and use healthcare resources more efficiently. ProvenCare uses a step-by-step protocol for specific medical procedures including coronary artery bypass grafts, hip and knee replacements and cataract surgery. Through an exclusive arrangement with the System, GHPs pays a flat fee for treatment and related care, regardless of readmissions and complications. Members get the care they need with fewer days in the hospital and fewer complications resulting in a lower cost per case.

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In addition to standard HMO and PPO options, GHPs also offers an innovative PPO plan option called “Smart Steps” that rewards members with lower out-of-pocket costs if they meet predetermined health criteria. GHP continues to diversify their product line, participating in Pennsylvania’s Children’s Health Insurance Program (“CHIP”) and providing Marketplace coverage options for small businesses and individuals through HealthCare.gov.

GHPs was approved as a payor for the Medicaid managed care program, known as HealthChoices, for the New East Zone (as defined by Medicaid) in fiscal year 2013.

In addition to local service areas, GHPs brings innovation, quality, and better outcomes to organizations, businesses, and individuals outside of Pennsylvania. These organizations are looking to GHPs to share its knowledge of innovation, effectively manage medical costs and improve outcomes. Currently, these locations include Maine and Delaware. In Maine, GIIC is licensed as a TPA and offers services to the employees of Eastern Maine Healthcare System. In Delaware, GIIC is licensed as a TPA and offers services to Christiana Care Health System. With the addition of out-of-state markets, membership continues to grow.

A historical summary of membership for GHPs is outlined in the following table:

Summary of Geisinger Health Plans Membership

June 30, December 31, Category 2014 2015 2016 2015 2016 Commercial 149,906 133,893 132,978 125,321 129,628 TPA 111,878 121,383 143,415 122,768 145,094 CHIP 9,341 8,504 10,072 9,283 11,574 Medicaid 126,538 158,226 175,597 167,753 179,920 Medicare 80,838 87,884 89,456 88,618 91,247 Total 478,501 509,890 551,518 513,743 557,463

The principal operational objectives of GHPs are to conduct business in a manner consistent with sound insurance practices, to achieve operating results to support its mission, to be market competitive and to comply with federal and state regulations. GHPs has implemented sales and underwriting processes to support this strategy. Premium pricing decisions are based upon analyses of market conditions, competitor analysis, demographic information, group size, actual experience of the group, and to the extent permissible, medical questionnaires. GHPs group businesses now include more small businesses than larger ones due to competitive pressures and changes in the economy. GHPs caters to small businesses with competitive pricing and a high level of service, with a dedicated sales and service unit for small business owners.

Recognizing that provider and member satisfaction, as well as competitive rates, are crucial to long- term success, GHPs has developed and implemented a customer service approach with high performance standards. These standards focus on GHPs capabilities of enrolling members, answering the members’ questions via phone, and processing claims for the provision of healthcare services within defined parameters. An additional component of GHPs service capability is a focus on ensuring access to quality healthcare services through a network of providers much broader than those employed by Geisinger. These goals are maintained by provider network representatives and the use of physician medical directors and care management personnel. GHPs provides these services to members and providers within the context of managing overall administrative expenses consistent with industry norms.

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GHPs has also achieved national prominence with new models of care delivery that enhance quality of care and reduce cost. Programs such as ProvenHealth Navigator, a patient-centered, advanced medical home model, have attracted the interest of health plans and health systems across the country. GHPs uses this program to maximize member health and value.

GHPs continues to enhance the portfolio of products in response to market demand. In addition, GHPs is committed to remaining market competitive by effectively managing resources and maintaining customer satisfaction.

GHPs participates in the federally facilitated marketplace as well. A full range of plans for individuals and small businesses is offered by GHPs and available during the open enrollment period. Members have obtained health insurance coverage from either the federally facilitated marketplace or through GHPs private marketplace.

EDUCATION

Geisinger has a long-standing commitment to medical education. The System’s emphasis on academic excellence plays a considerable role in helping to meet the state and national challenge of ensuring an appropriate supply of well-trained medical providers to care for the anticipated increase in patient demand in the coming years.

Geisinger Commonwealth School of Medicine

On January 1, 2017, The Commonwealth Medical College (“TCMC”), now GCSOM, became a member of the System. GCSOM educates aspiring physicians and scientists using a community-based, patient-centered, inter-professional and evidence-based model of education that is committed to inclusion, promoting discovery and using innovative techniques. The goals for GCSOM are to strengthen the physician workforce and improve community health.

Founded by the community members in 2008, the school admitted its first class in August 2009 and graduated its first medical doctor (“MD”) class in May 2013. In addition to the MD program, GCSOM also offers a master of biomedical sciences degree with programs in Scranton and Doylestown, PA.

GCSOM is known for its flipped classrooms, an instructional and blended learning strategy that reverses the traditional learning environment by delivering instructional content, often online, outside of the classroom. It is an active-learning environment, with the use of case-based, small-group, team-based and self-directed learning methods. In addition, simulation and early clinical experiences are a core component of the curriculum. The first two years of a medical student’s learning occurs in GCSOM’s Sciences Building located in Scranton, PA.

GCSOM has a community focus. Students are required to complete community health research projects, as well as to follow a family from the student’s first year of medical school through graduation. In addition, each student is required to complete 100 hours of community service throughout their four years. GCSOM is further committed to the community through additional programs and partnerships it has with community organizations. These include pipeline programs for disadvantaged high school and college students known as REACH-HEI, the Behavioral Health Initiative which works with more than 40 community partners, and educational outreach programs to lay and healthcare communities.

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GCSOM uses a distributed clinical educational model whereby students are assigned to regional campuses in their third and fourth years. This is accomplished with the support of many community faculty members who voluntarily embrace teaching GCSOM students in various clinical settings throughout the region. These regional campuses located in Scranton, Wilkes-Barre, Williamsport and Sayre. There is a strong ambulatory focus in the training during these years.

GCSOM was the first medical school with a Longitudinal Integrated Clerkship for the entire class. This methodology emphasizes the relationships with patients, course of illness as well as with preceptors and mentors.

GSCOM’s MD-degree granting program is accredited by the Liaison Committee for Medical Education. GCSOM earned full accreditation in 2014. GSCOM is also accredited institutionally by Middle States Commission on Higher Education and earned full Middle States accreditation in 2014.

The integration of GCSOM into Geisinger gives the medical college responsibility for 45 residency and fellowship programs, as well as for other health-profession training programs, library functions, simulation training and other academic functions. It thereby integrates all training programs and educational partnerships that both Geisinger and GCSOM have developed under a single structure, allowing for the development and implementation of a range of academic degrees intended to strengthen and align the culture of healthcare delivery, inquiry and medical education.

Other Education

Geisinger additionally serves as a clinical campus of Temple University School of Medicine and The Philadelphia College of Osteopathic Medicine. Geisinger’s variety of major specialties and clinical electives, integrated delivery system, emphasis on health information technology and innovation, along with its expert physicians and researchers combine to offer a distinctive and well-rounded training experience.

Geisinger sponsors graduate medical education (“GME”) programs at the GMC, GWV, and GCMC campuses with new program growth planned for GBH and GLH. All Geisinger’s GME programs are fully accredited. Growth in graduate training strategically aligns with System and regional needs for health care providers. Recent program growth includes clinical informatics, psychiatry, anesthesia, neurological surgery, and pathology. Additional programs are planned in physical medicine and rehabilitation and rural family medicine. A significant percentage of graduates remain within the System’s service area, realizing the primary mission of Geisinger’s GME program to enhance the Geisinger family and region with professionals focused on the patient experience. Geisinger residents and fellows can take advantage of System resources to gain experience in care coordination, patient safety, quality improvement, system science, research and inter-professional team-based education to graduate practice-ready to promote high value, cost-conscious, patient-centered care.

In addition to training physicians, Geisinger recognizes the important roles played by nurses, certified registered nurse practitioners, physician assistants, pharmacists and others in the overall team approach to quality patient care. To respond to the increasing demands facing the healthcare workforce, the health system offers various allied health programs including the School of Cardiovascular Technology, Dietetic Internship Program, School of Spiritual Care, Physician Assistant Education (including a physician assistant surgical residency), School of Radiologic Technology and School of Phlebotomy. Educational opportunities are also offered for social workers, athletic trainers, cardiac catheterization technicians, counselors, psychologists and occupational therapists.

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When educating healthcare workers and students about teamwork and patient safety, Geisinger has increasingly used simulation to provide a safe environment for learners to gain competency before using skills on patients. Geisinger has high-fidelity human simulators, computerized manikins that simulate real- life scenarios, and surgical trainers in Danville and Wilkes-Barre. In addition, the health system has mobile simulators that are used in facilities across the region. In 2013, Geisinger established the Geisinger Education and Medical Simulation Center in Danville. Healthcare providers and students including physicians, nurses, respiratory therapists, pharmacists, and emergency medical services providers from the community are exposed to simulation-based training.

As a participating nursing education partner with Bloomsburg University and other local colleges, universities and technical schools, Geisinger provides educator and preceptor partnerships, enhancing the practice of nursing throughout the health system and the region. Available are an associate degree registered nurse program, nursing doctorate program and a certified registered nurse anesthetist program.

CLINCAL ENTERPRISE SERVICE AREA

Geisinger has seven acute-care hospitals with multiple campuses as described in “INTRODUCTION TO GEISINGER HEALTH SYSTEM - Overview”. Within Pennsylvania1, Geisinger’s Clinical Enterprise serves 38 counties (GHPs services 43 counties and together Geisinger services 45 counties) through the inpatient facilities and 138 outpatient clinic locations comprised of 79 primary care sites and 59 specialty care sites. In Pennsylvania, Geisinger employs 1,465 physician providers across the full spectrum of medical specialties. The System’s New Jersey operation serves seven counties through 78 locations, and employs 232 physician providers across the full spectrum of medical specialties.

Geisinger Clinical Enterprise Regional Demographics2

Geisinger divides its Clinical Enterprise service area into five regions. The approximate 2016 population in each region was distributed as follows:

Central Region, PA 615,450 Northeastern Region, PA 992,822 South-Central Region, PA 1,401,385 Western Region, PA 760,963 New Jersey Service Area 430,760

GHPs defines the service area slightly differently, including five regions as discussed in the GHPs section herein.

Central Region, PA

The Central Region covers ten Pennsylvania counties with a total population of 615,450. Total population is projected to remain relatively flat over the next five years. The 65 and over age group is

1 Pennsylvania Clinic locations included unique addresses where patients can be scheduled for outpatient evaluation services with Geisinger physician group practices at a frequency of ten or more days a month. Sites operating as of 12/31/2016. Employed physician (both PA & NJ) headcount as of 12/31/2016. 2 Sources: Population and demographic forecasts are obtained from Truven Healthcare Analytics for calendar year 2016. Unemployment data is obtained from the Bureau of Labor Statistics for calendar year 2015. Pennsylvania Inpatient discharge data is obtained from the Pennsylvania Health Care Cost Containment Council for fiscal year 2016. AtlantiCare Inpatient discharge data is based on 2015 data from Truven Health Analytics.

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19.2% of the total population, which is greater than the state (17.4%) and national (15.1%) percentages. The 65 and over age group is projected to experience the largest five-year population growth rate at 11.7%. Average household income is $62,282. The 2015 annual average unemployment rate is 5.7%, which is higher than the state and national average of 5.3%. Geisinger inpatient facilities in the Central Region include GMC, GBH and GSACH. There are 12 non-Geisinger acute-care hospitals in this region. Geisinger captured 38.3% of the inpatient hospital discharges that originated from this region during fiscal year 2016, which accounted for 26,412 discharges.

Northeastern Region, PA

The Northeastern Region covers nine Pennsylvania counties with a total population of 992,822. Total population is projected to decline 1.1% over the next five years. The 65 and over age group is 19.4% of the total population, which is greater than the state (17.4%) and national (15.1%) percentages. The 65 and over age group is projected to experience the largest five-year population growth rate at 11.6%. Average household income is $64,898. The 2015 annual average unemployment rate is 6.0%, which is higher than the state and national average of 5.3%. GWV, GSWB, and GCMC are all located in the Northeastern Region. There are 16 non-Geisinger acute-care hospitals in this region. Geisinger captured 28.0% of the inpatient hospital discharges that originated from this region during fiscal year 2016, which accounted for 31,214 discharges.

South-Central Region, PA

The South-Central Region covers seven Pennsylvania counties with a total population of 1,401,385. Total population is projected to increase 1.8% over the next five years. The 65 and over age group is 17.3% of the total population, which is in line with the state (17.4%) but greater than the national (15.1%) percentages. The 65 and over age group is projected to experience the largest five-year population growth rate at 15.3%. Average household income is $74,885. The 2015 annual average unemployment rate is 4.4%, which is lower than the state and national average of 5.3%. GHSH is the only Geisinger inpatient facility in the South-Central Region. There are 13 non-Geisinger acute-care hospitals and 2 non-Geisinger specialty hospitals in this region. Geisinger captured 7.5% of the inpatient hospital discharges that originated from this region during fiscal year 2016, which accounted for 10,393 discharges.

Western Region, PA

The Western Region covers twelve Pennsylvania counties with a total population of 760,963. Total population is projected to decline 0.5% over the next five years. The 65 and over age group is 18.8% of the total population, which is greater than the state (17.4%) and national (15.1%) percentages. The 65 and over age group is projected to experience the largest five-year population growth rate at 10.8%. Average household income is $60,708. The 2015 annual average unemployment rate is 5.4%, which is generally in line with the state and national average of 5.3%. GLH is the only Geisinger inpatient facility in the Western Region. There are 16 non-Geisinger acute-care hospitals in this region. Geisinger captured 9.4% of the inpatient hospital discharges that originated from this region during fiscal year 2016, which accounted for 7,975 discharges.

New Jersey Service Area

The AtlantiCare primary service area (“PSA”) and regional service area (“RSA”) covers three New Jersey counties with a total population of 430,760. Total population in the PSA is expected to increase slightly by 0.1% over the next five years, while the population in its RSA is expected to increase 0.3% over the next five years. Currently, the 65 and over age group comprises 14% of the PSA, falling below the state (15.3%) and national (15.1%) percentages. The 65 and over age group in the RSA, at almost 24%, exceeds

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both state and national percentages. This age group in both PSA and RSA is expected to increase significantly over future years. Average household income in the PSA is $54,208 and RSA is $51,941. The 2015 annual average unemployment rate is 7.5%1, which is higher than the state and national average of 5.3%. ARMC has two inpatient facilities in the service area, one located in Atlantic City, NJ and another located in Pomona, NJ. ARMC operates the only acute-care hospitals in the PSA. There are 3 non-Geisinger acute-care hospitals in the RSA. AtlantiCare captures 62.6% of inpatient hospital discharges from the PSA and 16.7% from the RSA, which accounted for 25,067 discharges.

The following Service Area map indicates the locations of the clinical enterprise facilities throughout the various counties of Pennsylvania and New Jersey.

Geisinger Health System Service Area Map

Competition

Given the breadth of services offered by the System and the geographic areas served, there is no single facility or health system that is a principal competitor. Rather, the System faces competition on several fronts: other state-wide and regional healthcare systems in terms of competition for admissions at

1 Unemployment data is based on Atlantic county only, however, AtlantiCare service area represents Atlantic, Cape May and Ocean counties.

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the System’s acute-care facilities, other physician group practices in terms of recruitment of physicians, and other health plans in terms of covered lives.

EMPLOYEES

Geisinger employs 30,055 people, of which 23,868 are full-time employees and 6,187 are part-time or flex-time employees. The average length of service with the System is approximately ten years.

The System employs 1,697 staff physicians who work across the entire System. Physician voluntary turnover was 4.8% (equal to the national average physician turnover based on the PwC Saratoga benchmark) for the period June 30, 2015 to June 30, 2016. During fiscal year 2016, the System hired 171 new physicians and 14 executives. While there are certain physician specialties which are considered hard- to-fill by most providers (such as primary care, urology, endocrinology, maternal fetal medicine and critical care), Geisinger has generally been able to hire in those specialties at satisfactory staffing levels. Candidates for these hard-to-recruit positions have frequently cited the appeal of Geisinger’s charitable mission, teaching and research opportunities, innovation, rural setting, growing national prominence, and use of the EHR as their reason for joining the System.

Geisinger remains predominantly union-free with only 600 nurses at the GWV main campus, 59 employees at the GSWB campus, and 195 employees at the GLH campus represented by the Service Employees International Union. In addition, 408 nurses at the GCMC campus are represented by the Pennsylvania Association of Staff Nurses and Allied Professionals Union and 152 employees at the GLH campus are represented by the United Steel Workers Union. The remaining Geisinger employees are not represented by a union. Relations with System employees are considered by System management to be very good.

The System regularly compares employee benefits with those of other employers in its regional marketplace and nationally to assure that its benefits are competitive. The System provides benefits to employees including health insurance, retirement plans, prescription drugs, dental, life insurance, long-term disability, travel accident, personal paid time off, holidays, tuition reimbursement and medical and dependent flex spending accounts. The System has emphasized employee wellness to improve the health of our employees and reduce expense.

Geisinger offers employees defined contribution retirement plans with employer and employee contributions dependent upon the entity. Additionally, there are three defined benefit pension plans that are frozen to new accruals and participants and one plan frozen only to new participants. None of the defined benefit pension plans are under benefit restriction. Funding is required each year based on plan valuations, investment performance and plan liabilities.

Geisinger believes in a fair and equitable compensation program for its employees. The System’s Total Rewards Program compensates employees based on regularly reviewed survey data to provide compensation at competitive rates and to recognize employee performance and contributions which link an individual to team and organizational goals. The System believes in providing superior pay for superior performance. Geisinger has incentive programs that range from individual incentive plans to group and team incentives.

LITIGATION

Geisinger has knowledge of certain pending suits against certain of its entities that have arisen in the ordinary course of business. In the opinion of Geisinger management, based upon the advice of counsel, even if all such pending suits were decided or settled unfavorably to such entities, the judgments or amounts of settlement would either be covered by applicable insurance or indemnity agreements or would have no material adverse effect on Geisinger’s financial condition.

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FINANCIAL AND OPERATIONAL INFORMATION

Utilization Statistics1

The following tables summarize various statistical indicators of patient activity for Geisinger for the fiscal years ended June 30, 2014 through 2016, and the six months ended December 31, 2015 and 2016.

Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 2015 2016

Staffed Beds 1,192 1,472 2,027 2,047 2,055

Admissions 61,217 72,403 97,323 45,008 52,458

Observations/23-Hour Stays 18,051 23,331 27,397 12,333 14,985

Patient Service Days 289,880 340,040 451,629 209,414 243,003

Average Length of Stay (days) 4.7 4.7 4.6 4.6 4.6

Percent of Occupancy Based on 69.0% 66.4% 65.2% 63.9% 64.3% Staffed Beds

Emergency Room Visits 178,010 213,355 307,797 139,079 173,227

Clinic Outpatient Visits 2,511,268 2,742,131 3,193,784 1,477,937 1,653,268

Managed Care Membership at 478,501 509,890 551,518 513,743 557,463 end of period

ACA Membership at end of 31,322 39,493 44,939 34,259 42,026 period

1 All statistics exclude nursery and skilled nursing but include NICU activity.

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Unique Population Managed

Unique population managed is the number of different people who have received care from a Geisinger hospital, physician or other provider within the trailing twelve-month period plus the membership of GHPs at period end less the overlap between the two groups. Patients with multiple interactions with the Clinical Enterprise and patients who are also GHPs members are counted only once.

June 30, December 31, 2014 2015 2016 2015 2016

Patients 608,884 752,705 978,160 881,483 1,004,662

Members 478,501 509,890 551,518 513,743 557,463

Overlap of Patients and Members (214,191) (235,937) (256,463) (239,973) (260,279)

Unique Population Managed 873,194 1,026,658 1,273,215 1,155,253 1,301,846

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Payor Mix

Payments are made to affiliates of Geisinger on behalf of certain patients by GHPs, various Blue Cross Plans and other commercial insurance carriers, Medicaid, and the federal government through fiscal intermediaries under the Medicare program. The following table shows the percentage breakdown of sources of gross patient service revenue by payor.

Payor Mix Statistics

Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 2015 2016 GHPs: Commercial/TPA 12.8% 11.6% 9.3% 9.7% 9.0% Medicare Advantage 12.9% 12.5% 10.4% 10.8% 10.1% Medicaid 8.5% 8.5% 8.1% 8.4% 8.1% GHPs subtotal 34.2% 32.6% 27.8% 28.9% 27.2%

Medicare1 29.6% 31.3% 33.1% 33.1% 33.1% Medicaid1 7.6% 7.1% 9.2% 8.6% 9.7% Self-Pay 1.4% 1.2% 1.7% 1.3% 1.7% Other 1.9% 2.4% 4.2% 3.7% 4.3%

Commercial: Highmark Blue Cross/Blue Shield 8.0% 8.5% 6.6% 7.1% 8.9% Capital Blue Cross 3.5% 3.4% 2.9% 3.0% 2.8% Blue Cross of Northeastern PA 6.1% 5.6% 4.5% 5.0% 1.3% Blue Cross Horizon 0.0% 0.0% 2.6% 1.9% 3.0% Health America 0.8% 0.9% 1.0% 1.1% 0.9% Other Commercial 6.9% 7.0% 6.4% 6.3% 7.1% Commercial subtotal 25.3% 25.4% 24.0% 24.4% 24.0% Fee-for-service subtotal 65.8% 67.4% 72.2% 71.1% 72.8%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

1 Includes private insurance companies’ services, other than GHP, under these programs.

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Summary of Financial Information

The following Consolidated Statements of Operations and Changes in Net Assets, Balance Sheets, and Cash Flows for each of the years ended June 30, 2014 through 2016 have been derived from the respective audited consolidated financial statements for those years. The Consolidated Statements of Operations and Changes in Net Assets, Balance Sheets, and Cash Flows as of December 31, 2015 and 2016 and for the six months then ended, have been derived from unaudited consolidated financial statements and include all adjustments, consisting of normal recurring accruals, which management considers necessary for a fair presentation of the financial position and the results of operations for these periods. Information as of and for the six months ending December 31, 2015 and 2016 have been prepared on substantially the same basis as the financial information contained in the audited consolidated financial statement for the years ended June 30, 2014 through 2016. Operating results for the six months ended December 31, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 30, 2017. The data on the following pages should be read in conjunction with the audited consolidated financial statements and related notes included in Appendix B of this Official Statement.

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Geisinger Health System Consolidated Statements of Operations and Changes in Net Assets (Thousands of Dollars)

Unaudited Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 2015 2016 Unrestricted net assets Revenue: Net patient service revenue $1,852,286 $2,253,410 $3,022,451 $1,401,342 $1,698,245 Provision for bad debts (53,703) (50,066) (49,413) (25,055) (24,708) Net patient service revenue less Provision for bad debts 1,798,583 2,203,344 2,973,038 1,376,287 1,673,537 Premium revenue 2,036,813 2,196,059 2,357,091 1,110,226 1,305,423 Other revenue 142,530 165,236 212,811 101,529 113,974 $3,977,926 $4,564,639 $5,542,940 $2,588,042 $3,092,934 Expenses: Salaries and benefits 1,598,115 1,802,867 2,347,583 1,079,999 1,316,954 Medical Claims 1,140,379 1,262,945 1,313,582 628,757 746,246 Supplies and other 980,022 1,188,355 1,514,315 712,851 869,153 Depreciation and amortization 122,577 150,670 199,954 95,710 108,651 $3,841,093 $4,404,837 $5,375,434 $2,517,317 $3,041,004 Operating income $ 136,833 $ 159,802 $ 167,506 $ 70,725 $ 51,930

Investing and financing activities: Net realized investment earnings (losses) $ 154,325 $ 164,114 $ 190,923 $ 158,184 ($ 12,866) Net unrealized investment earnings (losses) 146,786 (170,134) (194,264) (265,534) 99,725 Interest expense (26,304) (32,748) (39,638) (20,053) (20,743) Unrealized gain (loss) on derivatives 869 (728) (5,716) (1,754)7,691 Contributions from acquisitions 16,026 74,704 555,021 546,466 3,995 Loss on extinguishment of debt 0 0 (6,285) (6,307) 0 Gain from investing and financing activities $ 291,702 $ 35,208 $ 500,041 $ 411,002 $ 77,802 Nonoperating losses, net ($ 18) ($ 212) ($ 210) ($ 33) ($ 32) Excess of revenue and gains over expenses and losses $ 428,517 $ 194,798 $ 667,337 $ 481,694 $ 129,700

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Geisinger Health System Consolidated Statements of Operations and Changes in Net Assets (Continued) (Thousands of Dollars)

Unaudited Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 2015 2016 Other changes in unrestricted net assets: Consolidation of controlled entities $ 30,604 $ 0 $ 0 $ 0 $ 0 Unrealized gain (loss) on derivatives (255) (3,593) (10,009) (2,142) 9,388 Net assets released from restriction, capital purchases 2,554 2,183 3,035 1,126 2,617 Pension liability adjustment 3,681 (13,973) (72,706) 0 0 Net asset transfers for underwater endowments 10 (1) (48) (202) (39) Contributions from noncontrolling interest, net of distributions (1,072) 14,120 (478) (1,419) 102 Changes in equity-based compensation 0 735 637 205 161 Increase in unrestricted net assets $ 464,039 $ 194,269 $ 587,768 $ 479,262 $ 141,929

Changes in restricted net assets: Donor contributions, net of uncollectibles 7,466 10,551 9,934 5,711 5,360 Contributions from acquisitions 726 7,255 13,351 13,351 0 Net investment gains (losses) 12,472 (386) (2,550) (4,450) 2,703 Net asset transfers for underwater endowments (10) 1 48 202 39 Net assets released from restrictions, fund operations (5,075) (5,478) (11,434) (4,846) (7,443) Net assets released from restriction, capital purchases (2,554) (2,183) (3,035) (1,126) (2,617) Increase (decrease) in restricted net assets $ 13,025 $ 9,760 $ 6,314 $ 8,842 ($ 1,958) Increase in net assets 477,064 204,029 594,082 488,104 139,971 Net assets at beginning of year 2,043,690 2,520,754 2,724,783 2,724,783 3,318,865 Net assets at end of year $2,520,754 $2,724,783 $3,318,865 $3,212,887 $3,458,836

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Geisinger Health System Consolidated Balance Sheets (Thousands of Dollars)

Unaudited Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 20151 2016 ASSETS Current Assets: Cash and cash equivalents $ 78,512 $ 116,531 $ 215,622 $ 162,598 $ 261,141 Investments 658,653 807,046 964,542 941,413 777,343 Assets limited as to use 6,360 6,559 14,998 20,568 19,771 Accounts receivable, net 391,382 541,827 612,280 498,472 468,733 Inventories and other 79,948 72,121 142,934 138,316 160,366 Total current assets $1,214,855 $1,544,084 $1,950,376 $1,761,367 $1,687,354

Long-term investments 1,972,766 1,982,664 2,350,157 2,297,036 2,566,389 Assets limited as to use: By Board 26,456 25,405 24,206 23,755 24,631 Under debt agreements 14,920 1,898 8,542 13,822 2,364 Other – externally designated 93,352 102,166 118,305 103,966 107,821 Total assets limited as to use, noncurrent $ 134,728 $ 129,469 $ 151,053 $ 141,543 $ 134,816

Property and equipment, net 1,128,094 1,348,268 1,895,368 1,825,522 1,918,411 Other assets 153,054 258,910 278,333 249,868 271,101 Assets held in trust 31,084 32,255 30,880 30,947 32,073 Total assets $4,634,581 $5,295,650 $6,656,167 $6,306,283 $6,610,144 LIABILITIES AND NET ASSETS Current Liabilities: Current installments of long-term debt $ 5,103 $ 9,957 $ 18,249 $ 32,387 $ 21,494 Estimated third-party payor settlements 130,214 141,680 198,931 211,648 155,197 Accounts payable 85,112 114,352 177,220 75,692 78,052 Medical claims payable 112,892 176,512 148,547 160,787 172,069 Accrued expenses and other 403,845 495,551 633,073 582,751 611,671 Total current liabilities $ 737,166 $ 938,052 $1,176,020 $1,063,265 $1,038,483 Long-term debt, net of current installments 1,079,451 1,249,753 1,504,660 1,513,823 1,484,676 Other liabilities and contingencies 297,210 383,062 656,622 516,308 628,149 Total liabilities $2,113,827 $2,570,867 $3,337,302 $3,093,396 $3,151,308 Net assets: Unrestricted 2,386,371 2,575,809 3,162,711 3,055,588 3,305,787 Unrestricted – non-controlling interest 9,039 13,870 14,736 13,353 13,589 Temporarily and permanently restricted 125,344 135,104 141,418 143,946 139,460 Total net assets $2,520,754 $2,724,783 $3,318,865 $3,212,887 $3,458,836 Total liabilities and net assets $4,634,581 $5,295,650 $6,656,167 $6,306,283 $6,610,144

1 Certain amounts and balances in the consolidated financial statements have been reclassified to conform to the 2016 presentation.

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Geisinger Health System Consolidated Statements of Cash Flow (Thousands of Dollars) Unaudited Fiscal Years Ended Six Months Ended June 30, December 31, 20141 20151 2016 20151 2016 Cash flows from operating activities Increase in net assets $477,064 $204,029 $594,082 $488,104 $139,971 Change in net assets attributable to noncontrolling interest (9,039) (4,831) (866) 517 1,147 Increase in net assets attributable to Geisinger $468,025 $199,198 $593,216 $488,621 $141,118 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 122,577 150,670 199,954 95,710 108,651 Provision for bad debts 53,847 50,547 49,571 25,127 24,762 Unrealized (gain) loss on derivatives (614) 4,321 15,725 3,896 (17,079) Net realized (gain) loss on investments (107,487) (115,143) (119,237) (110,284) 37,197 Net unrealized (gain) loss on investments (154,318) 175,553 200,702 273,349 (103,333) Contributions from acquisition, net of cash received (5,945) (66,135) (520,114) (511,559) 0 Restricted contributions (19,938) (10,234) (9,934) (1,261) (8,063) Noncontrolling interest 10,111 (9,289) 1,344 902 (1,249) Pension liability adjustment (3,681) 13,973 72,706 0 0 Net change in working capital and other (99,801) (8,779) (73,412) (59,976) (37,841) Goodwill and other (28,434) (3,587) 3,446 (9,501) (6,524) Net cash provided by operating activities $234,342 $381,095 $413,967 $195,024 $137,639 Cash flows from investing activities Additions to property and equipment, net (272,236) (228,026) (284,319) (118,172) (131,018) (Purchases) sales of investments, net (246,763) (137,365) (24,619) (26,082) 34,181 Sales of assets limited as to use, net 27,291 5,461 3,397 3,450 14,386 Cash paid for acquisitions 0 (61,500) 0 0 0 Net cash used in investing activities ($491,708) ($421,430) ($305,541) ($140,804) ($82,451) Cash flows from financing activities Proceeds from issuance of debt 209,400 185,740 352,783 352,783 0 Repayment of debt (66,318) (131,740) (371,574) (360,778) (17,834) Net contribution (distribution) from noncontrolling interest (1,072) 14,120 (478) (1,419) 102 Proceeds from restricted contributions 19,938 10,234 9,934 1,261 8,063 Net cash provided by (used in) financing $ 161,948 $ 78,354 ($ 9,335) ($ 8,153) ($ 9,669) activities Increase (decrease) in cash and cash ($ 95,418) $ 38,019 $ 99,091 $ 46,067 $ 45,519 equivalents Cash and cash equivalents at beginning of 173,930 78,512 116,531 116,531 215,622 period Cash and cash equivalents at the end of period $ 78,512 $116,531 $ 215,622 $162,598 $261,141

1 Certain amounts and balances in the consolidated financial statements have been reclassified to conform to the 2016 presentation.

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Management’s Discussion and Analysis

Geisinger’s operational strategies, described herein under the captions “MAJOR BUSINESS COMPONENTS” and “GEISINGER HEALTH PLANS,” have resulted in years of strong operations and growth. Market share gains are evident in significant growth of patients, members, admissions and outpatient visits. Geisinger has produced multiple years of revenue growth in excess of 10.0% per year including significant growth in both premium revenue and net patient service revenue. The balance sheet remains liquid with days’ cash on hand of 248.8 days and moderately leveraged with debt to capitalization of 32.5%, both as of June 30, 2016.

Consolidated Statements of Operations – Fiscal Years Ended June 30, 2016 and 2015

During fiscal year 2016, Geisinger maintained significant profitability by recording a $167.5 million operating profit, or a 3.0% return from operations, both measured before interest expense. For additional information on operating margin see the table entitled “Operating Margin (Excluding Interest Expense) and Operating Cash Flow” herein. Patients with a Geisinger clinical encounter in the past twelve months rose 30.0%, inpatient admissions rose by 34.4% and Clinic outpatient visits grew 16.5%, all when comparing fiscal year 2016 with fiscal year 2015. Admissions for hospitals not acquired in the two years ended June 30, 2016 rose 2.6%.

For the fiscal year ended June 30, 2016, net revenue of $5.5 billion was recorded. This represents an increase of 21.4% over the prior fiscal year. This growth is attributable to an increase in net patient service revenue less provision for bad debts of 34.9%, including acquisitions, and an increase in premium revenue of 7.3%, both when compared with the year-earlier period. Net patient service revenue benefited from successful strategies to grow high-acuity, clinical market share.

Additional information regarding the effect of the AtlantiCare acquisition on System financial statements is available in Appendix B – “AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GEISINGER HEALTH SYSTEM FOR THE YEARS ENDED JUNE 30, 2016 AND 2015” under footnote 3 – “Acquisitions.”

GHPs performed profitably. For the year ended June 30, 2016, membership increased by 8.2% when compared to the year-earlier period. During March 2013, GHPs began participation in Pennsylvania’s Medicaid managed care program in the New East Zone, achieving an enrollment of over 175,000 Medicaid members as of June 30, 2016. GHPs used innovative care management processes and appropriate underwriting standards to accomplish strong financial performance. GHPs’ medical expense ratio was 87.3% for the fiscal year ended June 30, 2016, including expenses paid to Geisinger clinicians and clinical facilities.

Unique population managed increased by 24.0% from June 30, 2015 to June 30, 2016, see the table “Unique Population Managed” herein. As payments for care become increasingly based on quality and performance, management believes measurements such as unique population managed better measures Geisinger’s impact on operating performance than traditional measures, such as admissions and clinic visits.

Investing and Financing Activities

During fiscal year 2016, net investment earnings were a loss of $3.3 million and were comprised of $190.9 million of net realized investment earnings and $194.3 million of net unrealized investment losses. Geisinger’s significant investment assets performed similarly to broad market indices to which the

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assets were allocated. The investment portfolio was prudently managed with an allocation to cash and fixed income securities of 43.5% at June 30, 2016.

External, professional investment management firms manage all Geisinger’s investment assets. The Finance Committee of the Boards of Directors and Geisinger staff are assisted with investment decisions by two professional investment-consulting firms. For additional information on investments, see the table entitled “Cash, Investments and Assets Limited as to Use” herein.

Excess of Revenue over Expenses

Geisinger achieved an excess of revenue and gains over expenses and losses of $667.3 million and $194.8 million for the fiscal years ended June 30, 2016 and 2015, respectively.

Excess revenue calculated before net unrealized investment and derivative activity, loss on extinguishment of debt and contributions from acquisitions, known as adjusted excess revenue, was $318.6 million and $291.0 million for fiscal years 2016 and 2015, respectively. This represents an adjusted excess margin percentage of 5.6% and 6.2% for fiscal years 2016 and 2015, respectively. For details of these calculations, see the table titled “Adjusted Excess Revenue” herein.

Cash Flow

Earnings from operations, net before depreciation and amortization, known as operating cash flow, was $367.5 million and $310.5 million for the fiscal years 2016 and 2015, respectively. For details of these calculations, see the table titled “Operating Cash Flow” herein.

Moderate debt service requirements and significant cash flows from operations produced a debt service coverage ratio of 11.3 times and 12.5 times for fiscal years 2016 and 2015, respectively. Geisinger maintained significant liquidity and moderate leverage, while reinvesting $284.3 million and $228.0 million of capital expenditures into core business operations during fiscal years 2016 and 2015, respectively.

Balance Sheet

The balance sheet remained strong with total assets of $6.7 billion and $5.3 billion at June 30, 2016 and 2015, respectively. Assets were comprised primarily of cash and investments totaling $3.7 billion and $3.0 billion at June 30, 2016 and 2015, respectively. Liquidity benefited from retention of profits and prompt collection of patient services receivables with days in patient receivables of 28.0 days as of December 31, 2016. The unrestricted portion of cash and investments was $3.6 billion at December 31, 2016. Unrestricted cash and investments were 2.3 times debt as of both June 30, 2016 and June 30, 2015. Leverage remained moderate, with a ratio of debt to total capitalization of 32.5% and debt to cash flow of 2.9 times as of June 30, 2016.

The unrestricted portion of cash and investments was $3.6 billion and $2.9 billion at June 30, 2016 and 2015, respectively. Geisinger had 248.8 days’ cash on hand and 249.6 days’ cash on hand as of June 30, 2016 and 2015, respectively. Geisinger’s strategic financial management plans call for the maintenance of sufficient liquidity to endure multiple, simultaneous financial shocks. Geisinger’s limited exposure to defined benefit retirement programs comes from acquisition of affiliates with plans that are now frozen to new participants and have a net liability of $219.4 million at June 30, 2016. For additional information on unrestricted cash and investments, see the table entitled “Liquidity” herein. Investments in property and equipment have produced a low average age of plant of 5.8 years as of June 30, 2016.

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As of June 30, 2016 and December 31, 2016, Geisinger had $1.5 billion of outstanding debt, including bonds, notes and capital leases. For additional information on Geisinger’s capital structure, see the tables entitled “Capitalization,” “Long-Term Debt,” and “Debt and Liquidity Facilities” herein.

Variable rate demand bonds (“VRDBs”) totaling $342.3 million as of December 31, 2016, issued on Geisinger’s behalf, continue to experience favorable interest rate resets in daily remarketing activity when compared to the Securities Industry and Financial Markets Association Municipal Swap Index (“SIFMA”). Geisinger’s VRDBs were never purchased by draws on standby bond purchase agreements (“SBPAs”) or letters of credit used to provide liquidity or credit support for the bonds. Risk from the put feature on Geisinger’s VRDBs’ was offset by SBPAs and unrestricted cash and investments available for liquidation within one month of $3.5 billion or 10.3 times the outstanding principal amount of VRDBs as of December 31, 2016. Geisinger’s SBPAs have staggered maturities over the next four years. The SBPAs are currently provided by four different, highly-rated commercial banks.

Consolidated Statements of Operations – Six Months Ended December 31, 2016 and 2015 (Unaudited)

For the six months ended December 31, 2016, Geisinger reported a $51.9 million operating profit, or a 1.7% return from operations, both of which are calculated before interest expense. These interim results are negatively impacted by the timing of front-end loaded, Achieving Excellence consulting costs in comparison to operating margin improvements as described in the “Strategy” section above. A summary of Achieving Excellence consulting costs in comparison to the value of margin improvement is shown below within “Interim Period Ended February 28, 2017” section. During the six months ended December 31, 2016, Geisinger experienced a 16.6% growth in admissions and a 21.5% growth in observations/23- hour stays, both when compared to the year-earlier period, which was attributable to success in expanding clinical programs and acquisitions. Based solely on hospitals owned for two years or more, admissions and observations/23-hour stays grew 3.0% when compared to the year-earlier period.

For the six months ended December 31, 2016, net revenue approximated $3.1 billion. This represents an increase of 19.5% over the year-earlier, six months ended period. This growth is attributable to an increase in net patient service revenue after the provision for bad debts of 21.6% and an increase in premium revenue of 17.6%, both when compared with the year-earlier, six months ended period. Net patient service revenue benefited from the acquisition of AtlantiCare and the realization of growth plans centered on market share growth and the opportunistic capture of high-acuity, clinical service volumes.

GHPs achieved a period-end membership increase of 8.5% when compared to the year-earlier, six months ended period. GHPs used innovative care management processes and appropriate underwriting standards to improve members’ health and maintain appropriate medical expense levels. GHPs’ medical expense ratio was 87.8% for the six months ended December 31, 2016, including expenses paid to Geisinger clinicians and clinical facilities.

Interim Period Ended February 28, 2017 (Unaudited)

In addition to the interim financial statements for the six months ended December 31, 2016 included in this Appendix A, which is the most recent period for which complete financial and statistical data is available, management has prepared more limited unaudited financial information regarding operating results through February 28, 2017.

Beginning January 1, 2017, GHP began realizing premium increases from 40% to 50% in individual exchange HMO premium rates. These rate increases are fixed for calendar 2017. At the same time, exchange membership increased by 18,502 when comparing membership at December 31, 2016 with February 28, 2017. The rate increase significantly reduced GHPs’ medical expense ratio for this population

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in comparison to prior periods, while the growth in membership reduced GHPs’ administrative expense ratio. As a result of these individual exchange product line impacts, GHP recorded operating income of $24.4 million for the two-month period ended February 28, 2017 as compared to a $0.7 million operating loss for the six months ended December 31, 2016.

The improvement in GHP results beginning in January helped to increase Geisinger’s consolidated operating margin, before interest, from 1.7% for the six months ended December 31, 2016 to 2.3% for the eight months ended February 28, 2017.

Operating income and operating margin, both before interest expense (expressed in thousands of dollars):

Six-Months Ended Eight Months Ended (Unaudited) December 31 2016 February 28, 2017 GHPs Operating Income (Loss) ($ 740) $23,615 System Operating Income $51,930 $93,982 System Operating Income Margin 1.7% 2.3%

The aforementioned Achieving Excellence initiative, while beginning to yield revenue enhancements and cost savings, has had a negative impact on fiscal year-to-date results through February 28, 2017. Consulting fees for this initiative are recognized when incurred, whereas most margin improvement programs will take months to mature. The negative margin impact (expressed in thousands of dollars) for the eight months ended February 28, 2017 is summarized as follows:

Achieving Excellence Impacts Interim Period Ended February 28, 2017:

Fees Incurred ($23,056) Revenue Enhancements & Cost Savings 3,660 Net Operating Income Impact ($19,396)

Derivatives

As of June 30, 2016, Geisinger maintained derivative instruments to partially offset the risk of cash flow changes from variable rates on $107.4 million of VRDBs. Fixed-payer interest rate swaps also offset the risk of cash flow changes from variable rates on the $68.9 million of Geisinger’s Series 2007 floating rate notes. The variable interest expense of the Series 2007 Bonds is contractually equal to the variable rates received under the related derivative contracts, except that the Series 2007 Bonds have a maximum rate of 15%. The floating rate notes have no put feature. The total market value of the hedging contracts was recorded on the balance sheet as a $56.9 million liability at June 30, 2016. Management intends to hold the derivative contracts to maturity, while recording non-cash entries to account for fluctuations in their market values on the financial statements.

Geisinger’s derivative policy requires separate Board approval for each derivative contract and other Board oversight. Geisinger employs an independent derivative valuation consultant to value all derivatives in accordance with relevant accounting standards. For additional information on derivatives, see the table entitled “Derivatives” herein.

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Acquisitions

Geisinger acquired one health system each in fiscal years 2016 and 2015 and an outpatient business in fiscal year 2015. The acquired facilities are more fully described in the section “MAJOR BUSINESS COMPONENTS” above.

Geisinger Holy Spirit was acquired effective October 1, 2014 when Geisinger Health became sole member of HSHS. As consideration for this transaction, Geisinger Health paid $15 million to Sisters of Christian Charity Health Care Corporation. Geisinger Health assumed the liabilities of Geisinger Holy Spirit.

For the fiscal year ended June 30, 2014, the last full fiscal year prior to acquisition, Geisinger Holy Spirit had assets of $336.7 million, net assets of $172.8 million, cash and investments of $117.7 million, outstanding tax-exempt bonds of $85.2 million and total revenues of $364.7 million.

Effective October 1, 2014, Geisinger entered into an asset purchase agreement with PrimeMed, PC d/b/a Viewmont Health Associates, an outpatient ancillary business located in the greater Scranton, PA area. Under this agreement, Geisinger purchased certain assets related to ancillary medical services. The total purchase price was $46.5 million.

On October 1, 2015, the AtlantiCare entities became affiliates of Geisinger Health. Geisinger Health became the sole corporate member of AHS on the closing date. No consideration was paid as part of this transaction. Geisinger Health assumed the liabilities of AtlantiCare upon acquisition.

For the last fiscal year before acquisition, the year-ended December 31, 2014, AtlantiCare reported total revenues of $805.4 million, income from operations of $43.7 million, assets of $1.2 billion, total net assets of $592.0 million, cash and investments of $598.2 million and outstanding tax-exempt bonds of $234.1 million.

On January 1, 2017, TCMC, Scranton, PA, was acquired by Geisinger Health. TCMC changed its name to GCSOM. Geisinger Health assumed the liabilities of GCSOM.

For the fiscal year ended June 30, 2016, the last full fiscal year before acquisition, TCMC had total assets of $118.4 million, total net assets of $72.2 million, cash and investments of $33.5 million, including endowment funds of $1.4 million, outstanding tax-exempt bonds of $35.3 million and total revenues and other support of $34.3 million.

Disclaimers

This narrative contains certain forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that change over time. Geisinger assumes no duty to update any information contained in this document, even if delivered after the original date of issuance. Actual results could differ materially from those anticipated and future results could differ materially from historical performance.

Generally accepted accounting principles require financial statements to include footnotes and other required disclosures. Excerpts from the June 30, 2016, 2015 and 2014 consolidated financial statements are included in this Appendix A for your convenience. Complete audited, consolidated financial statements as of June 30, 2016 and 2015 are included in Appendix B, attached hereto.

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The preparation of financial statements in accordance with generally accepted accounting principles requires management to make assumptions, estimates and judgments that affect the amounts reported in financial statements, including the notes thereto and related disclosures, if any. Geisinger considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of financial statements, including the following: recognition of patient service revenue that includes contractual allowances and provisions for bad debt; valuation of assets and liabilities; reserves for losses and expenses related to insurance claims and healthcare professional risks. At the time judgments are made, management relies on historical experience, available information and assumptions believed to be reasonable under the circumstances in making its judgments and estimates. Actual results could differ materially from those estimates.

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Other Calculations

Liquidity (Thousands of Dollars)

As of the dates indicated, the following amounts of cash and investments were internally designated.

Unaudited June 30, December 31, 2014 2015 2016 2015 2016

Cash and cash equivalents $ 78,512 $ 116,531 $ 215,622 $ 162,598 $ 261,141

Investments 658,653 807,046 964,542 941,413 777,343

Long-term Investments 1,972,766 1,982,664 2,350,157 2,297,036 2,566,389

Assets limited to use internally by Board 26,456 25,405 24,206 23,755 24,631

Unrestricted cash and investments - internally $2,736,387 $2,931,646 $3,554,527 $3,424,802 $3,629,504 designated

A-47

Unrestricted Cash to Debt (Thousands of Dollars)

Unaudited Pro Forma1 June 30, December 31, December 31, 2014 2015 2016 2015 2016 2016 Unrestricted cash and investments internally designated (from table above) $2,736,387 $2,931,646 $3,554,527 $3,424,802 $3,629,504 $3,914,504

Long-term debt, net of current installments 1,079,451 1,249,753 1,504,660 1,513,823 1,484,676 1,484,676

Current installments of long-term debt 5,103 9,957 18,249 32,387 21,494 21,494

Addition of Series 2017 net bond proceeds 0 0 0 0 0 285,000

Debt $1,084,554 $1,259,710 $1,522,909 $1,546,210 $1,506,170 $1,791,170

Unrestricted cash and investments – internally designated to debt 252.3% 232.7% 233.4% 221.5% 241.0% 218.5%

1 The “Pro Forma” amounts are derived from the unaudited amounts at December 31, 2016 and adjusted for the issuance of the Series 2017 bonds described herein as if issued on December 31, 2016. Specifically, $285 million has been added to both unrestricted cash and investments - internally designated and to debt as of that date.

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Capitalization (Thousands of Dollars)

Unaudited Pro Forma1 June 30, December 31, December 31, 2014 2015 2016 2015 2016 2016

Debt (from table above) $1,084,554 $1,259,710 $1,522,909 $1,546,210 $1,506,170 $1,791,170

Unrestricted net assets 2,386,371 2,575,809 3,162,711 3,055,588 3,305,787 3,305,787

Capitalization $3,470,925 $3,835,519 $4,685,620 $4,601,798 $4,811,957 $5,096,957

Debt to capitalization 31.2% 32.8% 32.5% 33.6% 31.3% 35.1%

A-49

Days Cash on Hand (Thousands of Dollars)

Unaudited Pro Forma1 June 30, December 31, December 31, 2014 2015 2016 2015 2016 2016 Unrestricted cash and investments – internally designated (from table above) $2,736,387 $2,931,646 $3,554,527 $3,424,802 $3,629,504 $3,914,504

Total operating expenses $3,841,093 $4,404,837 $5,375,434 $2,517,317 $3,041,004 $3,041,004

Interest Expense 26,304 32,748 39,638 20,053 20,743 20,743

Depreciation and amortization (122,577) (150,670) (199,954) (95,710) (108,651) (108,651)

Additional interest expense 0 0 0 0 0 6,413

Subtotal $3,744,820 $4,286,915 $5,215,118 $2,441,660 $2,953,096 $2,959,509

Daily operating expenses $10,260 $11,745 $14,288 $13,379 $16,181 $16,216

Days cash on hand 266.7 249.6 248.8 256.0 224.3 241.4

1 The “Pro Forma” amounts are derived from the unaudited amounts at December 31, 2016 and adjusted for the issuance of the Series 2017 bonds described herein on July 1, 2016. Specifically, $285 million has been added to unrestricted cash and investments - internally designated and interest expense for the six months on the new debt of $285 million at 4.5% has been added as additional interest expense.

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Adjusted Excess Revenue (Thousands of Dollars)

Geisinger had the following adjusted excess revenue for the periods indicated.

Unaudited Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 2015 2016 Excess of revenue and gains over expenses and losses $ 428,517 $ 194,798 $ 667,337 $ 481,694 $ 129,700

Net unrealized investment (earnings) losses (146,786) 170,134 194,264 265,534 (99,725)

Unrealized (gain) loss on derivatives (869) 728 5,716 1,754 (7,691)

Contributions from acquisitions (16,026) (74,704) (555,021) (546,466) (3,995)

Loss on extinguishment of debt 0 0 6,285 6,307 0

Adjusted excess revenue $ 264,836 $ 290,956 $ 318,581 $ 208,823 $ 18,289

Revenue $3,977,926 $4,564,639 $5,542,940 $2,588,042 $3,092,934

Net realized investment earnings (losses) 154,325 164,114 190,923 158,184 (12,866)

Total revenue and net realized investment earnings $4,132,251 $4,728,753 $5,733,863 $2,746,226 $3,080,068

Adjusted excess margin percentage 6.4% 6.2% 5.6% 7.6% 0.6%

A-51

Operating Margin (Excluding Interest Expense) and Operating Cash Flow (Thousands of Dollars)

Geisinger had the following operating margin (excluding interest expense) and operating cash flow for the periods indicated.

Unaudited Fiscal Years Ended Six Months Ended June 30, December 31, 2014 2015 2016 2015 2016

Operating income $ 136,833 $ 159,802 $ 167,506 $ 70,725 $ 51,930

Operating revenue $3,977,926 $4,564,639 $5,542,940 $2,588,042 $3,092,934

Operating margin (excluding interest expense) 3.4% 3.5% 3.0% 2.7% 1.7%

Operating income $ 136,833 $ 159,802 $ 167,506 $ 70,725 $ 51,930

Depreciation and amortization 122,577 150,670 199,954 95,710 108,651

Operating cash flow $ 259,410 $ 310,472 $ 367,460 $ 166,435 $ 160,581

A-52

Average Age of Plant (Thousands of Dollars)

Geisinger had the following average age of plant for the periods indicated.

Unaudited June 30, December 31, 2014 2015 2016 2015 2016

Property and equipment $2,065,274 $2,367,444 $3,047,870 $2,910,517 $3,164,388

Net property and equipment (1,128,094) (1,348,268) (1,895,368) (1,825,522) (1,918,411)

Accumulated depreciation and amortization $ 937,180 $1,019,176 $1,152,502 $1,084,995 $1,245,977

Depreciation and amortization $ 122,577 $ 150,670 $ 199,954 $ 95,710 $ 108,651

Average age of plant 7.6 6.8 5.8 5.7 5.7

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Other Information

Cash, Investments and Assets Limited as to Use (Thousands of Dollars)

Geisinger had the following allocation of cash and investments on the dates indicated.

Unaudited June 30, December 31, 2014 2015 2016 2015 2016

Equity Funds $1,356,509 $1,454,319 $1,738,590 $1,527,608 $1,958,211 Cash and Cash Equivalents 316,662 394,858 467,279 504,235 347,910 Marketable Equity Securities 93,281 82,825 104,168 231,815 124,541 Corporate Obligations 344,033 392,657 405,906 344,717 215,155 Fixed Income Funds 260,336 263,360 447,728 420,811 903,173 US Gov’t and Agency Obligations 216,349 184,203 213,921 190,044 112,334 Total Return Fund 134,155 140,339 155,696 194,431 3,304 Absolute Return Fund 72,813 72,447 70,160 76,704 6,213 Private Equity 56,881 57,261 92,924 69,449 88,619 Assets Held in Trust 31,084 32,255 30,880 30,947 32,073 Cash, Investments and Assets Limited as to Use $2,882,103 $3,074,524 $3,727,252 $3,590,761 $3,791,533

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Long-Term Debt (Thousands of Dollars) Geisinger had the following long-term debt outstanding on the dates indicated. June 30, 2014 2015 2016 Series A of 2015 Bonds $ 0 $ 0 $ 102,500 Series B of 2015 Bonds 0 0 31,495 Series C of 2015 Bonds 0 0 30,305 Series D of 2015 Bonds 0 0 60,000 Series E of 2015 Bonds 0 0 50,000 Series F of 2015 Bonds 0 0 65,000 Series A of 2014 Bonds 0 48,040 48,040 Series B of 2014 Bonds 0 62,700 62,700 Series A of 2013 Bonds 65,000 65,000 65,000 Series B of 2013 Bonds 50,000 50,000 50,000 Series C of 2013 Bonds 51,265 84,700 84,700 Series D of 2013 Bonds 43,135 84,700 84,700 GHSH Series 2011 0 48,355 45,010 GHSH Series 2011 B 0 33,640 33,640 Series A-1 of 2011 Bonds 100,000 100,000 100,000 Series A-2 of 2011 Bonds 29,235 26,475 23,580 Series B of 2011 Bonds 50,000 50,000 50,000 Series C of 2011 Bonds 50,000 0 0 Series A of 2009 Bonds 157,000 157,000 157,000 Series B of 2009 Bonds 50,000 50,000 0 Series C of 2009 Bonds 65,000 65,000 0 Series 2007 Lewistown 19,215 18,480 17,705 Series 2007 Bonds 68,850 68,850 68,850 Series A of 2005 Bonds 65,000 65,000 65,000 Series B of 2005 Bonds 62,300 62,300 62,300 Series C of 2005 Bonds 62,700 0 0 Series 2002 Bonds 50,000 50,000 50,000 Series A of 1998 Bonds 27,700 27,700 27,700 Total tax-exempt bonds $1,066,400 $1,217,940 $1,435,225 Other long-term debt: Notes payable 15,191 14,228 13,222 Bank Loans 0 3,538 30,821 Capital leases 1,465 11,181 30,133 Total debt $1,083,056 $1,246,887 $1,509,401 Less: current installments (5,103) (9,957) (18,249) Unamortized Premium and Fair Market Value Adjustment 1,498 12,823 13,508 Long-term debt $1,079,451 $1,249,753 $1,504,660

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Debt and Liquidity Facilities (Thousands of Dollars)

As of December 31, 2016, Geisinger had the following debt, including direct placements purchased by banks, and liquidity facilities outstanding for existing bond issues and projected for the Series 2017 Bonds. Purchase Principal Liquidity Period Liquidity Bank / Direct Debt Supported Amount Type Bond Type Expiration Purchaser Banc of America Public Series A of 2015 $ 99,525 None Direct Placement 11/30/25 Capital Corp. Series B of 2015 29,415 None Direct Placement 01/18/19 Wells Fargo Bank, N.A. Series C of 2015 27,600 None Direct Placement 06/30/22 PNC Bank, N.A. Series D of 2015 60,000 None Direct Placement 09/30/29 TD Bank, N.A. Series E of 2015 50,000 None Direct Placement 03/31/25 PNC Bank, N.A. Series F of 2015 65,000 None Direct Placement 03/31/25 PNC Bank, N.A. Series A of 2014 48,040 None Fixed Rate N/A None Floating Rate Series B of 2014 62,700 None 06/01/24 None Notes Series A of 2013 65,000 SBPA Daily-VRDB 10/31/18 Wells Fargo Bank, N.A. Series B of 2013 50,000 SBPA Daily-VRDB 10/31/18 TD Bank, N.A. Wells Fargo Municipal Series C of 2013 84,700 None Direct Placement 10/30/23 Capital Strategies, LLC Banc of America Public Series D of 2013 84,700 None Direct Placement 10/30/23 Capital Corp. GHSH Series 2011 45,010 None Fixed Rate N/A None GHSH Series B of 33,640 None Fixed Rate N/A None 2011 Series A-1 of 2011 100,000 None Fixed Rate N/A None Series A-2 of 2011 23,580 None Fixed Rate N/A None Series B of 2011 50,000 SBPA Daily-VRDB 09/03/19 U.S. Bank, N.A. Series A of 2009 157,000 None Fixed Rate N/A None Floating Rate Series 2007 68,850 None N/A None Notes Series 2007 Lewistown 16,890 None Fixed Rate N/A None Series A of 2005 65,000 SBPA Daily-VRDB 03/01/21 TD Bank, N.A. Series B of 2005 62,300 SBPA Daily-VRDB 02/28/19 U.S. Bank, N.A. Series 2002 50,000 SBPA Daily-VRDB 12/13/17 The Northern Trust Co. Series A of 1998 27,700 None Fixed Rate N/A None

Subtotal $1,426,650

A-56

Purchase Principal Liquidity Period Liquidity Bank / Direct Debt Supported Amount Type Bond Type Expiration Purchaser

Notes payable 13,222 Other Debt 36,573 Capital leases 29,725 Total Debt $1,506,170

Acquisition and New Debt:

GCSOM Bridge 34,750 None Bank Loan 01/02/20 Bank of America, N.A. Loan Series A of 20171 285,000 None Fixed Rate N/A None Net Change in Debt from $ 319,750 12/31/16

Notes: As part of the Series 2017 Bonds, Geisinger plans to refinance the Series 2002 Bonds, the Series 2007 Lewistown Bonds, the Series 2009 Bonds, a portion of the GHSH Series 2011 Bonds, a portion of the GHSH Series B of 2011 Bonds, the Series 2013B Bonds, and the GCSOM Bridge Loan1. The GCSOM Bridge Loan represents refinancing of a tax-exempt bond issue for which GCSOM was the obligor at the time of GCSOM’s affiliation with Geisinger Health on January 1, 2017.

1 Preliminary, subject to change.

A-57

Derivatives (Thousands of Dollars)

As of December 31, 2016, Geisinger had the following derivative instruments outstanding.

Notional Geisinger Geisinger Termination Market2 Contract Counterparty Amount1 Pays Receives Date Value

Fixed-payer JPMorgan Chase swap Bank, N.A. $ 80,000 4.86% SIFMA3 8/01/28 ($18,617)

JPMorgan Chase Option4 Bank, N.A. 80,000 N/A 0.85% 8/01/28 4,132

Fixed-payer JPMorgan Chase 68% of 1-mo. swap Bank, N.A. 24,500 3.41% LIBOR5 8/01/28 (3,996)

Fixed-payer JPMorgan Chase 67% x 3-mo. swap6 Bank, N.A. 32,850 4.40% LIBOR5+0.77% 5/01/37 (9,733)

Fixed-payer 67% x 3-mo. swap6 Citibank, N.A. 36,000 4.40% LIBOR5+0.77% 5/01/37 (10,666)

Wells Fargo Bank Collar N.A. 13,010 10/03/18 (919)

Subtotal $266,360 ($39,799)

The following GCSOM derivative contracts were acquired upon affiliation on January 1, 2017.

Fixed-payer swap PNC Bank, N.A. 8,688 3.54% SIFMA3 09/01/34 (1,228)

Fixed-payer 68% x 1-mo. swap PNC Bank, N.A. 20,850 2.95% LIBOR5 09/01/34 (2,642)

Total $295,898 ($43,669)

1 The notional amounts of various derivatives amortize. 2 Market values provided by an independent valuation expert based on fair value criteria. 3 The Securities Industry and Financial Markets Association municipal swap index. 4 The counterparty has the right to cancel the $80 million fixed-payer SIFMA swap if SIFMA averages more than 7% for any 180-day period. 5 The London Interbank Offered Rate. 6 Geisinger receives a rate contractually equal to the interest on the Series 2007 Bonds, except that the bonds have a maximum rate of 15%.

A-58

Estimated Annual Debt Service Requirements

The following table sets forth the current debt service and the estimated debt service on the Series 2017 Bonds. See footnotes 6 and 7 of the audited consolidated financial statements included in Appendix B attached hereto for a discussion of long-term debt and interest rate swaps.

Estimated Annual Debt Service Requirements1 (Thousands of Dollars)

Fiscal Year Current Est. Total Ended Geisinger Series 2017 Series 2017 Long-Term June 30, Debt2 Principal Interest Debt Service

2018 $74,908 2019 75,224 2020 74,902 2021 79,745 2022 75,258 2023 74,185 2024 74,182 2025 67,554 2026 64,792 2027 57,783 2028 56,333 2029 51,930 2030 50,491 2031 50,720 2032 51,744 2033 47,457 2034 47,607 2035 47,768 2036 44,828 2037 45,006 2038 41,011 2039 32,898 2040 27,299 2041 27,304 2042 14,394 2043 11,199 2044 11,199

1 Debt service requirements are based on actual swap rates for hedged debt and assume an average annual interest rate of 2.5% on all unhedged variable rate bonds. For purposes of calculating Geisinger’s maximum annual debt service requirements, it is assumed that all bond series that have no principal payments until maturity are amortized over the thirty years prior to maturity. 2 Excludes debt service on the Refunded Bonds and Term Loan.

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Coverage of Estimated Annual Debt Service Requirements Based on Historical Revenue

The following table sets forth amounts derived from the audited Geisinger consolidated financial statements for the fiscal years ended June 30, 2016, and 2015 available to pay debt service on a pro forma basis for the fiscal year ending June 30, 2017 and, separately, the maximum annual debt service for any succeeding fiscal year (see the footnote to the table for further explanation of the methodology used in calculating these ratios). There can be no assurance that the financial results achieved by the System in the future will be similar to historical results. Such future results may vary from historical results and actual variations may be material. Consequently, the historical operating results of the System and pro forma debt service coverage information contained in the following table cannot be taken as a representation that the System will be able to generate sufficient revenue in the future to make payment of principal, premium, if any, and interest on the Series 2017 Bonds when due. No financial feasibility study has been prepared relating to the Plan of Finance, the issuance of the Series 2017 Bonds, or the future financial performance of the System.

Estimated Annual Debt Service Coverage1 (Thousands of Dollars)

Fiscal Year Ended June 30, 2015 2016 Excess of revenue and gains over expenses and losses $194,798 $667,337 Interest expense 32,748 39,638 Depreciation and amortization 150,670 199,954 Net unrealized investment losses 170,134 194,264 Unrealized loss on derivatives 728 5,716 Contributions from acquisitions (74,704) (555,021) Loss on extinguishment of debt 0 6,285 Revenue available to pay debt service $474,374 $558,173 Pro forma long-term debt service (Fiscal Year 2017) Historical coverage of pro forma annual debt service Pro forma maximum annual debt service* $109,989 $109,989 Historical coverage of pro forma maximum annual debt service* 4.3x 5.1x

*Preliminary, subject to change.

A-60

PENDING MERGERS AND ACQUISITIONS

Geisinger’s clinical excellence, breadth of business lines, financial strength and market position have led to numerous discussions with other organizations regarding potential mergers, acquisitions or other forms of collaboration. Geisinger is typically in many simultaneous discussions about such combinations. Most discussions do not result in a formal collaboration. Geisinger does not typically disclose such discussions unless and until a definitive agreement is reached and any required regulatory approvals seem likely.

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APPENDIX B

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GEISINGER HEALTH SYSTEM FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 [THIS PAGE INTENTIONALLY LEFT BLANK] Geisinger Health System Consolidated Financial Statements June 30, 2016 and 2015 Geisinger Health System Table of Contents June 30, 2016 and 2015

Page(s) Independent Auditors’ Report ...... 1–2

Consolidated Financial Statements

Balance Sheets ...... 3

Statements of Operations and Changes in Net Assets ...... 4–5

Statements of Cash Flows ...... 6

Notes to Consolidated Financial Statements ...... 7–30

KPMG LLP 1601 Market Street Philadelphia, PA 19103-2499

Independent Auditors’ Report

The Board of Directors Geisinger Health System Foundation:

We have audited the accompanying consolidated financial statements of Geisinger Health System Foundation and its subsidiaries (collectively referred to as “Geisinger Health System”), which comprise the consolidated balance sheets as of June 30, 2016 and 2015, and the related consolidated statements of operations and 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 U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ 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 opinion.

KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Opinion In our opinion, the 2016 and 2015 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Geisinger Health System as of June 30, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Philadelphia, Pennsylvania September 21, 2016

2 Geisinger Health System Consolidated Balance Sheets June 30, 2016 and 2015

(dollars in thousands) 2016 2015

Assets Current assets Cash and cash equivalents $ 215,622 $ 116,531 Investments 964,542 807,046 Assets limited as to use 14,998 6,559 Accounts receivable, net of estimated uncollectibles of $71,404 in 2016 and $71,596 in 2015 612,280 541,827 Inventories and other 142,934 72,121 Total current assets 1,950,376 1,544,084 Long-term investments 2,350,157 1,982,664 Assets limited as to use, noncurrent 151,053 129,469 Property and equipment, net 1,895,368 1,348,268 Other assets, net 278,333 258,910 Assets held in trust 30,880 32,255 Total assets $ 6,656,167 $ 5,295,650 Liabilities and Net Assets Current liabilities Current installments of long-term debt $ 18,249 $ 9,957 Estimated third-party payor settlements 198,931 141,680 Accounts payable 177,220 114,352 Medical claims payable 148,547 176,512 Accrued expenses and other 633,073 495,551 Total current liabilities 1,176,020 938,052 Long-term debt, net of current installments 1,504,660 1,249,753 Other liabilities and contingencies 656,622 383,062 Total liabilities 3,337,302 2,570,867 Net assets Unrestricted 3,162,711 2,575,809 Unrestricted-noncontrolling interest 14,736 13,870 Temporarily restricted 54,777 50,117 Permanently restricted 86,641 84,987 Total net assets 3,318,865 2,724,783 Total liabilities and net assets $ 6,656,167 $ 5,295,650

See accompanying notes to the consolidated financial statements.

3 Geisinger Health System Consolidated Statements of Operations and Changes in Net Assets Years Ended June 30, 2016 and 2015

(dollars in thousands) 2016 2015

Unrestricted net assets Revenues Patient service revenue (net of contractual adjustments & discounts)$ 3,022,451 $ 2,253,410 Provision for bad debts (49,413) (50,066) Net patient service revenue less provision for bad debts 2,973,038 2,203,344 Premium revenue 2,357,091 2,196,059 Other revenue 212,811 165,236 5,542,940 4,564,639 Expenses Salaries and benefits 2,347,583 1,802,867 Medical claims 1,313,582 1,262,945 Supplies and other 1,514,315 1,188,355 Depreciation and amortization 199,954 150,670 5,375,434 4,404,837 Operating income (carried forward) $ 167,506 $ 159,802

See accompanying notes to the consolidated financial statements.

4 Geisinger Health System Consolidated Statements of Operations and Changes in Net Assets Years Ended June 30, 2016 and 2015

(dollars in thousands) 2016 2015

Operating income (brought forward) $ 167,506 $ 159,802 Investing and financing activities Net realized investment earnings 190,923 164,114 Net unrealized investment losses (194,264) (170,134) Interest expense (39,638) (32,748) Unrealized loss on derivatives (5,716) (728) Contribution from acquisitions 555,021 74,704 Loss on extinguishment of debt (6,285) - Gain from investing and financing activities 500,041 35,208 Nonoperating losses, net (210) (212) Excess of revenue and gains over expenses and losses 667,337 194,798 Other changes in unrestricted net assets Unrealized loss on derivatives (10,009) (3,593) Net assets released from restriction, capital purchases 3,035 2,183 Pension liability adjustments (72,706) (13,973) Net asset transfers for underwater endowments (48) (1) Net (distribution) contribution from noncontrolling interest (478) 14,120 Changes in equity based compensation 637 735 Increase in unrestricted net assets 587,768 194,269 Changes in temporarily restricted net assets Donor contributions, net of uncollectibles 8,431 8,355 Contribution from acquisitions 11,787 3,948 Net investment losses (1,137) (296) Net asset transfers for underwater endowments 48 1 Net assets released from restriction, fund operations (11,434) (5,478) Net assets released from restriction, capital purchases (3,035) (2,183) Increase in temporarily restricted net assets 4,660 4,347 Changes in permanently restricted net assets Donor contributions 1,503 2,196 Contribution from acquisitions 1,564 3,307 Net investment losses from beneficial interest in perpetual trusts (1,413) (90) Increase in permanently restricted net assets 1,654 5,413 Increase in net assets 594,082 204,029 Net assets Beginning of year 2,724,783 2,520,754 End of year $ 3,318,865 $ 2,724,783

See accompanying notes to the consolidated financial statements.

5 Geisinger Health System Consolidated Statements of Cash Flows Years Ended June 30, 2016 and 2015

(dollars in thousands) 2016 2015

Cash flows from operating activities Increase in net assets $ 594,082 $ 204,029 Change in net assets attributable to noncontrolling interest (866) (4,831) Increase in net assets attributable to GHS 593,216 199,198 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 199,954 150,670 Provision for bad debts 49,571 50,547 Unrealized loss on derivatives 15,725 4,321 Net realized gain on investments (119,237) (115,143) Net unrealized loss on investments 200,702 175,553 Contributions from acquisition, net of cash received (520,114) (66,135) Restricted contributions (9,934) (10,234) Noncontrolling interest 1,344 (9,289) Pension liability adjustments 72,706 13,973 Net change in Accounts receivable (22,447) (164,087) Inventories and other (40,829) 11,682 Estimated third-party payor settlements (16,401) 1,276 Accounts payable 32,263 13,662 Accrued expenses and other (25,998) 128,688 Other assets and liabilities 3,446 (3,587) Net cash provided by operating activities 413,967 381,095 Cash flows from investing activities Additions to property and equipment, net (284,319) (228,026) Purchases of investments (970,306) (1,349,320) Purchases of assets limited as to use (43,977) (53,635) Sales of investments 945,687 1,211,955 Sales of assets limited as to use 47,374 59,096 Cash paid for acquisitions - (61,500) Net cash used in investing activities (305,541) (421,430) Cash flows from financing activities Proceeds from issuance of debt 352,783 185,740 Repayment of debt (371,574) (131,740) Net (distribution) contribution from noncontrolling interest (478) 14,120 Proceeds from restricted contributions 9,934 10,234 Net cash (used in) provided by financing activities (9,335) 78,354 Increase in cash and cash equivalents 99,091 38,019 Cash and cash equivalents Beginning of year 116,531 78,512 End of year $ 215,622 $ 116,531

See accompanying notes to the consolidated financial statements.

6 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

1. Organization

The Geisinger Health System1 (“GHS”) is a physician-led, integrated health services organization that has as its main components: (i) multispecialty physician group practices; (ii) an array of health services providers, including nine acute care hospitals and a drug and alcohol treatment facility; and (iii) insurance operations, including a licensed health maintenance organization and a non- licensed risk assuming Preferred Provider Organization. The System operates in 45 of Pennsylvania’s 67 counties, with a significant presence in central and northeastern Pennsylvania and in southern New Jersey.

Geisinger Health System Foundation (the “Foundation”) serves as the corporate parent and exercises control over all of GHS’s affiliated entities subject to corporate, legal, and/or regulatory limitations. The Foundation and all subsidiary corporate entities comprising the System are tax- exempt pursuant to Sections 501(c) (2), 501(c) (3) and 501(c) (4) of the Internal Revenue Code, except for Foundation’s for-profit subsidiaries. The tax-exempt entities did not incur any liability for federal income taxes, except for unrelated business income.

All significant intercompany transactions have been eliminated.

2. Summary of Significant Accounting Policies

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Cash and Cash Equivalents Cash and cash equivalents include investments in highly liquid debt instruments purchased with an initial maturity of three months or less, exclusive of long-term investments and assets limited as to use. The carrying amount reported approximates fair value.

Investments, Assets Limited as to Use, and Investment Income Investments and assets limited as to use are measured at fair value. All of GHS’s investments in debt and equity securities are classified as trading. This classification requires GHS to recognize unrealized gains and losses on its investments in debt and equity securities as net unrealized investment earnings (losses) in the Consolidated Statements of Operations and Changes in Net Assets. Interest income, dividends, and realized and unrealized gains and losses on unrestricted investments are recorded as investment income within other revenue or within investing and financing activities in the Consolidated Statements of Operations and Changes in Net Assets (net of investment-related expenses). In the absence of donor specification that investment income on donated funds be restricted, interest income, dividends, and realized and unrealized gains and losses on investments are recorded within unrestricted investing and financing activities in the Consolidated Statements of Operations and Changes in Net Assets. Interest income, dividends, and realized and unrealized gains and losses on trusts held as temporarily restricted and permanently restricted endowment funds are recorded as net investment gains (losses) in changes in temporarily restricted net assets in the Consolidated Statements of Operations and Changes in Net Assets. Interest income, dividends, and realized and unrealized gains and losses on trusts held as permanently restricted are recorded as net investment gains (losses) in changes in permanently restricted net assets in the Consolidated Statements of Operations and Changes in Net Assets.

1 Throughout this document, the acronym “GHS” or the term “System” shall refer to the entire healthcare system comprised of the Geisinger Health System Foundation (the “Foundation”) as parent and all subsidiary corporate entities comprising the system. 7 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Investments are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with investments and the level of uncertainty related to changes in their value, it is at least reasonably possible that changes in market valuations in the near term could materially affect account balances and the amounts reported in the consolidated financial statements.

Amounts available to meet current liabilities have been reclassified to current investments in the Consolidated Balance Sheets.

Accounts Receivable and Allowances GHS’s health services providers have agreements with third-party payors that provide for payments at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge, which vary according to a patient classification system that is based on clinical, diagnostic, and other factors; reimbursed costs; discounted charges; and per diem payments. Management regularly reviews accounts and contracts and provides appropriate contractual allowances and discounts that are netted against patient accounts receivable in the Consolidated Balance Sheets. Patient accounts receivable are further reduced by an allowance for uncollectible accounts.

GHS estimates an allowance for uncollectible accounts and provision for bad debts based upon past collection history and payment trends for its major payor sources of patient service revenue. For patient accounts receivable associated with patients without insurance coverage and patients with deductibles and coinsurance balances for which third-party coverage exists for a portion of the bill, GHS records a provision for bad debts. Account balances are charged off against the allowance for uncollectible accounts after all means of collection have been exhausted.

Insurance premiums that are past due greater than 60 days are written off as uncollectible and are subject to subsequent contract cancellation under terms of the insurance contract.

In March 2010, the President signed into law the Affordable Care Act (“ACA”), which transforms the U.S. healthcare system and increases regulations within the U.S. health insurance industry. This legislation is intended to expand the availability of health insurance coverage to millions of Americans. The ACA creates state health insurance exchanges, which provide individuals and small businesses with access to affordable and quality health insurance. GHP and Geisinger Quality Options (“GQO”) participate in the Pennsylvania market. To address restrictions on premium setting and unpredictability of medical expenses, among other items, the ACA established three transitional risk sharing programs for insurers: reinsurance, risk adjustment, and risk corridor programs (“3R’s”). These programs are complex and involve significant judgment and uncertainties with respect to both recorded amounts and timing of collections. Because these programs are new, the degree of estimation involved in recording amounts related to the programs is significant. Accounts receivable in the Consolidated Balance Sheets includes 3R’s net receivables totaling $31.6 million and $48.9 million at June 30, 2016 and 2015, respectively.

Inventories Inventories are stated at the lower of cost or market. Cost is determined primarily on a first-in, first- out basis.

Property and Equipment and Long-Lived Assets Property and equipment and construction in progress are recorded at the lower of cost or fair value, if impaired. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of their useful life or the term of the lease and renewal periods that are deemed to be reasonably assured at the date

8 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

the leasehold improvements are purchased using the straight-line method. Repairs and maintenance are expensed as incurred. Capital leases and software licenses are amortized over the shorter of their useful life or the term of the lease using the straight-line method. The cost of assets and the related accumulated depreciation are removed from the Balance Sheet, upon retirement or disposition and any gain or loss is reported in supplies and other expenses in the Consolidated Statements of Operations and Changes in Net Assets.

GHS recognizes an impairment loss if the carrying amount of a long-lived asset is not recoverable from its future undiscounted cash flows and measures any impairment loss as the difference between the carrying amount and the fair value of the asset.

Pledges Receivable and Contributions Unconditional donor promises to give cash, marketable securities, and other assets are reported at fair value and discounted to present value at the date the promise is received to the extent estimated to be collectible. Conditional donor promises to give and indications of intentions to give are not recognized until the condition is satisfied. Pledges received with donor restrictions that limit the use of the donated assets are reported as temporarily restricted net assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are transferred to unrestricted net assets and reported in the Consolidated Statements of Operations and Changes in Net Assets as net assets released from restriction. Pledges receivable are reported in other assets in the Consolidated Balance Sheets.

Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of the net assets of acquired entities.

GHS evaluates goodwill for impairment annually and as events or changes in circumstances indicate that the value of the asset may be impaired. Impairment testing consists of internal qualitative assessments and considers other publicly available market information. If the carrying amount of the goodwill exceeds the estimated fair value, an impairment charge to current operations is recorded to reduce the carrying amount to estimated fair value. As of June 30, 2016 and 2015, there was no indication of impairment of goodwill. Total goodwill recognized on acquisitions is included in other assets in the Consolidated Balance Sheets and was $55.3 million and $55.1 million as of June 30, 2016 and 2015, respectively.

Accrued Medical Claims GHP, GIIC (Geisinger Indemnity Insurance Corporation), and GQO are at risk for certain medical costs of their members up to reinsurance limits. Accrued medical claims and related expenses (hospitalization and other outside medical services) are recorded in medical claims payable in the Consolidated Balance Sheets. This liability includes amounts billed from other medical providers and not yet paid and estimates of costs incurred for obligations to provide services under contracts as of the balance sheet dates.

GHP, GIIC, and GQO record a liability based on management’s estimate for claims, which are expected to be paid after the end of the period for services provided to members during the policy period. The estimate of costs incurred for obligations to provide services is based on historical data, current membership, health service utilization statistics, and other related information. These accruals are continually monitored and reviewed and, as settlements are made or accruals adjusted, differences are reflected in current operations. Changes in assumptions for medical costs as well as changes in actual experience could cause these estimates to change in the near term.

9 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Derivative Instruments Interest rate swap agreements are used by GHS to manage interest rate exposures and to hedge the changes in cash flows on variable rate debt. Derivative financial instruments involve, to a varying degree, elements of market and credit risk. The market risk associated with these instruments resulting from interest rate movements is expected to offset the market risk of the liabilities being hedged. The counterparties to the agreements relating to the interest rate swaps, collar and option are major financial institutions with high credit ratings. GHS continually monitors the credit ratings of the counterparties and does not believe that there is significant risk of nonperformance by these counterparties.

All derivatives are reported in the Consolidated Balance Sheets at fair value, including those that are designated and qualify as cash flow hedging instruments. The gain or loss on the effective portion of the derivative is reported as an unrealized gain or loss on derivative in other changes in unrestricted net assets in the Consolidated Statements of Operations and Changes in Net Assets. The gain or loss on the ineffective portion of the derivative and changes in value of derivatives not designated as hedging instruments are recognized as an unrealized gain or loss on derivatives under investing and financing activities in the Consolidated Statements of Operations and Changes in Net Assets.

Net Asset Classification Unrestricted net assets are not restricted by donors, or the donor-imposed restrictions have been satisfied.

Temporarily restricted net assets are those whose use by GHS has been limited by donors to a specific time period or purpose, primarily to support operations or for capital purchases.

Permanently restricted net assets have been restricted by donors to be maintained by GHS, or a designated trustee, in perpetuity.

Permanently restricted nets assets represent the original fair value of gifts donated to GHS through endowments. GHS’s permanently restricted net assets consist of approximately 200 endowments and trusts. Unless otherwise directed by the donor, gifts received for endowments are invested in accordance with GHS’s investment policy. From time to time, the fair value of investments associated with individual donor-restricted endowments may fall below the original gift amount. Deficiencies of this nature, which are referred to as underwater funding, are reported as changes in unrestricted and temporarily restricted net assets in the Consolidated Statements of Operations and Changes in Net Assets.

GHS annually appropriates 4.5% of each endowment for spending in accordance with the donor’s intent. In order to preserve the real value of a donor’s gift and to sustain funding consistent with donor intent, the annual appropriation rate is set to strike a reasonable balance between long-term objectives of preserving and growing each endowment for the future and providing stable, annual appropriations. The difference between the endowment original value and the market value of the endowment is recorded as temporarily restricted endowments.

10 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

The Board has designated certain Geisinger Clinic unrestricted investments as board designated-endowments to support research and other programs. The composition of and changes in endowment net assets, excluding trusts, by type of fund, is as follows:

Permanently Unrestricted Restricted (Board- Temporarily (Excluding designated) Restricted Trusts) Total

Endowment net assets at June 30, 2014 $ 26,456 $ 15,708 $ 63,504 $ 105,668

Investment return Realized investment gains 1,734 3,960 392 6,086 Unrealized investment losses (2,066) (4,473) (330) (6,869)

Total investment return (332) (513) 62 (783)

Contributions received from acquisition - - 3,307 3,307 Contributions received - - 2,196 2,196 Underwater funding - 1 - 1 Annual appropriations (719) (2,898) - (3,617)

Endowment net assets at June 30, 2015 25,405 12,298 69,069 106,772

Investment return Realized investment gains 1,762 3,982 254 5,998 Unrealized investment losses (2,274) (5,303) (430) (8,007)

Total investment return (512) (1,321) (176) (2,009)

Contributions received from acquisition - - 1,564 1,564 Contributions received - - 1,463 1,463 Underwater funding - 48 - 48 Annual appropriations (687) (2,835) - (3,522)

Endowment net assets at June 30, 2016 $ 24,206 $ 8,190 $ 71,920 $ 104,316

Noncontrolling Interest Noncontrolling interest represents the proportionate share of xG Health Solutions, Inc. (“xG”), Geisinger SCA Holdings, LLC (“GSCA”), AtlantiCare Surgery Center, LLC (“ASC”) and Keystone Accountable Care Organization (“KACO”) that are owned by third parties. xG is a for-profit, collaboration with Oak Investment Partners that provides consulting, healthcare analytics, and care management services and is 45.0% owned by GHS at June 30, 2016. GSCA is a Delaware limited liability company and joint venture with SCA Pennsylvania Holdings, LLC that operates an ambulatory surgery center in Dickson City, Pennsylvania and is 51.0% owned by GHS at June 30, 2016. ASC is a same-day surgical center with three locations in southern New Jersey and is 40.0% owned by GHS at June 30, 2016. KACO is a group of health care providers who collaborate to improve health services and care and is 75.0% owned by GHS at June 30, 2016. The net income or loss of these ventures is allocated to the noncontrolling interest holders based on their percentage of ownership.

11 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

For the years ended June 30, 2016 and 2015, components of the changes in consolidated net assets impacting the controlling financial interest and noncontrolling interest are as follows:

Non- Controlling Controlling Total Interest Interest Balance July 1, 2014 $ 2,395,410 $ 2,386,371 $ 9,039 Excess (deficiency) of revenue and gains over expenses and losses 194,798 197,988 (3,190) Other changes in unrestricted net assets Unrealized (loss) on derivatives (3,593) (3,593) - Net assets released from restriction, capital purchases 2,183 2,183 - Pension liability adjustment (13,973) (13,973) - Net asset transfers for underwater endowments (1) (1) - Contributions from noncontrolling interest 14,120 6,834 7,286 Changes in equity based compensation 735 - 735 Balance June 30, 2015 $ 2,589,679 $ 2,575,809 $ 13,870 Excess (deficiency) of revenue and gains over expenses and losses 667,337 666,615 722 Other changes in unrestricted net assets Unrealized (loss) on derivatives (10,009) (10,009) - Net assets released from restriction, capital purchases 3,035 3,035 - Pension liability adjustment (72,706) (72,706) - Net asset transfers for underwater endowments (48) (48) - Contributions from noncontrolling interest (478) 2,789 (3,267) Changes in equity based compensation 637 - 637 Acquisition of AtlantiCare Surgery Center - (2,774) 2,774 Balance June 30, 2016 $ 3,177,447 $ 3,162,711 $ 14,736

Net Patient Service Revenue Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined.

Premium Revenue GHP, GIIC, and GQO recognize premiums from members as revenue in the period to which healthcare coverage relates. Premiums billed and collected in advance are recorded as unearned premiums.

Charity Care GHS provides services to all patients regardless of ability to pay. In accordance with GHS’s policy, a patient is classified as a charity patient based on income eligibility criteria. GHS also provides free care to patients that either do not pursue charity care eligibility or are otherwise determined to be in need. Because GHS does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue.

12 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Additionally, GHS sponsors other charitable programs that provide substantial benefit to the broader community. Such programs include services to the needy and elderly population requiring special support, various clinical outreach programs, and health education and promotion.

Bad Debt In evaluating the collectibility of accounts receivable, the System analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts. Management regularly reviews data about these major payor sources in evaluating the sufficiency of the allowance for doubtful accounts. For receivables associated with self-pay patients, which include both patients without insurance and patients with deductible and copayment balances due after third-party coverage, the System records a provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. The difference between discounted rates charged to these patients and the amounts actually collected after all reasonable collection efforts have been exhausted is charged off against the allowance for doubtful accounts.

Nonoperating Losses For purposes of display, transactions deemed by management to be ongoing, major, or central to the provision of healthcare services are reported as revenue and expenses. Other transactions are reported as nonoperating losses, net.

Operating Indicator The excess of revenue and gains over expenses and losses, consistent with industry practice, includes all unrestricted revenue, expenses, and net gains and losses for the reporting period, except for net assets released from restriction to fund purchases of capital, pension liability adjustments, net asset transfers for underwater endowments, unrealized gains (losses) on the effective portion of derivatives, contribution from noncontrolling interest, net of distributions, and changes in equity-based compensation.

Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include contractual allowances, estimated amounts due to third-party payors, bad debt reserves, depreciation, accrued medical claims, medical legal liabilities, workers’ compensation liabilities, derivative valuations, alternative investment valuations, valuation of 3R’s, and expected rate of return on investments used to value defined-benefit pension liabilities.

Adopted Accounting Standard In May 2015, the Financial Accounting Standards Board (“FASB”) issued guidance relating to disclosures for investments that calculate net asset value (“NAV”) per share or its equivalent. Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, permits reporting entities, as a practical expedient to measure the fair value of certain investments using the NAV per share of the investment. This amendment removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. GHS adopted this guidance in 2015. This new guidance only amended disclosure requirements and did not have any impact on the consolidated financial statements.

13 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

3. Acquisitions The Foundation Board of Directors approved a Comprehensive Health System Integration Agreement with AHS, an acute care focused, integrated healthcare delivery system located in southern New Jersey, on May 22, 2014. Pursuant to this agreement, AHS and its affiliates were acquired and the Foundation became sole member of AtlantiCare Health System, Inc. (AHS) effective October 1, 2015. No proceeds were paid as part of this transaction.

The Foundation recorded contribution income representing the excess of the fair value of assets acquired over the fair value of liabilities assumed. Fair value of the acquired assets and liabilities assumed at October 1, 2015 was as follows:

Temporarily Permanently Unrestricted Restricted Restricted Net Assets Net Assets Net Assets Total

Cash and cash equivalents $ 47,938 $ - $ - $ 47,938 Investments 601,910 11,782 1,563 615,255 Property and equipment 453,022 --453,022 Other assets 136,091 --136,091 Current and long-term debt (281,576) --(281,576) Other liabilities and contingencies (402,640) --(402,640)

554,745 11,782 1,563 568,090

Other acquisitions 276 5 1 282

$ 555,021 $ 11,787 $ 1,564 $ 568,372

The following table summarizes amounts attributable to AHS since the acquisition date that are included in the accompanying Consolidated Statements of Operations and Changes in Net Assets:

Period from October 1, 2015 to June 30, 2016 Revenues $ 752,007 Expenses 681,181 Operating income 70,826 Realized and unrealized investment gains, net 23,580 Interest Expense (4,181) Loss on extinguishment of debt (6,285) Nonoperating gains, net 3,704 Excess of revenue over expenses $ 87,644

14 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

The following table represents the proforma financial information, assuming the acquisition of AHS had taken place on July 1, 2014. The proforma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on July 1, 2014.

Unaudited Year Ended June 30, 2016 2015 Revenues $ 5,654,975 $ 5,393,243 Expenses 5,479,292 5,162,273 Operating income 175,683 230,970 Realized and unrealized investment earnings (32,003) (1,893) Interest expense (42,779) (44,137) Unrealized loss on derivatives (5,716) (728) Nonoperating losses, net (3,914) (212) Loss on extinguishment of debt (6,285) - Excess of revenue over expenses 84,986 184,000 Other changes in unrestricted net assets $ (105,800) $ (91,046) Changes in temporarily restricted net assets (2,584) 2,160 Changes in permanently restricted net assets (1,524) 2,096 $ (24,922) $ 97,210

Proforma excess of revenue over expenses excludes $555.0 million and $74.7 million of contribution from acquisitions and $13.3 million and $7.3 million for restricted contributions received as a result of acquisitions for the years ended June 30, 2016 and 2015, respectively.

4. Cash, Investments, Assets Limited as to Use, and Assets Held in Trust

Cash (including cash equivalents), investments, assets limited as to use, and assets held in trust at June 30 are summarized as follows:

2016 2015 Cash and cash equivalents $ 215,622 $ 116,531 Investments -current 964,542 807,046 -long-term 2,350,157 1,982,664 Assets limited as to use: Internally by Board 24,206 25,405 Externally other -current 14,998 6,559 -long-term 25,872 7,095 Externally restricted by donors 100,975 96,969 Assets held in trust 30,880 32,255 $ 3,727,252 $ 3,074,524

15 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Assets limited as to use - internally by the Board are resources that have been designated by the Board of Directors (“the Board”) for specific purposes. The Board retains control over designated assets and may, at their discretion, subsequently use the assets for other purposes. Assets limited as to use – externally other are primarily investments held by a Trustee under debt agreements for tax-exempt bond proceeds. Assets limited as to use – externally restricted by donors are held to meet donor restrictions.

Cash and cash equivalents, investments, and amounts internally designated by the Board available for capital and operating expenditures total $3.6 billion and $2.9 billion at June 30, 2016 and 2015, respectively. GHS values certain financial and nonfinancial assets and liabilities by applying fair value measurements. Fair value is 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 (an exit price).

The fair value hierarchy is broken down into three levels based on inputs that market participants would use in valuing the asset based on market data obtained from sources independent of GHS as follows:

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable.

Level 3: Unobservable inputs for the asset or liability.

Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. GHS’s investment strategy is to maximize the use of observable inputs (Levels 1 and 2) and minimize the use of unobservable inputs (Level 3). GHS considers observable data to be that market data, which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to GHS’s perceived risk of that instrument.

Assets are disclosed within the hierarchy based on the lowest (or least observable) input that is significant to the measurement. GHS’s assessment of the significance of an input requires judgment, which may affect the valuation and categorization within the fair value hierarchy. The fair value of assets and liabilities using Level 3 inputs are generally determined by using pricing models or discounted cash flow methods, which all require significant management judgment or estimation.

As a practical expedient, the fair value of an investment in hedge funds and private equities at the measurement date is reported using net asset value (“NAV”). Adjustment is required if GHS expects to sell the investment at a value other than NAV. GHS’s investments in private equity and certain hedge funds are generally valued based on the most current NAV adjusted for cash flows when the reported NAV is not at the measurement date. This amount represents the estimated fair value of these investments at June 30, 2016. Investments that are measured at fair value using the NAV per share (or its equivalent) are not categorized in the fair value hierarchy.

16 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Fair values are provided by the custodian and reviewed by management. Management believes that fair values provided by the custodian are a reasonable estimation of such fair values.

The basis for fair value hierarchy are established below:

Cash and Cash Equivalents Cash and cash equivalents include short-term investments and fixed income investments with initial maturities of less than three months. Cash and cash equivalents are valued using observable market data and are categorized as Level 1 based on quoted market prices in active markets. The majority of these investments are held in money market accounts.

Equity Funds Equity funds consist of mutual funds whose underlying securities are valued on quoted market prices in active markets obtained from exchange or dealer markets for identical assets and are accordingly categorized as Level 1 with no valuation adjustments applied. Certain equity mutual funds also include individual securities with Level 2 characteristics resulting in the funds categorized as Level 2. Other equity funds are measured using net asset value or its equivalent.

Marketable Equity Securities Marketable equity securities consist of individual securities that are generally valued based on quoted market prices in active markets obtained from exchange or dealer markets and are accordingly categorized as Level 1 with no valuation adjustments applied.

Corporate Obligations Corporate obligations consist of individual securities that are valued based on quoted market prices or dealer or broker quotations and are categorized as Level 2 or in the cases where they trade infrequently as Level 3.

Fixed Income Funds Fixed income funds consist of mutual funds whose underlying securities are valued on quoted market prices in active markets obtained from exchange or dealer markets and are categorized as Level 2. Other fixed income funds are measured using net asset value or its equivalent.

U.S. Government and Agency Obligations U.S. Government and agency obligations consist of individual securities and are valued based on quoted market prices or dealer/broker quotations and are categorized as Level 2 or in the cases where they trade infrequently as Level 3.

Absolute and Total Return Hedge Funds Absolute and total return hedge funds consist of equity and fixed income managed funds consisting of limited partnership interests in hedge funds. The fund managers invest in a variety of securities based on the strategy of the fund, which may or may not be quoted in an active market. The hedge funds are valued at NAV. These investments are not categorized in the fair value hierarchy.

Private Equity Private equity investments are in the form of limited partnership interests. The fund managers primarily invest in private investments for which there is no readily determinable market value. The fund manager may value the underlying private investments based on an appraised value, discounted cash flow, industry comparables, or some other method. These limited partnership investments are valued at NAV and are not categorized in the fair value hierarchy.

17 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Assets Held in Trust Assets held in trust represent GHS’s beneficial interest in perpetual and other trusts that are maintained and administered by independent trustees and are valued based on the fair value of the assets held in trust. Trusts that are perpetual, whereby the original corpus cannot be expended, are reported as permanently restricted net assets. Other trusts are reported as temporarily restricted net assets until they are liquidated. Distributions from trusts are recorded as investment earnings if unrestricted or as net investment gains (losses) in temporarily restricted net assets if their use is restricted by the donor. These assets qualify as Level 3 investments.

Details on remaining estimated life, current redemption terms, and restrictions by asset class and type of investment are provided below:

Remaining Redemption Redemption Investment Types Life Terms Restrictions Cash and cash equivalents N/A Daily None Equity funds N/A Daily None Marketable equity securities N/A Daily None Corporate obligations N/A Daily None Fixed income funds N/A Daily None U.S. Government and agency obligations N/A Daily None 1 year 90% of NAV quarterly restriction on Absolute and total return funds N/A with 60 day notice new investment Redemptions not permitted. Distributions received as underlying investments are Private equity 1 to 16 years liquidated. N/A

The following tables set forth GHS’s cash, investments, assets limited as to use, and assets held in trust at June 30, 2016 and 2015 by level within the fair value hierarchy. As required by fair value accounting, investments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

2016 Level 1 Level 2 Level 3 NAV Total

Cash and cash equivalents $ 467,279 $ - $ - $ - $ 467,279 Equity funds 1,542,800 185,582 - 10,208 1,738,590 Marketable equity securities 104,168 - - - 104,168 Corporate obligations - 405,906 - - 405,906 Fixed income funds - 437,496 - 10,232 447,728 U.S. Government and agency obligations - 213,921 - - 213,921 Total return fund - - - 155,696 155,696 Absolute return fund - - - 70,160 70,160 Private equity - - - 92,924 92,924 Assets held in trust - - 30,880 - 30,880

$ 2,114,247 $ 1,242,905 $ 30,880 $ 339,220 $ 3,727,252

18 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

2015 Level 1 Level 2 Level 3 NAV Total

Cash and cash equivalents $ 394,852 $ 6 $ - $ - $ 394,858 Equity funds 1,307,655 146,664 - - 1,454,319 Marketable equity securities 82,825 - - - 82,825 Corporate obligations - 392,657 - - 392,657 Fixed income funds - 263,360 - - 263,360 U.S. Government and agency obligations - 184,203 - - 184,203 Total return fund - - - 140,339 140,339 Absolute return fund - - - 72,447 72,447 Private equity - - 57,261 57,261 Assets held in trust - - 32,255 - 32,255

$ 1,785,332 $ 986,890 $ 32,255 $ 270,047 $ 3,074,524

The following table shows the changes in Level 3:

Assets Held in Trust Level 3 balances at June 30, 2014 $ 31,594 Net unrealized gains 271 Contributions, net of distributions 390 Level 3 balances at June 30, 2015 32,255 Net unrealized losses (880) Distributions, net of contributions (495) Level 3 balances at June 30, 2016 $ 30,880

As of June 30, 2016 and 2015, there were no significant transfers among levels. GHS has committed to fund certain partnership investments, which were not yet drawn at June 30, 2016. These unfunded commitments totaled $66.5 million at June 30, 2016. Such commitments have terms from one to sixteen years.

Market risk exists to the extent that the values of GHS’s monetary assets fluctuate as a result of changes in market prices. Changes in market prices can arise from factors specific to individual securities or their respective issuers or factors affecting all securities traded in a particular market. Relevant factors for GHS are both volatility and liquidity of specific securities and markets in which GHS holds investments. GHS employs the services of professional investment managers and has established investment guidelines to ensure that the portfolio is diversified and exposure to market risk is managed.

Unrealized investment earnings represent the change in fair value of investments calculated where a security is still held at the end of the period. Realized gains or losses on the sale of investments are the difference between sale proceeds (net of any transaction costs) and original cost. Interest and dividend income is recorded on the accrual basis.

19 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Investment income and realized and unrealized gains and losses on cash and cash equivalents, investments, assets limited as to use, and assets held in trust consist of the following:

2016 2015 Other revenue $ 726 $ 719 Investment and financing activities Net realized investment earnings $ 190,923 $ 164,114 Net unrealized investment losses (194,264) (170,134) $ (3,341) $ (6,020) Temporarily restricted net assets, Net investment losses $ (1,137) $ (296) Permanently restricted net assets, Net investment losses $ (1,413) $ (90)

5. Property and Equipment

Property and equipment and accumulated depreciation and amortization consist of the following:

Estimated June 30, Useful Lives 2016 2015 Land $ 81,628 $ 47,702 Land improvements (5–25 years) 74,708 60,481 Buildings and building improvements (5–40 years) 1,089,652 711,688 Equipment (3–20 years) 1,465,313 1,305,640 Computer software (5 years) 198,217 170,159 2,909,518 2,295,670 Less: Accumulated depreciation and amortization (1,152,502) (1,019,176) 1,757,016 1,276,494 Construction in progress 138,352 71,774 $ 1,895,368 $ 1,348,268

Depreciation and amortization expense related to property and equipment for the years ended June 30, 2016 and 2015 was $197.6 million and $148.6 million, respectively. At June 30, 2016 and 2015, $26.8 million and $19.8 million, respectively, of construction-related purchases had not been paid and accordingly, were accrued in accrued expenses and other liabilities on the Consolidated Balance Sheets.

20 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

6. Long-Term Debt

Long-term debt consists of the following:

June 30 2016 2015 Series A of 2015 Bonds $ 102,500 $ - Series B of 2015 Bonds 31,495 - Series C of 2015 Bonds 30,305 - Series D of 2015 Bonds 60,000 - Series E of 2015 Bonds 50,000 - Series F of 2015 Bonds 65,000 - Series A of 2014 Bonds 48,040 48,040 Series B of 2014 Bonds 62,700 62,700 Series A of 2013 Bonds 65,000 65,000 Series B of 2013 Bonds 50,000 50,000 Series C of 2013 Bonds 84,700 84,700 Series D of 2013 Bonds 84,700 84,700 Series 2011 Bonds Holy Spirit Hospital 45,010 48,355 Series B of 2011 Bonds Holy Spirit Hospital 33,640 33,640 Series A-1 of 2011 Bonds 100,000 100,000 Series A-2 of 2011 Bonds 23,580 26,475 Series B of 2011 Bonds 50,000 50,000 Series A of 2009 Bonds 157,000 157,000 Series B of 2009 Bonds - 50,000 Series C of 2009 Bonds - 65,000 Series 2007 Lew istow n 17,705 18,480 Series 2007 Bonds 68,850 68,850 Series A of 2005 Bonds 65,000 65,000 Series B of 2005 Bonds 62,300 62,300 Series 2002 Bonds 50,000 50,000 Series A of 1998 Bonds 27,700 27,700 Total tax-exempt revenue bonds 1,435,225 1,217,940 Other long-term debt Bank loans 30,821 3,538 Notes payable 13,222 14,228 Capital leases 30,133 11,181 Total debt 1,509,401 1,246,887 Less: current installments (18,249) (9,957) Unamortized premium and fair market value adj. 13,508 12,823 $ 1,504,660 $ 1,249,753

21 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Maturities of long-term debt for the next five years and thereafter for the years ending June 30 are as follows:

2017 $ 18,249 2018 23,156 2019 28,855 2020 37,109 2021 38,201 Thereafter 1,363,831 $ 1,509,401

Montour County, Pennsylvania, established the Geisinger Authority (the “Authority”) for the purpose of financing through tax exempt bonds certain capital projects of GHS and other nonprofit organizations within the Commonwealth of Pennsylvania and, under certain circumstances, contiguous states. All but the Series 2007 Lewistown Bonds, Series 2011 Bonds Holy Spirit Hospital and Series B of 2011 Bonds Holy Spirit Hospital were issued through the Authority. The Foundation has entered into a Master Trust Indenture (“MTI”) with the bond trustee that governs all debt issued thereunder. All of the bonds listed below have now been issued master notes under the MTI. Under the terms of the MTI, substantially all indebtedness is a joint and several obligation of the Obligated Group, whose sole present member is the Foundation. Supplemental indentures governed by the existing MTI were issued with each new bond issuance. The proceeds from the bond issuances were used for the purpose of financing capital projects or to refinance other bonds.

Fixed rate bonds have various installments of principal due prior to maturity. Variable rate demand bonds (“VRDB”), bank held rate, and index floating rate bonds have balloon payments due upon maturity. The following table provides information on each bond issue. Average interest rates include the impact of a discount or premium and remarketing and liquidity fees.

Interest Final Average Interest Rate Bond Issue Rate Mode Par Maturity 2016 2015

Series A of 2015 Bonds Bank Held Rate $ 102,500 07/01/37 0 .8 % N/A Series B of 2015 Bonds Fixed Rate 31,495 12/01/30 1 .2 % N/A Series C of 2015 Bonds Fixed Rate 30,305 07/01/25 1 .8 % N/A Series D of 2015 Bonds Fixed Rate 60,000 04/01/42 2 .4 % N/A Series E of 2015 Bonds Bank Held Rate 50,000 06/01/39 0 .7% N/A Series F of 2015 Bonds Bank Held Rate 65,000 06/01/39 0 .7% N/A Series A of 2014 Bonds Fixed Rate 48,040 06/01/41 4 .2 % 4 .2 % Series B of 2014 Bonds Bank Held Rate 62,700 06/01/28 1 .3 % 1 .2 % Series A of 2013 Bonds VRDB 65,000 10/01/43 0 .5 % 0 .4 % Series B of 2013 Bonds VRDB 50,000 10/01/43 0 .5 % 0 .3 % Series C of 2013 Bonds Bank Held Rate 84,700 10/01/43 0 .9 % 0 .8 % Series D of 2013 Bonds Bank Held Rate 84,700 10/01/43 1 .0 % 0 .9 % Series 2011 Bonds Holy Spirit Hospital Fixed Rate 45,010 01/01/41 5 .7 % 5 .6 % Series B of 2011 Bonds Holy Spirit Hospital Fixed Rate 33,640 01/01/41 5 .6 % 5 .6 % Series A-1 of 2011 Bonds Fixed Rate 100,000 06/01/41 4 .8 % 4 .8 % Series A-2 of 2011 Bonds Fixed Rate 23,580 06/01/28 4 .3 % 4 .1 % Series B of 2011 Bonds VRDB 50,000 06/01/41 0 .4 % 0 .3 % Series A of 2009 Bonds Fixed Rate 157,000 06/01/39 5 .2 % 5 .2 % Series 2007 Lewistown Bonds Fixed Rate 17,705 07/01/30 5 .1 % 5 .1 % Series 2007 Bonds Index Floating Rate 68,850 05/01/37 1 .1 % 0 .9 % Series A of 2005 Bonds VRDB 65,000 05/15/35 0 .6 % 0 .5 % Series B of 2005 Bonds VRDB 62,300 08/01/22 0 .4 % 0 .3 % Series 2002 Bonds VRDB 50,000 11/15/32 0 .6 % 0 .4 % Series A of 1998 Bonds Fixed Rate 27,700 08/15/23 5 .2 % 5 .2 %

22 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

All VRDB are supported by standby bond purchase agreements. The standby bond purchase agreements provide loans to GHS in the amounts necessary to purchase variable rate bonds that are not remarketed.

The MTI and various bank obligations require GHS to maintain, as of June 30, an annual debt coverage ratio of 1.1 to 1. GHS is in compliance with the covenant as of June 30, 2016.

Net interest paid including swap agreements was $39.4 million and $32.0 million in 2016 and 2015, respectively.

7. Derivative Instruments

During 2007, Foundation entered into two interest rate swap agreements with a total outstanding notional amount of $68.9 million at both June 30, 2016 and 2015 remaining in effect until May 1, 2037. During the term of the swaps, the swaps effectively converts variable rate debt to a fixed rate. Under the swaps, Foundation pays a fixed rate of 4.40% times the notional amount and receives a floating rate equal to 67% of the London Inter-Bank Offer Rate (“LIBOR”) plus 0.77%. Net interest paid or received under the swap agreements is included in interest expense in the Consolidated Statements of Operations and Changes in Net Assets. This transaction qualifies as an effective cash flow hedge, and therefore, the changes in fair value are reported as unrealized gain or loss on derivative within other changes in unrestricted net assets in the Consolidated Statements of Operations and Changes in Net Assets.

In September 2005, Foundation entered into an interest rate swap agreement with a total outstanding notional amount of $27.4 million at June 30, 2016 and $30.3 million at June 30, 2015 decreasing incrementally to $0 by August 1, 2028. During the term of the swap, the swap effectively converts variable rate debt to a fixed rate. Under the swap, Foundation pays a fixed rate of 3.40% times the notional amount and receives a floating rate equal to 68% of the LIBOR. Payments under the swap were exchanged beginning September 2008. Net interest paid or received under the swap agreement is included in interest expense in the Consolidated Statements of Operations and Changes in Net Assets. This transaction does not qualify as an effective cash flow hedge, and therefore, the changes in fair value are recognized as an unrealized gain or loss on derivatives within the investing and financing activities in the Consolidated Statements of Operations and Changes in Net Assets.

During 2001, Foundation entered into an interest rate swap agreement with a total outstanding notional amount of $80.0 million at June 30, 2016 and 2015. The swap has a notional amount of $80.0 million from inception until August 1, 2022 and $40.0 million from August 1, 2022 to August 1, 2028. During the term of the swap, the swap effectively converts variable rate debt to a fixed rate. Under the swap, Foundation pays a fixed rate of 4.86% times the notional amount and receives a rate equal to the Securities Industry and Financial Markets Association (“SIFMA”) rate, an index of high-grade tax-exempt variable rate demand obligations. This transaction does not qualify as an effective cash flow hedge, and therefore, the changes in fair value are recognized as an unrealized gain or loss on derivatives within the investing and financing activities in the Consolidated Statements of Operations and Changes in Net Assets.

During 2001, Foundation also entered into an option that provides Foundation with 0.85% times the same notional amount of the swap. In exchange for the premium, Foundation granted the counterparty the right to create a derivative transaction with the same remaining terms as the swap, but with the counterparty as the fixed-rate payor and Foundation as the floating-rate payor. This derivative would have cash flows exactly opposite to the swap. The counterparty may only

23 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

exercise this option if SIFMA has averaged more than 7% for six consecutive months. As of June 30, 2016, this option has not been triggered.

AtlantiCare Health Services, Inc. is a party to an interest rate collar agreement with a commercial bank. The collar has a notional amount of $13.5 million at June 30, 2016. The cap and floor are set at 7.30% and 5.15%, respectively. This transaction qualifies as an effective cash flow hedge, and therefore, the changes in fair value are reported as unrealized gain or loss on derivative within other changes in unrestricted net assets in the Consolidated Statements of Operations and Changes in Net Assets.

The fair value of the swaps and the option, which are recorded in other liabilities and contingencies in the Consolidated Balance Sheets, is as follows:

(Level 2) June 30, 2016 2015 Derivatives designated as hedging instruments Swap (2007) $ 29,358 $ 19,063 Collar 1,364 N/A Total derivatives designated as hedging instruments 30,722 19,063 Derivatives not designated as hedging instruments Swap (2001) 25,794 21,391 Swap (2005) 5,853 4,315 Option (5,475) (5,250) Total derivatives not designated as hedging instruments 26,172 20,456 Derivative liability balance $ 56,894 $ 39,519

Management intends to hold the derivative contracts to maturity and records noncash entries to account for fluctuations in their market values. The following table shows the change in derivative liability values at June 30:

2016 2015 Derivative liability value at beginning of year $ 39,519 $ 35,198 AtlantiCare acquisition 1,650 - Unrealized loss recorded in investing and financing activities 5,716 728 Unrealized loss recorded as a component of changes in net assets 10,009 3,593 Derivative liability value at end of year $ 56,894 $ 39,519

Based on provisions contained in the swap agreements regarding the aggregate position of derivative instruments, collateral of $10.2M as cash was posted as of June 30, 2016.

24 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

8. Operating Leases

GHS leases equipment and real property under operating leases, some of which require increasing monthly payments expiring over the next several years. Expenses under such operating leases during the years ended June 30, 2016 and 2015 were $46.2 million and $40.6 million, respectively.

The following is a schedule by year of future minimum lease payments under noncancelable operating leases as of June 30, 2016:

Year Ending June 30, 2017 $ 29,813 2018 19,606 2019 14,495 2020 10,992 2021 9,050 2022 and after 31,180 $ 115,136

9. Retirement and Deferred Compensation Plans

Substantially all employees participate in defined-contribution plans. Employer contributions to the plans were $79.0 million and $71.8 million for the years ended June 30, 2016 and 2015, respectively.

Various 457(b) and 457(f) nonqualified deferred compensation plans are offered to physicians and other highly compensated employees. The investments held in these deferred compensation plans are recorded in other assets with a corresponding liability in other liabilities and contingencies in the Consolidated Balance Sheets.

Geisinger Community Medical Center (GCMC), Geisinger-Bloomsburg Hospital (G-BH), and Geisinger-Lewistown Hospital (G-LH) sponsor defined-benefit plans that are frozen to new participants and further accumulation of service benefits. AHS sponsors a defined-benefit plan and a postretirement welfare plan that are both frozen to new participants. The projected benefit obligation, the fair value of plan assets, and the accrued pension costs recognized in the Consolidated Balance Sheet as other liabilities and contingencies for all GHS defined-benefit plans at June 30, 2016 were $713.0 million, $493.6 million, and $219.4 million, respectively. The same amounts for 2015 were $180.0 million, $132.9 million, and $47.1 million, respectively. The acquisition of AHS resulted in a $141.3M increase in accrued pension cost as of June 30, 2016.

The hospitals intend to contribute approximately $12.6 million to the plans in 2017.

The assumptions used in computing the total net periodic pension cost and total benefit obligation for the sponsors of the retirement plans at June 30, 2016 and 2015 are as follows:

2016 2015 GCMC GLH GBH AHS GCMC GLH GBH

Discount rate, net periodic pension cost 4.27% 4.27% 4.27% 3.85% 4.16% 4.19% 4.16% Discount rate, total benefit obligation 3.40% 3.40% 3.40% 3.20% 4.27% 4.27% 4.27% Expected long-term return on plan assets 6.50% 6.50% 6.50% 7.75% 6.50% 6.00% 6.00%

25 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

The following tables set forth the composition of plan assets, inputs used to measure those assets, actual and target asset allocations at June 30:

2016 Actual Level 1 Level 2 Level 3 NAV Total Allocation

Equity funds $ 279,176 $ 8,782 $ - $ - $ 287,958 57% Fixed income funds - 152,225 - - 152,225 31% Hedge Fund Equity - - - 37,093 37,093 8% Hedge Fund Fixed - - - 2,592 2,592 1% Private Equity - - - 7,847 7,847 2% Cash and cash equivalents 5,843 - - - 5,843 1%

$ 285,019 $ 161,007 $ - $ 47,532 $ 493,558 100%

2015 Actual Level 1 Level 2 Level 3 NAV Total Allocation

Equity funds $ 83,725 $ 7,897 $ - $ - $ 91,622 69% Fixed income funds - 33,678 - - 33,678 25% Cash and cash equivalents 7,569 - - - 7,569 6%

$ 91,294 $ 41,575 $ - $ - $ 132,869 100%

Target investment allocations for each plan are as follows:

GCMC GLH GBH AHS

Equity funds 54-78% 54-78% 54-78% 40-60% Fixed income funds 22-46% 22-46% 22-46% 20-40% Hedge Fund Equity NA NA NA 0-20% Hedge Fund Fixed NA NA NA 0-20% Private Equity NA NA NA 0-20% Cash and cash equivalents 0-20% 0-20% 0-20% 0-10%

The following is a schedule by year of estimated future benefit payments as of June 30, 2016:

Year Ending June 30, 2017 $ 33,384 2018 36,678 2019 39,888 2020 44,244 2021 51,202 2022-2026 252,754 $ 458,150

26 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

10. Hospital and Provider Professional Liability Claims Coverage

In the ordinary course of business, various claimants have asserted professional and general liability claims against GHS. 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, that may result in the assertion of additional claims. GHS has accrued its best estimate of both asserted and unasserted claims based on actuarially determined amounts.

Certain entities insure hospital and provider professional liability claims coverage through a captive insurance program with Geisinger Insurance Corporation, Risk Retention Group (“RRG”), which is reinsured through Geisinger Assurance Company, Ltd. (“GAC”). The limits of the professional liability coverage relating to the years ended June 30, 2016 and 2015 are subject to the following sublimits:

Institutional professional liability $0.5 million per claim; $2.5 million annual aggregate Physician professional liability $0.5 million per claim; $1.5 million annual aggregate Non-MCARE Entities' professional liability $1.0 million per claim; $1.0 million annual aggregate Employed Allied Healthcare and Dentists $1.0 million per claim; $3.0 million annual aggregate Long-Term Care Facility $1.0 million per claim; $3.0 million annual aggregate

Certain entities insure hospital and provider professional liability and general liability claims coverage through a captive insurance program with English Creek Assurance, Ltd. (“ECA”). The limits of the professional liability coverage relating to the years ended June 30, 2016 and 2015 are subject to the following sublimits:

Institutional professional (6/30/14-4/14/15) $1.0 million per claim; $3.0 million annual aggregate Institutional professional (4/14/15-6/30/16) $1.0 million per claim; $5.5 million annual aggregate General liability $1.0 million per claim; $1.0 million annual aggregate Physician professional liability $1.0 million per claim; $3.0 million annual aggregate* * overall policy aggregate of $7.0M

The loss accruals, which were discounted at a rate of 3% for 2016 and 2015, include estimates of known and incurred but not reported losses based on annual actuarial studies and are reported in other liabilities and contingencies in the Consolidated Balance Sheets. Amounts expected to be paid out in the next twelve months are reported as a current liability in accrued expenses and other in the Consolidated Balance Sheets. The total net loss accruals were $188.4 million and $150.2 million at June 30, 2016 and 2015, respectively.

GAC has also issued a direct policy, on a claims-made basis, for miscellaneous professional liability, which is not covered by the Medical Care Availability and Reduction of Error (“MCARE”) Fund. The policy provides limits of $1.0 million per occurrence with no aggregate limit. This policy has a retroactive date of July 1, 1985 and later.

The MCARE Act was enacted by the legislature of the Commonwealth of Pennsylvania (“Commonwealth”) in 2002. This act created the MCARE Fund, which replaced The Pennsylvania Medical Professional Liability Catastrophe Loss Fund (the “Medical CAT Fund”), to facilitate the payment of medical malpractice claims exceeding the primary layer of professional liability insurance carried by GHS and other healthcare providers practicing in the Commonwealth. The MCARE Fund is funded on a “pay-as-you-go-basis” and assesses healthcare providers, calculated as a percentage of the rates established by the Joint Underwriting Association (also a Commonwealth of Pennsylvania agency), for basic coverage. The MCARE act provides for the gradual phase-out of Medical CAT Fund coverage; however, this has been deferred by the

27 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

Pennsylvania legislature and will be considered in the future. The MCARE Act does not apply to entities insured by ECA.

The actuarially computed liability for all healthcare providers (hospital, physicians, and others) participating in the MCARE Fund at December 31, 2014 (the latest date that such information is available) was $1.08 billion. Even though the MCARE Fund coverage will eventually be phased out, the Commonwealth has indicated that the unfunded liability will likely be funded through assessments in future years as MCARE Fund-covered claims are eventually settled and paid. The Commonwealth has agreed to devote the proceeds of the Automobile Catastrophe Fund surcharge, estimated at $40 million per year for 10 years (for a total of $400 million), to help offset the MCARE Fund unfunded liability.

GHS’s annual premiums for participation in the MCARE Fund were $4.5 million and $8.0 million for the years ended June 30, 2016 and 2015. No provision has been made for any future MCARE Fund assessments in the accompanying financial statements as GHS’s portion of the MCARE Fund unfunded liability cannot be reasonably estimated.

Certain entities are provided reinsurance and/or excess coverage through a captive insurance programs with GAC, ECA and excess commercial policies. The reinsurance and/or excess coverage provides coverage above the primary and MCARE Fund layers where applicable.

11. Revenue, Charity Care, and Accounts Receivable, Net

Major components of revenue consist of the following:

2016 2015 Revenue % of Total Revenue % of Total

Net patient service revenue Medicare (MC) $ 904,428 16.3% $ 681,453 14.9% Medical Assistance (MA) 258,513 4.7% 238,530 5.2% Other payors 1,810,097 32.7% 1,283,361 28.1%

2,973,038 53.7% 2,203,344 48.2

Premium revenue MC Advantage 942,758 17.0% 887,545 19.4% Commercial 644,557 11.6% 670,413 14.7% MA and other state programs 769,776 13.9% 638,101 14.0%

2,357,091 42.5% 2,196,059 48.1%

212,811 3.8% 165,236 3.7%

Other revenue $ 5,542,940 100.0% $ 4,564,639 100.0%

Laws and regulations governing MC and MA are complex and subject to interpretation. GHS is aware of these laws and regulations and, to the best of its knowledge and belief, is in compliance with them. Amounts received from MC and MA are subject to review and final determination by program intermediaries or their agents. Tentative settlements of these amounts have been completed through June 30, 2015. Provisions have been made in the accompanying financial statements for anticipated adjustments and are included in estimated third-party payor settlements on the Consolidated Balance Sheets.

28 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

The cost of charity service provided was approximately $62.6 million and $44.2 million in 2016 and 2015, respectively. The costs of charity care are derived from both estimated and actual data. The estimated cost of charity includes the direct and indirect cost of providing such services and is estimated utilizing the providers’ ratio of cost to gross charges, which is then multiplied by the gross uncompensated charges associated with providing care to charity patients. In addition to charity service, services are provided under the MA program to financially needy patients. The payments received under this program are less than the cost of providing the services. The unpaid cost of this program was approximately $288.0 million and $183.2 million for the years ended June 30, 2016 and 2015, respectively. In addition, bad debt expense associated with net patient service revenue was $49.4 million and $50.1 million for the years ended June 30, 2016 and 2015, respectively.

GHS grants credit without collateral to its patients, most of whom are local residents and are insured under third-party payor agreements. There are no significant concentrations, payors comprising 10%, of risk in accounts receivable.

Major components of accounts receivable, net of estimated uncollectibles consist of the following:

2016 2015 Clinical services $ 292,595 $ 212,059 Insurance operations 234,473 240,310 Other 85,212 89,458 $ 612,280 $ 541,827

Premium revenue from MC Advantage products is based on a risk-adjustment model according to health severity that pays more for enrollees with predictably higher costs. Under this model, rates paid to MC Advantage plans are based on actuarially determined bids, which include a process whereby prospective payments are based on a comparison of beneficiaries’ risk scores, derived from medical diagnoses, to those enrolled in the government’s original MC program. Under the risk-adjustment model, all MC Advantage plans must collect and submit the necessary diagnosis code information from hospital inpatient, hospital outpatient, and physician providers to CMS within prescribed deadlines. The Centers for Medicare and Medicaid Services (CMS) risk-adjustment model uses this diagnosis data to calculate the risk adjusted premium payment to MC Advantage plans.

CMS is continuing to perform audits of various companies’ selected MC Advantage contracts related to this risk adjustment diagnosis data. These Risk-Adjustment Data Validation Audits review medical record documentation in an attempt to validate provider coding practices and the presence of risk adjustment conditions, which influence the calculation of premium payments to MC Advantage plans. In February 2012, CMS released a final version of the audit methodology, which included guidance on: 1) a fee-for-service adjustment factor that will further reduce any identified payment error rate in the event of a CMS audit, 2) the exposure period, which limits exposure to plan payment years 2011 and beyond, and 3) CMS has selected 30 plans for audit years 2011 and 2012. MC Advantage premiums and related receivables are subject to estimation based upon the diagnosis data submitted to CMS and ultimately accepted by CMS.

29 Geisinger Health System Notes to Consolidated Financial Statements June 30, 2016 and 2015 (dollars in thousands unless otherwise noted)

12. Functional Expenses

GHS provides comprehensive healthcare services (including primary and tertiary care, trauma care, psychiatric care, and outpatient surgery) and operates a licensed HMO and PPOs providing comprehensive health care to subscribers. Healthcare services are provided primarily to residents in northeastern and central Pennsylvania and southern New Jersey.

Expenses related to providing these services (including interest expense) are as follows:

2016 2015 Health care and program services $ 3,510,283 $ 2,685,834 HMO and PPO services 1,313,582 1,262,945 Basic and clinical research 51,732 48,524 General and administrative 539,475 440,282 $ 5,415,072 $ 4,437,585

13. Temporarily Restricted Net Assets

Temporarily restricted net assets are available for the following purposes:

June 30, 2016 2015 Purchase of equipment $ 33,708 $ 27,897 Support operations 21,069 22,220 $ 54,777 $ 50,117

Net assets were released from donor restriction by incurring expenditures satisfying the restricted purpose to support operations and capital purchases in the amount of $14.5 million and $7.7 million for the years ended June 30, 2016 and 2015, respectively.

14. Contingent Liabilities and Commitments

GHS is involved in litigation arising in the ordinary course of business. After consultation with legal counsel, management believes that the outcome will not materially affect the financial statements of GHS.

The Foundation maintains $50.0 million of credit facilities for the issuance of letters of credit. As of June 30, 2016 and 2015, $28.9 million and $28.8 million of standby letters of credit were outstanding, respectively. The Foundation also maintains a $50.0 million working capital line of credit under which no balances were outstanding at June 30, 2016.

GHS has outstanding commitments on construction projects totaling $76.6 million and $91.2 million at June 30, 2016 and 2015, respectively.

15. Subsequent Events

Management has evaluated subsequent events through September 21, 2016, which represents the date the financial statements were available for issuance, to ensure that the financial statements include appropriate disclosure of events both recognized in the financial statements as of June 30, 2016, and events which occurred subsequent to June 30, 2016, but were not recognized in the financial statements.

APPENDIX C

DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE, THE TWENTY-SEVENTH SUPPLEMENTAL INDENTURE, THE INDENTURE AND THE LOAN AGREEMENT [THIS PAGE INTENTIONALLY LEFT BLANK] The following are definitions of certain terms and summaries of certain provisions of the Master Indenture, the Twenty-Seventh Supplemental Master Trust Indenture, the Indenture and the Program Loan Agreement. The summaries contained in this Appendix should not be regarded as full statements of the documents themselves or of the portions summarized. Reference is made to the documents in their entireties for the complete statements of the provisions thereof, copies of which are on file at the principal corporate trust office of the Trustee. The summary of the Indenture reflects the issuance of multiple series of bonds, the possibility of which is set forth under “Plan of Finance” in the forepart of this official statement. References to Series 2017B Bonds are not applicable to the Series 2017A Bonds.

DEFINITIONS OF CERTAIN TERMS

The following are definitions of certain terms used in the summaries of the Master Indenture, the Twenty- Seventh Supplemental Master Trust Indenture, the Trust Indenture and the Program Loan Agreement and not otherwise defined in this Official Statement or the appendices hereto.

“Accelerable Instrument” means any Obligation or any mortgage, indenture, loan agreement or other instrument under which there has been issued or incurred, or by which there is secured, any Indebtedness evidenced by an Obligation, which Obligation expressly states that it or such instrument is an Accelerable Instrument within the meaning of the Master Indenture and provides that, upon the occurrence of an event of default under such Obligation or instrument, the holder of such Obligation may request, upon providing the Master Trustee with indemnity to its satisfaction, that the Master Trustee declare such Obligation or Indebtedness due and payable prior to the date on which it would otherwise become due and payable in accordance with the Master Indenture.

“Adjusted Expenses” means, for any period, the aggregate of all expenses calculated under generally accepted accounting principles, including without limitation any taxes, incurred by the Person or group of Persons involved during such period, minus (a) interest on Long-Term Indebtedness, (b) depreciation and amortization, (c) any unrealized loss resulting from changes in the value of investment securities, (d) extraordinary expenses (including without limitation losses on the sale of assets other than in the ordinary course of business and losses on the extinguishment of debt), (e) any expenses resulting from a forgiveness of or the establishment of reserves against Indebtedness of an Affiliate which does not constitute an extraordinary expense and, if such calculation is being made with respect to the System, excluding any such expenses attributable to transactions between any System Affiliate and any other System Affiliate, (f) losses resulting from any reappraisal, revaluation or write-down of asset, and (g) any items which would be considered by the Obligated Group Agent to be non-cash items of the Person or group of Persons involved in accordance with generally accepted accounting principles.

“Affiliate” means a corporation, limited liability company, partnership, joint venture, association, business trust or similar entity (a) which is controlled directly or indirectly by a Member; or (b) a majority of the members of the Directing Body of which are members of the Directing Body of a Member. For the purposes of this definition, control means with respect to: (a) a corporation having stock, the ownership, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such corporation; (b) a not for profit corporation not having stock, having the power to elect or appoint, directly or indirectly, a majority of the members of the Directing Body of such corporation; or (c) any other entity, the power to direct the management of such entity through the ownership of at least a majority of its voting securities or the right to designate or elect at least a majority of the members of its Directing Body, by contract or otherwise. For the purposes of this definition, “Directing Body” means with respect to: (a) a corporation having stock, such corporation’s board of directors and the owners, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporation’s directors (both of which groups shall be considered a Directing Body); (b) a not for profit corporation not having stock, such corporation’s members if the members have complete discretion to elect the corporation’s directors, or the corporation’s directors if the corporation’s members do not have such discretion; and (c) any other entity, its governing board or body. For the purposes of this definition, all references to directors and members shall be deemed to include all entities performing the function of directors or members however denominated.

C-1 “Alternate Liquidity Facility” means any bond purchase agreement, letter of credit or other liquidity enhancement or support facility, including self-liquidity entered into with respect to the 2017B Bonds pursuant to the Indenture.

“Approval of Bond Counsel” or “Opinion of Bond Counsel” means an opinion of Bond Counsel to the effect that an action proposed to be taken will not adversely affect validity of the 2017 Bonds or the exclusion from gross income for federal income tax purposes to which interest on the 2017 Bonds would otherwise be entitled.

“Authenticating Agent” means the Trustee, the Bond Registrar, and any agent so designated in and appointed pursuant to the Indenture.

“Bank” means any bank or other financial institution that purchases the 2017B Bonds pursuant to a Direct Placement Agreement.

“Bank Bond” means a 2017B Bond which is registered in the name of the Liquidity Facility Issuer pursuant to a purchase under the Liquidity Facility except during any period in which such 2017B Bond is deemed not to be a Bank Bond pursuant to the Liquidity Facility.

“Bank Bond Rate” means the rate at which interest accrues on Bank Bonds, which rate is set forth in the Liquidity Facility.

“Bank Held Rate” means the Interest Rate Mode for the 2017B Bonds in which the interest rate for the 2017B Bonds is determined with respect to the 2017B Bonds as provided in the Indenture.

“Bank Held Rate Period” means with respect to any 2017B Bond in the Bank Held Rate, each period determined for such Bond as provided in the Indenture.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of a Person to have been duly adopted by the Governing Body of such Person and to be in full force and effect on the date of such certification, and delivered to the Master Trustee.

“Bond Counsel” means an attorney-at-law or a firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America, selected by the Authority and approved by the Program Administrator.

“Bondholder” or “Holder” or “Owner of Bonds” with respect to the Indenture means the registered owner of any Bond other than the registered owner of any Bond which has been purchased pursuant to the Indenture and surrendered for payment of the purchase price thereof.

“Bondholder,” “holder” or “owner of the Bonds” with respect to the Master Indenture means the registered owner of any Related Bond.

“Bond Register” and “Bond Registrar” shall have the respective meanings specified in the Indenture.

“Book-Entry Participant” means any broker, dealer, bank, financial institution or other Person for whom, from time to time, the Securities Depository effectuates book-entry transfers and pledges of securities deposited with the Securities Depository.

“Book Value,” when used with respect to Property, means the value of such Property, net of accumulated depreciation and amortization, as reflected in the most recent consolidated audited financial statements of the System which have been prepared in accordance with generally accepted accounting principles, provided that such aggregate shall be calculated in such a manner that no portion of the value of any Property of any System Affiliate is included more than once.

“Business Day” means any day other than a Saturday or Sunday or legal holiday or a day on which banking institutions in the city or cities in which the Principal Offices of the Trustee, the Tender Agent or the Remarketing Agent are located or any day that the New York Stock Exchange is closed or the city in which demands for the

C-2 purchase of 2017B Bonds under the Liquidity Facility are required to be made are authorized or required by law or executive order to close, provided that for the purposes of determining One Month LIBOR, Business Day shall mean a day on which banks in New York, New York and London, England are open for the transaction of international business.

“Calculation Agent” means (i) for the initial Index Floating Rate Period for the 2017B Bonds, the Trustee or an agent appointed by the Trustee to calculate the Index Floating Rate and (ii) for each subsequent Index Floating Rate Period, a Calculation Agent as may be selected by the Corporation, its successors or assigns.

“Capital Assets” means any land, plants, buildings, structures, facilities, computer software, equipment or machinery, the costs of the acquisition, construction, renovation, equipping or expansion of which is financed, refinanced or reimbursed by any Loan made pursuant to the Program Loan Agreement.

“Capitalized Interest” means amounts irrevocably deposited in escrow to pay interest on Long-Term Indebtedness or Related Bonds and interest earned on amounts irrevocably deposited in escrow to the extent such interest earned is required to be applied to pay interest on Long-Term Indebtedness or Related Bonds.

“Capitalized Lease” means any lease of real or personal property which, in accordance with generally accepted accounting principles, is required to be capitalized on the balance sheet of the lessee.

“Capitalized Rentals” means, as of the date of determination, the amount at which the aggregate Net Rentals due and to become due under a Capitalized Lease under which a Person is a lessee would be reflected as a liability on a balance sheet of such Person.

“Closing” means each execution and delivery of a Loan Schedule and the satisfaction of the conditions therefor set forth in the Indenture.

“Code” means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a section of the Code herein shall be deemed to include the United States Treasury Regulations, including temporary and proposed regulations, relating to such section which are applicable to the Related Bonds or the use of the proceeds thereof.

“Commercial Paper Rate” means the Interest Rate Mode for the 2017B Bonds in which the interest rate for each Bond is determined with respect to any Bond as provided in the Indenture.

“Commercial Paper Rate Period” means with respect to any 2017B Bond, each period determined for such Bond as provided in the Indenture.

“Consultant” means a professional consulting, financial advisory, accounting, investment banking or commercial banking firm selected by the Obligated Group Agent and not unacceptable to the Master Trustee, having the skill and experience necessary to render the particular report required and having a favorable and nationally recognized reputation for such skill and experience, which firm does not control any Member of the Obligated Group or any Affiliate thereof and is not controlled by or under common control with any Member of the Obligated Group or an Affiliate thereof.

“Controlling Member” means the Member designated by the Obligated Group Agent to establish and maintain control over a Designated Affiliate.

“Conversion” means any conversion from time to time in accordance with the terms of this Indenture of the 2017B Bonds (i) from one Interest Rate Mode to another Interest Rate Mode or (ii) from one Index Floating Rate Period to another Index Floating Rate Period. The adjustment of the interest rate on any 2017B Bond to the Bank Bond Rate shall not constitute a Conversion.

“Conversion Date” means the first date any Conversion becomes effective.

“Corporation” means Geisinger Health (formerly known as Geisinger Health System Foundation), a Pennsylvania nonprofit corporation, and its successors and assigns and any surviving, resulting or transferee corporation.

C-3 “Cost or Costs” means all costs which are allocable to a Project and properly capitalized under generally accepted accounting principles and all other costs (whether or not properly capitalized) which are incidental thereto and reasonably necessary or desirable in connection therewith (or incidental to and reasonably necessary or desirable in connection with the financing thereof). For Projects involving construction, “Costs” includes, without limitation, interest during the construction period and the fees of each Liquidity Facility Issuer, the Remarketing Agent, the Paying Agent, the Bond Registrar, the Tender Agent and the Trustee allocable to the Project during the construction period.

“Cost of Issuance Fund” means the fund so designated which is established pursuant to the Indenture.

“Counsel” with respect to the Indenture means an attorney at law or law firm (who may be counsel for the Authority, the Program Administrator or a Participant) not unsatisfactory to the Trustee.

“Counsel” with respect to the Master Indenture means an attorney duly admitted to practice law before the highest court of any state and, without limitation, may include legal counsel for the Corporation, any other Member or the Master Trustee.

“Current Assets” means cash and cash equivalent deposits, marketable securities, accounts receivable, accrued interest receivable and any other assets of a Person ordinarily considered current assets under generally accepted accounting principles.

“Current Value” means the estimated fair market value of Property, which fair market value shall be evidenced by an Officer’s Certificate of the Obligated Group Agent delivered to the Master Trustee.

“Daily Rate” means the Interest Rate Mode for the 2017B Bonds in which the interest rate on such 2017B Bonds is determined on each Business Day in accordance with the Indenture.

“Daily Rate Period” means any Business Day on which the Interest Rate Mode for the 2017B Bonds is the Daily Rate through the day preceding the next Business Day.

“Debt Service Fund” means the trust fund so designated which is established pursuant to the Indenture.

“Debt Service Requirements” means, with respect to the period of time for which calculated, the aggregate of the payments required to be made during such period in respect of principal (whether at maturity, as a result of mandatory sinking fund redemption, mandatory prepayment or otherwise) and interest on outstanding Long-Term Indebtedness of each Person or a group of Persons with respect to which calculated; provided that: (a) interest shall be excluded from the determination of the Debt Service Requirements to the extent that Capitalized Interest is available to pay such interest; and (b) principal of Indebtedness shall be excluded from the determination of Debt Service Requirements to the extent that amounts are on deposit in an irrevocable escrow and such amounts (including, where appropriate, the earnings or other increment to accrue thereon) are required to be applied to pay such principal and such amounts so required to be applied are sufficient to pay such principal.

“Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Designated Affiliate” means any Person which has been designated as such so long as such Person’s status as a Designated Affiliate has not been terminated. The Designated Affiliates are listed on Exhibit B to the Master Indenture, as amended. The Obligated Group Agent may from time to time deliver a revised Exhibit B to the Master Trustee, indicating additions or deletions of Designated Affiliates.

“Direct Placement Agreement” means any agreement pursuant to which a Bank agrees to purchase and hold a Series of Variable Bonds bearing interest at a Bank Held Rate.

“Escrow Obligations” means, (i) with respect to any Obligation which secures a series of Related Bonds, the obligations permitted to be used to refund or advance refund such series of Related Bonds under the Related Bond Indenture, or (ii) with respect to any other Obligation, those securities identified in the Supplemental Master Indenture pursuant to which such Obligations were issued.

C-4 “Event of Default” means any of the events specified in the Indenture to be an Event of Default. “Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Facilities” means all land, leasehold interests and buildings and all fixtures and equipment (as defined in the Uniform Commercial Code or equivalent statute in effect in the state where such fixtures or equipment are located) of a Person.

“Fiscal Year” means any twelve-month period beginning on July 1 of any calendar year and ending on June 30 of such calendar year or such other consecutive twelve-month period selected by the Obligated Group Agent as the fiscal year for the System and designated from time to time in writing by the Obligated Group Agent to the Master Trustee; for purposes of making historical calculations or determinations set forth in the Master Indenture on a Fiscal Year basis, or for purposes of combinations or consolidation of accounting information, with respect to those entities whose actual fiscal year is different from that designated above, the actual fiscal year of such entities which ended within the Fiscal Year of the Obligated Group shall be used; provided, however, that for purposes of making any calculations or determinations as set forth in the Master Indenture, the Obligated Group Agent may designate in writing to the Master Trustee as the “Fiscal Year” any twelve-month period. Whenever the Master Indenture refers to a Fiscal Year of a specific entity, such reference shall be to the actual fiscal year adopted by such entity.

“Fitch” means with respect to the Indenture, Fitch Ratings, its successors and assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency with respect to municipal revenue bonds, such as the 2017 Bonds, “Fitch” shall be deemed to refer to any other nationally recognized securities ratings agency designated, in writing, by the Program Administrator.

“Fixed Rate” means the rate to be borne by the 2017B Bonds from and after its Conversion, if any, to its final maturity, which shall be the rate that, in the judgment of the Remarketing Agent, is necessary to enable the 2017B Bonds to be remarketed at the principal amount thereof, plus accrued interest, if any on the Conversion Date and results in the lowest net interest cost to maturity.

“Fixed Rate Bonds” means any 2017B Bonds that bear interest at a Fixed Rate.

“Funds” means the Cost of Issuance Fund, Debt Service Fund, Program Fund, Revenue Fund and any other funds established hereunder.

“Governing Body” means the board of directors, board of trustees or similar group in which the right to exercise the powers of corporate directors or trustees is vested or an executive committee of such board or any duly authorized committee of that board to which the relevant powers of that board have been lawfully delegated.

“Government Obligations” means (a) direct obligations of the United States of America, or (b) obligations the timely payment of the principal of and interest on which is unconditionally guaranteed by the United States of America.

“Guaranty” means all obligations of a Person guaranteeing, or in effect guaranteeing, any Indebtedness or other obligation of any Primary Obligor in any manner, whether directly or indirectly including but not limited to obligations incurred through an agreement, contingent or otherwise, by such Person: (1) to purchase such Indebtedness or obligation or any Property constituting security therefor; (2) to advance or supply funds: (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain working capital or other balance sheet condition, (3) to purchase securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the Primary Obligor to make payment of the Indebtedness or obligation; or (4) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof.

“Hedging Obligation” means an obligation, expressly identified in an Officer’s Certificate of the Obligated Group Agent delivered to the Master Trustee as being entered into in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g., a call, put, cap, floor or collar) and which arrangement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof.

C-5 “Historical Debt Service Coverage Ratio” means, for any period of time, the ratio determined by dividing (i) Income Available for Debt Service for that period by (ii) the Debt Service Requirements on Long-Term Indebtedness for such period; provided that, when such calculation is being made with respect to the System, Income Available for Debt Service and Debt Service Requirements shall be determined only with respect to those Persons who are System Affiliates at the close of such period. For purposes of calculating the Historical Debt Service Coverage Ratio, a Guaranty which would otherwise be considered Long-Term Indebtedness shall only be included in the foregoing calculation to the extent that it is shown as a liability (other than a contingent liability) on the balance sheet of the Person making the Guaranty.

“Income Available for Debt Service” means, for any period, the excess of Revenues over Adjusted Expenses of the Person or group of Persons involved.

“Indebtedness” means, for any Person, (a) indebtedness incurred or assumed by such Person for borrowed money or for the acquisition, construction or improvement of Property other than goods that are acquired in the ordinary course of business of such Person; (b) Capitalized Rentals or Capitalized Lease obligations of such Person; and (c) all Guaranties by such Person, and shall include Non-Recourse Indebtedness; provided that Indebtedness shall not include Indebtedness of one System Affiliate to another System Affiliate, any Guaranty by any System Affiliate of Indebtedness of any other System Affiliate, the joint and several liability of any System Affiliate on Indebtedness issued by another System Affiliate, any Hedging Obligations or any obligation to repay moneys deposited by patients or others with a System Affiliate as security for or as prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar facilities to endowment or similar funds deposited by or on behalf of such residents.

“Indenture” means the Trust Indenture as amended or supplemented at the time in question.

“Index” means any of (a) One Month LIBOR, (b) Three Month LIBOR, (c) the SIFMA Index, or (d) any other index chosen by the Corporation.

“Index Floating Rate” means the Interest Rate Mode for the 2017B Bonds in which the interest rate for the 2017B Bonds is determined with respect to the 2017B Bonds as provided in the Indenture.

“Index Floating Rate Percentage” means (i) during the initial Index Floating Rate Period for the 2017B Bonds, __% and (ii) respect to any Conversion of the 2017B Bonds to an Index Floating Rate Period, the percentage determined by the Remarketing Agent on or prior to the Conversion Date pursuant to the Indenture.

“Index Floating Rate Period” means each period during which an Index Floating Rate is in effect for all or any portion of the 2017B Bonds.

“Index Floating Rate Spread” means (i) during the initial Index Floating Rate Period for the 2017B Bonds, ___% and (ii) respect to any Conversion of the 2017B Bonds to an Index Floating Rate Period, the spread determined by the Remarketing Agent on or prior to the Conversion Date pursuant to the Indenture.

“Interest Payment Date” means (a) for the 2017A Bonds, each February 15 and August 15 commencing August 15, 2017 and (b) for the 2017B Bonds, (i) if the Interest Rate Mode is the Daily Rate, the Weekly Rate or the Bank Held Rate, the first Business Day of each month; (ii) if the Interest Rate Mode is the Commercial Paper Rate, the first Business Day following the last day of each Commercial Paper Rate Period for such Bond; (iii) if the Interest Rate Mode is the Long Term Rate, each February 15 and August 15 and the effective date of a change to a new Long Term Rate Period; (iv) if the Interest Rate Mode is the Fixed Rate, each February 15 and August 15 commencing the February 15 and August 15 that is first to occur following the Conversion Date of the 2017B Bonds to the Fixed Rate; (v) if the Interest Rate Mode is the Index Floating Rate and (A) the Index is the SIFMA Index or One Month LIBOR, the first Business Day of each month, (B) the Index is Three Month LIBOR, each February 15, May 15, August 15 and November 15 and (C) without duplication, the final day of each Index Floating Rate Period; and (vi) in each Interest Rate Mode, the Conversion Date. Notwithstanding the foregoing, the Interest Payment Date for each Bank Bond while the Interest Rate Mode is the Commercial Paper Rate shall be the first Business Day of each month and the day the 2017B Bonds ceases to be a Bank Bond, and the Interest Payment Date for each Bank Bond while the Interest Rate Mode is the Long Term Rate shall be the first Business Day of each month and the day

C-6 the 2017B Bonds ceases to be a Bank Bond. In any case, the final Interest Payment Date for any Bond shall be the maturity date.

“Interest Period” means for all 2017 Bonds the period from and including each Interest Payment Date to and including the day next preceding the next Interest Payment Date. The first Interest Period for the 2017 Bonds shall begin on (and include) the date of the initial delivery of the 2017 Bonds. The final Interest Period for any 2017 Bond shall end on (and include) the day preceding its maturity.

“Interest Rate Mode” means the Daily Rate, the Weekly Rate, the Commercial Paper Rate, the Long Term Rate, the Bank Held Rate, the Index Rate and the Fixed Rate. The Bank Bond Rate is not an Interest Rate Mode.

“Lien” means any mortgage, lease or pledge of, security interest in or lien, charge, restriction or encumbrance on any Property of the Person involved which secures Indebtedness (other than from one System Affiliate or Member to another System Affiliate or Member).

“Liquidity Facility” means a standby bond purchase agreement or liquidity agreement, as applicable, and any Alternate Liquidity Facility entered into with respect to the 2017B Bonds.

“Liquidity Facility Issuer” means the provider of any Liquidity Facility or Alternate Liquidity Facility.

“Loan” means a loan made from the Program Fund to a Participant pursuant to the Program Loan Agreement and Loan Schedule.

“Loan Agreement” means the Program Loan Agreement, dated as of May 1, 2017 between the Corporation and the Authority.

“Loan Balance” means, as of any date of calculation, the principal amount loaned (whether or not disbursed) to a Participant pursuant to the Program Loan Agreement and a Loan Schedule less the aggregate principal amount of Loan Repayments and prepayments made on such loan.

“Loan Interest” means the payments so designated, consisting of interest on the Loans, and required to be made by the Participants pursuant to the Program Loan Agreement and the Loan Schedules.

“Loan Repayments” means the payments so designated, consisting of repayments of principal and interest of the Loans, and required to be made by the Participants pursuant to the Program Loan Agreement and the Loan Schedule.

“Loan Schedule” means a Loan Schedule to the Program Loan Agreement executed and delivered by a Participant.

“Long-Term Indebtedness” means, with respect to any Person, (a) all Indebtedness of such Person for money borrowed or credit extended which is not Short-Term; (b) all Indebtedness of such Person incurred or assumed in connection with the acquisition or construction of Property which is not Short-Term; (c) the Person’s Guaranties of Indebtedness which are not Short-Term; and (d) Capitalized Rentals under Capitalized Leases entered into by the Person; provided, however, that (i) Indebtedness that could be described by more than one of the foregoing categories shall not in any case be considered more than once for the purpose of any calculation made pursuant to the Master Indenture and (ii) for purposes of calculating Historical Debt Service Coverage Ratio, a Guaranty which would otherwise be considered Long-Term Indebtedness shall only be included in the calculation of Historical Debt Service Coverage Ratio to the extent that it is shown as a liability (other than a contingent liability) on the balance sheet of the Person making the Guaranty.

“Long Term Rate” means the Interest Rate Mode for the 2017B Bonds in which the interest rate on the 2017B Bonds is determined in accordance with the Indenture.

“Long Term Rate Period” means any period beginning on, and including, the Conversion Date to the Long Term Rate and ending on, and including, the day preceding the Interest Payment Date selected by the Program Administrator and each period of the same duration (or as close as possible) ending on an Interest Payment Date

C-7 thereafter until the earliest of the day preceding the change to a different Long Term Rate Period, the Conversion to a different Interest Rate Mode or the maturity of the 2017B Bonds.

“Master Indenture” means the Master Trust Indenture dated as of August 1, 1998, among the members of the Obligated Group and The Bank of New York Mellon Trust Company, N.A., successor master trustee to PNC Bank, National Association, as amended or supplemented at the time in question.

“Master Indenture Obligation” shall mean any “Obligation” (as defined in the Master Indenture) issued pursuant to the Master Indenture.

“Master Trustee” means The Bank of New York Mellon Trust Company, N.A. (successor to PNC Bank, National Association), or any successor trustee under the Master Indenture.

“Material Designated Affiliate” means any Designated Affiliate whose total revenues as set forth on its financial statements for the most recently completed Fiscal Year for such Designated Affiliate exceed 5% of the combined total revenues of the Obligated Group and the System Affiliates as set forth on the combined financial statements for the most recently completed Fiscal Year of the System.

“Maximum Lawful Rate” means the maximum rate of interest on the relevant obligation permitted by applicable law.

“Member” or “Member of the Obligated Group” means the Corporation and any Person who is listed on Exhibit A to the Master Indenture, as amended, after designation as a Member of the Obligated Group pursuant to the terms of the Master Indenture. The Obligated Group Agent may from time to time deliver a revised Exhibit A to the Master Trustee, indicating additions or deletions of Members of the Obligated Group.

“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of Delaware, its successors and assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency with respect to municipal revenue bonds such as the 2017 Bonds, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated in writing by the Program Administrator.

“Net Rentals” means all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property other than upon termination of the lease for a default thereunder) payable under a lease or sublease of real or personal Property excluding any amounts required to be paid by the lessee (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Net Rentals for any future period under any so-called “percentage lease” shall be computed on the basis of the amount reasonably estimated to be payable thereunder for such period, but in any event not less than the amount paid or payable thereunder during the immediately preceding period of the same duration as such future period; provided that the amount estimated to be payable under any such percentage lease shall in all cases recognize any change in the applicable percentage called for by the terms of such lease.

“Non-Recourse Indebtedness” means any Indebtedness the liability for which is effectively limited to Property, Plant and Equipment, accounts receivable and the income therefrom, the cost of which Property, Plant and Equipment and accounts receivable shall have been financed solely with the proceeds of such Indebtedness with no recourse, directly or indirectly, to any other Property of any Member or to the general credit of any Member.

“Obligated Group” means with respect to the Master Indenture, the Corporation and any other Person which has fulfilled the requirements for entry into the Obligated Group and which has not ceased such status.

“Obligated Group Agent” means the Corporation or such other Member as may be designated from time to time pursuant to written notice to the Master Trustee, executed by an authorized officer of the Corporation or, if the Corporation is no longer a Member of the Obligated Group, of each Member of the Obligated Group.

“Obligation holder,” “holder” or “owner of the Obligation” means the registered owner of any fully registered or book entry Obligation unless alternative provision is made in the Supplemental Master Indenture

C-8 pursuant to which such Obligation is issued for establishing ownership of such Obligation, in which case such alternative provision shall control.

“Obligations” means any evidence of Indebtedness authorized to be issued by a Member pursuant to the Master Indenture which has been authenticated by the Master Trustee.

“Officer’s Certificate” means a certificate signed, in the case of a certificate delivered by a corporation, by the President or any Vice-President or any other officer or designated agent authorized to sign by resolution of such corporation or, in the case of a certificate delivered by any other Person, the chief executive or chief financial officer of such other Person.

“One Month LIBOR” means the rate for deposits in U.S. dollars with a one month maturity as published by Reuters (or such other service as may be nominated by the ICE Benchmark Administration, for the purpose of publishing London interbank offered rates for U.S. dollar deposits) as of 11:00 A.M., London time, on the Rate Determination Date, except that, if such rate is not available on the Rate Determination Date, One Month LIBOR for the ensuing interest period will mean One Month LIBOR then in effect in the immediately preceding Index Floating Rate Period or Bank Held Rate Period.

“Outstanding” means, with respect to the Indenture in connection with 2017 Bonds as of the time in question, all 2017 Bonds authenticated and delivered under the Indenture, except:

(a) 2017 Bonds theretofore cancelled or required to be cancelled under the Indenture;

(b) 2017 Bonds which are deemed to have been paid in accordance with the Indenture; and

In determining whether the owners of a requisite aggregate principal amount of 2017 Bonds Outstanding have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions of the Indenture, 2017 Bonds which are held by or on behalf of a Participant or the Program Administrator (unless all of the Outstanding 2017 Bonds are then owned by the Participants or the Program Administrator) shall be disregarded for the purpose of any such determination, except that in determining whether the Trustee shall be protected in relying upon any such concurrence, request, demand, authorization, direction, notice, consent or waiver of an owner, only Bonds that a Responsible Officer of the Trustee actually knows to be owned by the Participants or the Program Administrator shall be disregarded. Notwithstanding the foregoing, 2017 Bonds so owned which have been pledged in good faith shall not be disregarded as aforesaid if the pledgee establishes to the satisfaction of a Responsible Officer of the Trustee the pledgee’s right so to act with respect to such Bonds and that the pledgee is not a Participant or the Program Administrator.

“Outstanding” means, with respect to the Master Indenture, in the case of Indebtedness of a Person other than Related Bonds or Obligations, all such Indebtedness of such Person which has been issued except any such portion thereof canceled after purchase on the open market or surrendered for cancellation or because of payment at or redemption prior to maturity, any such Indebtedness in lieu of which other Indebtedness has been duly issued and any such Indebtedness which is no longer deemed outstanding under its terms and with respect to which such Person is no longer liable under the terms of such Indebtedness.

“Outstanding Obligations” or “Obligations outstanding” means all Obligations which have been duly authenticated and delivered by the Master Trustee under the Master Indenture, except:

(a) Obligations canceled after purchase in the open market or because of payment at or prepayment or redemption prior to maturity;

(b) Obligations for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Master Trustee (whether upon or prior to the maturity or redemption date of any such Obligations); provided that if such Obligations are to be prepaid or redeemed prior to the maturity thereof, notice of such prepayment or redemption shall have been given or irrevocable arrangements satisfactory to the Master Trustee

C-9 shall have been made therefor, or waiver of such notice satisfactory in form to the Master Trustee shall have been filed with the Master Trustee and (ii) Obligations securing Related Bonds for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Related Trustee (whether upon or prior to the maturity or redemption date of any such Obligations); provided that if such Related Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Related Trustee shall have been made therefor, or waiver of notice satisfactory in form to the Related Trustee shall have been filed with the Related Trustee;

(d) For the purpose of all consents, approvals, waivers and notices required to be obtained or given under the Master Indenture, Obligations held or owned by a Member of the Obligated Group or by a System Affiliate.

Notwithstanding the foregoing, any Obligation securing Related Bonds shall be deemed outstanding if such Related Bonds are Outstanding.

“Outstanding Related Bonds” or “Related Bonds outstanding” means all Related Bonds which have been duly authenticated and delivered by the Related Trustee under the Related Bond Indenture and are deemed outstanding under the terms of such Related Bond Indenture or, if such Related Bond Indenture does not specify when Related Bonds are deemed outstanding thereunder, all such Related Bonds which have been so authenticated and delivered, except:

(a) Related Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;

(b) Related Bonds for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Related Trustee (whether upon or prior to the maturity or redemption date of any such Bonds) in accordance with the Related Bond Indenture; provided that if such Related Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Related Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Related Trustee shall have been filed with the Related Trustee;

(d) For the purposes of all covenants, approvals, waivers and notices required to be obtained or given under the Related Bond Indenture, Related Bonds held or owned by a Member or by a System Affiliate.

“Par Call Date” means (i) with respect to the initial Index Floating Rate Period, for the 2017B Bonds, ______1, 20__, and (ii) with respect to each subsequent Index Floating Rate Period, (A) for an Index Floating Rate Period of three years or longer, the date that is six months prior to the day that is the last day of such Index Floating Rate Period or (B) the date specified in a notice to the Trustee delivered in accordance with this Indenture, as applicable.

“Participant” means a Member of the Obligated Group or an Affiliate thereof to which a Loan has been made under the Program pursuant to the Program Loan Agreement and a Loan Schedule, which Loan is outstanding in whole or in part at the time in question.

“Participant’s Share” means, with respect to each Participant, a fraction, the numerator of which is the Loan Balance for such Participant and the denominator of which is the sum of all Loan Balances for all Participants.

“Paying Agent or Co-Paying Agent” means with respect to the Indenture, any national banking association, bank, bank and trust company or trust company appointed by the Authority pursuant to the Indenture. “Principal Office” of any Paying Agent shall mean the office thereof designated in writing to the Trustee.

C-10 “Paying Agent” means with respect to the Master Indenture, the bank or banks, if any, designated pursuant to a Related Bond Indenture to receive and disburse the principal of and interest on any Related Bonds or designated pursuant to the Master Indenture to receive and disburse the principal of and interest on any Obligations.

“Permitted Encumbrances” means the Master Indenture, any Related Loan Document, any Related Bond Indenture and, as of any particular time:

(a) any Lien on Property acquired subject to an existing Lien, if at the time of such acquisition, the aggregate amount remaining unpaid on the Indebtedness secured thereby (whether or not assumed by the System Affiliate) does not exceed the fair market value or (if such Property has been purchased) the lesser of the acquisition price or the fair market value of the Property subject to such Lien, as determined in good faith by the Obligated Group Agent;

(b) any Lien on any Property of any System Affiliate granted in favor of or securing Indebtedness to any other System Affiliate;

(c) any Lien on Property if such Lien equally and ratably secures all of the Obligations and, if the Obligated Group Agent shall so determine, any other Indebtedness of any System Affiliate;

(d) Liens on or in Property given, granted, bequeathed or devised by the owner thereof existing at the time of such gift, grant, bequest or devise, provided that such Liens secure Indebtedness which is not assumed by any System Affiliate and such Liens attach solely to the Property (including the income therefrom) which is the subject of such gift, grant, bequest or devise;

(e) Liens on proceeds of Indebtedness (or on income from the investment of such proceeds) that secure payment of such Indebtedness and any security interest in any rebate fund established pursuant to the Code, any depreciation reserve, debt service or interest reserve, debt service fund or any similar fund established pursuant to the terms of any Supplemental Master Indenture, Related Bond Indenture or Related Loan Document in favor of the Master Trustee, a Related Trustee, a Related Issuer or the holder of the Indebtedness issued pursuant to such Supplemental Master Indenture, Related Bond Indenture or Related Loan Document or the provider of any liquidity or credit support for such Related Bond or Indebtedness;

(f) Liens on funds held by an escrow agent in Escrow Obligations for defeased bonds;

(g) any Lien on any Related Bond or any evidence of Indebtedness of any System Affiliate acquired by or on behalf of any System Affiliate by the provider of liquidity or credit support for such Related Bond or Indebtedness;

(h) Liens on accounts receivable arising as a result of the sale of such accounts receivable with or without recourse, provided that the principal amount of Indebtedness secured by any such Lien does not exceed the aggregate sales price of such accounts receivable received by the Member or Designated Affiliate selling the same by more than twenty percent (20%);

(i) Liens on any Property of a System Affiliate in effect on the effective date of the Master Indenture, as listed on Exhibit D to the Master Indenture, or existing at the time any Person becomes a System Affiliate; provided that no such Lien (or the amount of Indebtedness secured thereby) may be increased, extended, renewed or modified to apply to any Property of such System Affiliate not subject to such Lien on such date unless such Lien as so increased, extended, renewed or modified is otherwise permitted under the Master Indenture;

(j) Liens on Property of a Person existing at the time such Person is merged into or consolidated with a System Affiliate, or at the time of a sale, lease or other disposition of the properties of a Person as an entirety or substantially as an entirety to a System Affiliate which becomes part of a Property that secures Indebtedness that is assumed by a System Affiliate as a result of any such merger, consolidation or acquisition; provided, that no such Lien may be increased, extended, renewed, or modified after such date to apply to any Property of a System Affiliate not subject to such Lien on such date unless such Lien as so increased, extended, renewed or modified is otherwise permitted under the Master Indenture;

C-11 (k) Liens which secure Non-Recourse Indebtedness;

(l) Liens arising out of Capitalized Leases;

(m) Liens on Property of a System Affiliate securing Indebtedness, in addition to those Liens permitted as defined elsewhere in this definition of Permitted Encumbrances, if the total aggregate Book Value (or at the option of the Obligated Group Agent, Current Value) of the Property subject to a Lien of the type described in this subsection (m) does not exceed twenty-five percent (25%) of the greatest of total Long Term Indebtedness, unrestricted net assets or net Property, Plant and Equipment (calculated on the same basis as the value of Property subject to such Lien); and

(n) Liens on any Property of a System Affiliate given (by mortgage, security interest, conveyance in trust, deed, sale, or lease) in order to satisfy the legal or policy requirements of any Related Issuer with respect to its issuance of any Related Bonds.

“Permitted Investments” means with respect to the Indenture, and includes any of the following securities, if and to the extent the same are at the time legal for investment by the Trustee:

(a) Government Obligations;

(b) Bonds, debentures, notes or other evidences of indebtedness issued by any of the following agencies or such other like governmental or government-sponsored agencies which may be hereafter created: Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Financing Bank; Federal Home Loan Bank System; Federal Home Loan Mortgage Corporation; Export-Import Bank of the United States; Farmers Home Administration; Small Business Administration; Inter-American Development Bank; International Bank for Reconstruction and Development; Federal Land Banks; the Federal National Mortgage Association; the Government National Mortgage Association; or the Tennessee Valley Authority;

(c) Direct and general obligations of any state of the United States or any municipality of the Commonwealth of Pennsylvania, to the payment of the principal of and interest on which the full faith and credit of such state or municipality is pledged, if at the time of their purchase such obligations are rated in the AA or higher or AA or higher, or Aa or higher, rating category by either S&P or Fitch or Moody’s, respectively, or in a similar rating category subsequently adopted by such services, or upon the discontinuance of either or both of such services, in equivalent rating categories of such other nationally recognized rating service or services as the case may be;

(d) Negotiable or non-negotiable certificates of deposit, time and demand deposits, trust funds, trust accounts, investment agreements or other similar arrangements, issued by (i) any financial institution (including the Trustee or any affiliate of the Trustee) or (ii) any bank or trust company (including the Trustee and any banks affiliated with the Trustee) the deposits of which are insured by the Federal Deposit Insurance Corporation, such arrangements to be secured as to principal, to the extent not insured, by the securities listed in subsections (a), (b) or (c) above, or, if not so insured or secured, issued by a financial institution or a bank the debt obligations of which (or, in the case of the principal bank in a bank holding company, the debt obligations of the bank holding company) are rated at the time of purchase in one of the two highest rating categories by either S&P or Fitch or Moody’s;

(e) Repurchase agreements or similar arrangements, (i) with banking institutions and/or primary broker-dealers, including the Trustee or any bank affiliated with the Trustee if applicable, (having or the parent company of which shall have a current S&P or other equivalent rating for any purpose, including outstanding indebtedness, of a least “A”) pursuant to which there shall have been delivered to the Trustee, or its designee, Permitted Investments of the types set forth in subsections (a) and/or (b) above having at all times a fair market value of at least 100% of the value of such agreement; or (ii) with banking institutions, including the Trustee (or any bank affiliated with the Trustee) if applicable, not meeting the rating requirements of (i) above pursuant to which there shall have been delivered to the Trustee or its designee, Permitted Investments of the types set forth in subsection (a) and/or (b) under and at all times having a fair market value of least 101% of the value of such agreement;

(f) Shares of open-end, diversified investment companies (i) registered under the Investment Company Act of 1940, (ii) investing exclusively in Permitted Investments of the types set forth in subsections (a),

C-12 (b), (d) or (e) above, (iii) maintaining a constant net asset value per share in accordance with regulations of the Securities and Exchange Commission, and (iv) individually having aggregate net assets of not less than $10,000,000 on the date of purchase, including, without limitation, any mutual fund for which the Trustee or an affiliate of the Trustee serves as investment manager, administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from such funds for services rendered, (ii) the Trustee charges and collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or its affiliates;

(g) Commercial paper rated at the time of purchase A-1 (or higher) by S&P and P-1 (or higher) by Moody’s, or equivalent ratings by Fitch then in effect;

(h) Public housing bonds issued by public agencies or municipalities, or temporary notes, preliminary loan notes or project notes issued by public agencies or municipalities, but only if such obligations are rated at the time of purchase “AAA” or the equivalent by a nationally recognized rating agency; and

(i) Escrow certificates with respect to securities listed in subsections (a) or (b) above, including without limitation zero coupons and similar accrual certificates.

“Permitted Investments” means with respect to the Master Indenture, (i) with respect to any Obligation which secures a series of Related Bonds, the investments in which the Related Trustee may invest funds under the Related Bond Indenture, (ii) with respect to any Obligations which do not secure a series of Related Bonds for which a Supplemental Master Indenture specifies certain permitted investments, the investments so specified and (iii) in all other cases such legal and prudent investments as are specified and directed to be invested by the Obligated Group Agent.

“Person” means with respect to the Indenture, an individual, a corporation, a partnership, an association, a joint stock company, a joint venture, a trust, an unincorporated organization, a governmental unit or an agency, political subdivision or instrumentality thereof, or any other group or organization of individuals.

“Primary Obligor” means the Person who is primarily obligated on an obligation which is guaranteed by another Person.

“Principal Office” means the corporate trust office of the Trustee responsible for the administration of the Indenture, which office at the date of acceptance by the Trustee of the duties and obligations imposed on the Trustee by the Indenture is 1735 Market Street, 6th Floor, Philadelphia, PA 19103, Attention: Corporate Trust Department.

“Program” means the Authority’s pooled loan program pursuant to which Loans will be made to Participants for the purpose of financing, refinancing, or reimbursing the Costs of Capital Assets.

“Program Administrator” means the Corporation or any successor in such capacity appointed in writing by the Corporation and approved in writing by each Participant, written notice of which is given to the Authority and to the Trustee.

“Program Fund” means the fund so designated which is established pursuant to the Indenture.

“Program Termination Date” means the date on which the Program Administrator determines that no further Loans will be made or are outstanding pursuant to the Loan Agreement in accordance with the Indenture.

“Project” means, with respect to any Participant, the acquisition, construction, renovation, equipping and expansion (or any one or more of the foregoing) of the Capital Assets applicable to such Participant.

“Property” means any and all rights, titles and interests in and to any and all property, whether real or personal, tangible (including cash) or intangible, wherever situated and whether now owned or hereafter acquired.

“Property, Plant and Equipment” means all Property of each Member which is classified as property, plant and equipment under generally accepted accounting principles.

C-13 “Purchase Date” means (i) if the Interest Rate Mode is the Daily Rate or the Weekly Rate, any Business Day as set forth in the Indenture, (ii) if the Interest Rate Mode is the Long Term Rate, the final Interest Payment Date for the Long Term Rate Period, and (iii) each day that the 2017B Bonds are subject to mandatory purchase pursuant to the Indenture.

“Rate Period” means any period during which a single interest rate is in effect for a 2017 Bond.

“Rating Agency” means Moody’s, Fitch or Standard & Poor’s and their respective successors and assigns.

“Record Date” means, as the case may be, the applicable Regular or Special Record Date.

“Regular Record Date” means (a) with respect to any Interest Period during which the Interest Rate Mode is the Daily Rate, the Weekly Rate, the Bank Held Rate, the Index Floating Rate or the Commercial Paper Rate, the close of business on the last Business Day of such Interest Period, (b) with respect to any Interest Period during which the Interest Rate Mode is the Long Term Rate, the 15th day (whether or not a Business Day) of the calendar month immediately preceding the Interest Payment Date for such Interest Period, and (c) with respect to the 2017A Bonds or Fixed Rate Bonds, the 15th day of the month immediately preceding the Interest Payment Date.

“Related Bonds” means (a) any revenue bonds or similar obligations issued by any state, commonwealth or territory of the United States or any municipal corporation or other political subdivision formed under the laws thereof or any constituted authority, agency or instrumentality of any of the foregoing empowered to issue obligations on behalf thereof, the proceeds of which are loaned or otherwise made available to any Member or System Affiliate in consideration, whether in whole or in part, of the execution, authentication and delivery of an Obligation or Obligations to or upon the order of such governmental issuer and (b) any revenue or general obligation bonds issued by the Corporation, any Member, any System Affiliate or any other Person in consideration, whether in whole or in part, of the execution, authentication and delivery of an Obligation or Obligations to the holder of such bonds or the Related Trustee.

“Related Bond Indenture” means any indenture, bond resolution or similar instrument pursuant to which any series of Related Bonds is issued.

“Related Issuer” means any issuer of a series of Related Bonds.

“Related Trustee” means any trustee under any Related Bond Indenture and any successor trustee thereunder or, if no trustee is appointed under a Related Bond Indenture, the Related Issuer.

“Related Loan Document” means any document or documents (including without limitation any loan agreement, lease, sublease or installment sales contract) pursuant to which any proceeds of any Related Bonds are loaned to, advanced to or made available to or for the benefit of any Member or System Affiliate (or any Property financed or refinanced with such proceeds is leased, sublet or sold to a Member or System Affiliate).

“Remarketing Agent” means each Person qualified under Section 12.01 to act as Remarketing Agent for the 2017B Bonds and appointed by the Corporation from time to time. “Principal Office” of the Remarketing Agent means the office designated in writing to the Issuer, the Trustee, the Tender Agent and the Program Administrator.

“Remarketing Agreement” means each Remarketing Agreement by and among the Corporation, the Authority and each Remarketing Agent as the same may be amended from time to time, and any remarketing agreement between the Corporation or the Program Administrator and a successor Remarketing Agent.

“Reset Date” means, for the 2017B Bonds in an Index Floating Rate, (i) the date of issuance or Conversion, and thereafter, (ii) (A) if the Index is the SIFMA Index or One Month LIBOR, every Thursday or if any Thursday is not a U.S. Government Securities Business Day, the next succeeding U.S. Government Securities Business Day, subject to being changed to a different day of the week as provided in the Indenture or (B) if the Index is Three Month LIBOR, each February 15, May 15, August 15 and November 15; provided, however if February 15, May 15, August 15 or November 15 is not a U.S. Government Securities Business Day, the next succeeding U.S. Government Securities Business Day.

“Revenue Fund” means the fund so designated which is established pursuant to the Indenture.

C-14 “Revenues” means with respect to the Indenture, (a) all amounts payable to the Trustee with respect to the principal or redemption price of or interest on the 2017 Bonds (i) upon deposit in the Debt Service Fund or the Revenue Fund from the proceeds of the 2017 Bonds or obligations of the Authority issued to refund the 2017 Bonds or (ii) by the Members of the Obligated Group under the Series 2017 Notes or by the Corporation or the Participants under the Program Loan Agreement and (b) investment income with respect to any moneys held by the Trustee in the Funds established under the Indenture.

“Revenues” means with respect to the Master Indenture, for any period, (a) in the case of any Person providing health care services, the sum of (i) net patient service revenues plus (ii) other operating revenues, plus (iii) non-operating revenues (other than income derived from the sale of assets not in the ordinary course of business or any gain from the extinguishment of debt or other extraordinary item or earnings which constitute Capitalized Interest or earnings on amounts which are irrevocably deposited in escrow to pay the principal of or interest on Indebtedness); and (b) in the case of any other Person, gross revenues less sale discounts and sale returns and allowances, as determined in accordance with generally accepted accounting principles; but excluding in any event in both clause (a) and clause (b): (i) any unrealized gain or loss resulting from changes in the value of investment securities, (ii) any gains on the sale or other disposition of fixed or capital assets not in the ordinary course, (iii) earnings resulting from any reappraisal, revaluation or write-up of fixed or capital assets or (iv) any revenues constituting deferred revenues related to entrance fees; provided, however, that if such calculation is being made with respect to the System, such calculation shall be made in such a manner so as to exclude any revenues attributable to transactions between any System Affiliate and any other System Affiliate.

“Securities Depository” means The Depository Trust Company, New York, New York, and its successors and assigns, or any other securities depository selected by the Corporation which agrees to follow the procedures required to be followed by such securities depository in connection with the 2017 Bonds.

“Short-Term,” when used in connection with Indebtedness, means Indebtedness of a Person for money borrowed or credit extended having an original maturity less than or equal to one year and not renewable at the option of the debtor for, or subject to any binding commitment to refinance or otherwise provide for such Indebtedness having, a term greater than one year beyond the date of original issuance.

“SIFMA Index” means the Municipal Swap Index compiled from weekly interest rate resets of tax-exempt variable rate issues reported to Municipal Market Data that meet specific criteria established from time to time by the Securities Industry and Financial Markets Association (“SIFMA”). The SIFMA Index is generally determined on Wednesday of each week, or if any Wednesday is not a Business Day, the next preceding Business Day, and published by SIFMA on the Thursday next following its determination. If the SIFMA Index is no longer published, then “SIFMA Index” shall mean the Standard & Poor's Weekly High Grade Index (“S&P Index”). If the S&P Index is no longer published, then “SIFMA Index” for the ensuing period will mean the SIFMA Index then in effect during the preceding Index Floating Rate Period.

“Special Record Date” means such date as may be fixed for the payment of defaulted interest in accordance with the Indenture.

“S&P” or “Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of The McGraw- Hill Companies, Inc., its successors and assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency with respect to municipal revenue bonds, such as the 2017 Bonds.

“Supplemental Master Indenture” means an indenture amending or supplementing the Master Indenture entered into pursuant to Article VII of the Master Indenture after the date thereof.

“System” means the affiliated group of Persons comprised of all the System Affiliates.

“System Affiliate” means each Member of the Obligated Group, each Affiliate of the Corporation or of any other Member of the Obligated Group, each Designated Affiliate and each other Person with whom a Member or Designated Affiliate has in place a contract or other agreement whereby such Person is obligated to make payments in respect of Obligations.

C-15 “Tax-Exempt Organization” means a Person organized under the laws of the United States of America or any state thereof which is an organization described in Section 501(c)(3) of the Code, which is exempt from federal income taxation under Section 501(a) of the Code, and which is not a “private foundation” within the meaning of Section 509(a) of the Code, or corresponding provisions of federal income tax laws from time to time in effect.

“Tender Agent” means the initial and any successor tender agent appointed in accordance with the Indenture. “Principal Office” and “Delivery Office” of the Tender Agent mean the offices thereof designated in writing to the Authority, the Trustee, the Program Administrator and the Remarketing Agent.

“Three Month LIBOR” means the rate for deposits in U.S. dollars with a three month maturity as published by Reuters (or such other service as may be nominated by the ICE Benchmark Administration, for the purpose of publishing London interbank offered rates for U.S. dollar deposits) as of 11:00 A.M., London time, on the Rate Determination Date, except that, if such rate is not available on the Rate Determination Date, Three Month LIBOR means Three Month LIBOR then in effect in the immediately preceding Index Floating Rate Period or Bank Held Rate Period.

“2017 Bonds” means collectively, the 2017A Bonds and the 2017B Bonds.

“2017A Bonds” means collectively, the 2017A-1 Bonds and the 2017A-2 Bonds.

“2017A-1 Bonds” means the Authority’s Health System Revenue Bonds, Series A-1 of 2017 (Geisinger Health System).

“2017A-2 Bonds” means the Authority’s Health System Revenue Bonds, Series A-2 of 2017 (Geisinger Health System).

“2017B Bonds” means the Authority’s Health System Revenue Bonds, Series B of 2017 (Geisinger Health System).

“Trustee” means The Bank of New York Mellon Trust Company, N.A. and its successor for the time being in the trust under the Indenture.

“Weekly Rate” means the Interest Rate Mode for the 2017B Bonds in which the interest rate on the 2017B Bonds is determined weekly in accordance with the Indenture.

“Weekly Rate Period” means the period beginning on, and including, the Conversion Date to the Weekly Rate, and ending on, and including, the next Wednesday and thereafter the period beginning on, and including, any Thursday and ending on, and including, the earlier of the next Wednesday or the day preceding the Conversion Date from the Weekly Rate.

THE MASTER INDENTURE

Series, Designation and Amount of Obligations

No Obligations may be issued under the provisions of the Master Indenture except in accordance with the Master Indenture. No authorization or approval of any Designated Affiliate or System Affiliate is required under the Master Indenture for the issuance of Obligations. The total principal amount of Obligations, the number of Obligations and the series of Obligations that may be created under the Master Indenture is not limited and shall be as set forth in the Supplemental Master Indenture providing for the issuance thereof. Unless provided to the contrary in a Supplemental Master Indenture, Obligations shall be issued as fully registered Obligations.

Payment of Obligations

The principal of, premium, if any, and interest on the Obligations shall be payable in any currency of the United States of America which, at the respective dates of payment thereof, is legal tender for the payment of public and private debts, and such principal, premium, if any, and interest shall be payable at the principal corporate trust office of the Master Trustee or at the office of any alternate Paying Agent or Agents named in any such Obligations or in a Related Bond Indenture. Unless contrary provision is made in the Supplemental Master Indenture pursuant

C-16 to which such Obligation is issued or the election referred to in the next sentence is made, payment of the interest on the Obligations shall be made to the person appearing on the registration books of the Obligated Group (kept in the principal corporate trust office of the Master Trustee or its agent as Obligation registrar) as the registered owner thereof and shall be paid by check or draft mailed to the registered owner at its address as it appears on such registration books or at such other address as is furnished to the Master Trustee in writing by such holder; provided, however, that any Supplemental Master Indenture creating any Obligation may provide that interest on such Obligation may be paid, upon the request of the holder of such Obligation, by wire transfer or by such other means as are then commercially reasonable and acceptable to the holder thereof. The foregoing notwithstanding, if a Member so elects, payments on such Obligation shall be made directly by such Member, by check or draft hand delivered to the holder thereof or its designee or shall be made by such Member by wire transfer to such holder, or by such other means as are then commercially reasonable and acceptable to the holder thereof, in any case delivered on or prior to the date on which such payment is due. Upon the reasonable written request of the Master Trustee, each Member shall provide information identifying the Obligation or Obligations with respect to which such payment, specifying the amount, was made, by series, designation, number and registered holder. Except with respect to Obligations directly paid to or upon the order of the holder thereof, the Members agree to deposit with the Master Trustee prior to each due date of the principal of, premium, if any, or interest on any of the Obligations a sum sufficient to pay such principal, premium, if any, or interest so becoming due. Any such moneys shall upon written request and direction of the Obligated Group Agent be invested in Permitted Investments. The foregoing notwithstanding, amounts deposited with the Master Trustee to provide for the payment of Obligations pledged to the payment of Related Bonds shall be invested in accordance with the provisions of the Related Bond Indenture and Related Loan Document. The Master Trustee shall not be liable or responsible for any loss resulting from any such investments made in accordance with the terms of the Master Indenture. Supplemental Master Indentures may create such security including debt service reserve funds and other funds as are necessary to provide for payment or to hold moneys deposited for payment or as security for a related series of Obligations.

Security of Obligations

All Obligations issued and outstanding under the Master Indenture are equally and ratably secured by the Master Indenture except to the extent specifically provided otherwise as permitted under the Master Indenture. Any one or more series of Obligations issued under the Master Indenture may, so long as any Liens created in connection therewith constitute Permitted Encumbrances, be secured by security (including without limitation letters or lines of credit, insurance or Liens on Property, including health care facilities or Property of the Obligated Group, Designated Affiliates or System Affiliates, or security interests in a depreciation reserve, debt service or interest reserve or debt service or similar funds). Such security need not extend to any other Indebtedness (including any other Obligations or series of Obligations). Consequently, the Supplemental Master Indenture pursuant to which any one or more series of Obligations is issued may provide for such supplements or amendments to the provisions of the Master Indenture, as are necessary to provide for such security and to permit realization upon such security solely for the benefit of the Obligations entitled thereto.

Substitute Obligations Upon Withdrawal of a Member

In the event any Member ceases to be a Member of the Obligated Group and another Member issues an Obligation under the Master Indenture pursuant to a Supplemental Master Indenture evidencing or assuming the Obligated Group’s obligation in respect of Related Bonds, if so provided for in such Obligation originally issued by such withdrawing Member, such Obligation shall be surrendered to the Master Trustee in exchange for a substitute Obligation without notice to or consent of any Related Bondholder, provided that such substitute Obligation provides for payments of principal, interest, premium and other amounts identical to the surrendered Obligation and sufficient to provide all payments on the Related Bonds.

Appointment of Obligated Group Agent

Each Member, by becoming a Member of the Obligated Group, irrevocably appoints the Obligated Group Agent as its agent and true and lawful attorney in fact and grants to the Obligated Group Agent (a) full and exclusive power to execute Obligations and Supplemental Master Indentures and (b) full power to prepare, or authorize the preparation of, any and all documents, certificates or disclosure materials reasonably and ordinarily prepared in connection with the issuance of Obligations under the Master Indenture, or Related Bonds associated therewith, and to execute and deliver such items to the appropriate parties in connection therewith.

C-17 Exercise of Obligation Holder Rights

To avoid any unintended double counting with respect to underlying indebtedness evidenced or secured directly or indirectly by more than one Obligation, in determining the aggregate principal amount of outstanding Obligations necessary for giving notice or directing, requesting, consenting to or approving any action under Article V, VI or VII or any other provision of the Master Indenture, any Obligation issued directly to any holder of Related Bonds or any letter of credit provider, standby purchaser or other credit enhancer of Related Bonds and the corresponding Obligation issued to the Related Bond Trustee for such Related Bonds shall be treated as redundant of each other and counted once.

GENERAL COVENANTS

Payment of Principal, Premium, if any, and Interest; Designated Affiliates

Each Member unconditionally and irrevocably (subject to the right of such Member to cease its status as a Member of the Obligated Group), jointly and severally covenants that it will promptly pay the principal of, premium, if any, and interest on every Obligation issued under the Master Indenture and any other payments, including the purchase price of Related Bonds tendered or deemed tendered for purchase pursuant to the terms of a Related Bond Indenture or Related Loan Document required by the terms of such Obligations, at the place, on the dates and in the manner provided in the Master Indenture and in said Obligations according to the true intent and meaning thereof. Notwithstanding any schedule of payments upon the Obligations set forth in the Master Indenture or in the Obligations, each Member unconditionally and irrevocably (subject to the right of such Member to cease its status as a Member of the Obligated Group pursuant to the Master Indenture, jointly and severally agrees to make payments upon each Obligation and be liable therefor at the times and in the amounts (including principal, interest and premium, if any) equal to the amounts to be paid as interest, principal at maturity or by mandatory sinking fund redemption, or premium, if any, upon any Related Bonds from time to time outstanding. If any Member does not tender payment of any installment of principal, premium or interest on any Obligation when due and payable, the Master Trustee shall provide prompt written notice of such nonpayment to such Member and the Obligated Group Agent.

Each Controlling Member shall cause each of its Designated Affiliates and shall use reasonable efforts to cause each of its other System Affiliates (subject to contractual and organizational limitations) to pay, loan or otherwise transfer to the Obligated Group Agent or other Member such amounts as are necessary to duly and punctually pay the principal of, premium, if any, and interest on all Outstanding Obligations and any other payments, including the purchase price of Related Bonds tendered for purchase pursuant to the terms of a Related Bond Indenture or Related Loan Document, required by the terms of such Obligations, on the dates, at the times and at the places and in the manner provided in such Obligations, the applicable Supplemental Master Indenture and the Master Indenture, when and as the same become payable, whether at maturity, upon call for redemption, by acceleration of maturity or otherwise.

The Obligated Group Agent shall at all times maintain an accurate and complete list of all Persons that are Obligated Group Members, Designated Affiliates and System Affiliates. Under the Master Indenture, the Corporation is designated as the Controlling Member for the Designated Affiliates initially listed on Exhibit B to the Master Indenture, as amended. Any Person may be designated by the Obligated Group Agent as a Designated Affiliate under the Master Indenture in addition to those Designated Affiliates initially designated on Exhibit B, by the delivery to the Master Trustee of an Officer’s Certificate of the Obligated Group Agent, attaching thereto a substitute Exhibit B to be appended to the Master Indenture. The Obligated Group Agent by an Officer’s Certificate delivered to the Master Trustee shall designate the Corporation or any other Member as the Controlling Member of any such additional Designated Affiliate. With respect to each such Person, and so long as such Person is designated as a Designated Affiliate, the Obligated Group Agent, or any Member designated by the Obligated Group Agent as the Controlling Member, shall either (a) maintain, directly or indirectly, control of each Designated Affiliate, including the power to direct the management, policies, disposition of assets and actions of such Designated Affiliate to the extent required to cause such Designated Affiliate to comply with the terms and conditions of the Master Indenture, whether through the ownership of voting securities, by contract, partnership interests, membership, reserved powers, or the power to appoint members, trustees or directors or otherwise, or (b) execute and have in effect such contracts or other agreements that the Obligated Group Agent or Controlling

C-18 Member, in its sole judgment, deems sufficient for it to cause such Designated Affiliate to comply with the terms and conditions of the Master Indenture. Any Person will cease to be a Designated Affiliate upon the declaration of the Obligated Group Agent in an Officer’s Certificate delivered to the Master Trustee, and upon such declaration, such Person shall no longer be subject to any of the covenants applicable to a Designated Affiliate under the Master Indenture. Notwithstanding anything to the contrary in the Master Indenture, no Person shall cease to be a Designated Affiliate or a System Affiliate if any Outstanding Related Bonds have been issued for the benefit of such Person until there is delivered to the Master Trustee an opinion of nationally recognized municipal bond counsel to the effect that, under then existing law, the cessation by such Person of its status as a Designated Affiliate or System Affiliate will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable thereon to which such Related Bond would otherwise be entitled.

Each Controlling Member covenants that it will cause each of its Designated Affiliates to comply with the terms and conditions of the Master Indenture which are applicable to such Designated Affiliate, and of the Related Loan Document, if any, to which such Designated Affiliate is a party. The Corporation covenants that it will take such action as it deems reasonably necessary to ensure that the System Affiliates comply with the terms or conditions of the Master Indenture applicable to the System Affiliates.

Performance of Covenants

Each Member covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Master Indenture and in each and every Obligation executed, authenticated and delivered under the Master Indenture and will perform all covenants and requirements imposed on the Corporation, the Obligated Group Agent or any Member under the terms of any Related Bond Indenture.

Entrance into the Obligated Group

Any Person may become a Member of the Obligated Group if:

(a) Such Person is a corporation;

(b) Such Person shall execute and deliver to the Master Trustee a Supplemental Master Indenture acceptable to the Master Trustee which shall be executed by the Master Trustee and the Obligated Group Agent on behalf of each then current Member of the Obligated Group, containing the agreement of such Person (i) to become a Member of the Obligated Group and thereby to become subject to compliance with all provisions of the Master Indenture and (ii) unconditionally and irrevocably (subject to the right of such Person to cease its status as a Member of the Obligated Group pursuant to the Master Indenture) to jointly and severally make payments upon each Obligation at the times and in the amounts provided in each such Obligation;

(d) The Master Trustee shall have received (1) an Officer’s Certificate of the Obligated Group Agent which demonstrates that, immediately upon such Person becoming a Member of the Obligated Group, the Members would not, as a result of such transaction, be in default in the performance or observance of any covenant or condition to be performed or observed by them under the Master Indenture, (2) an opinion of Counsel to the effect that (x) the instrument described in paragraph (b) above has been duly authorized, executed and delivered and constitutes a legal, valid and binding agreement of such Person, enforceable in accordance with its terms, subject to customary exceptions for bankruptcy, insolvency and other laws generally affecting enforcement of creditors’ rights and application of general principles of equity and the opinion exceptions set forth in Exhibit C to the Master Indenture (y) the addition of such Person to the Obligated Group will not adversely affect the status as a Tax Exempt Organization of any Member (including such Person) which otherwise has such status, and (3) if all amounts due or to become due on all Related Bonds have not been paid to the holders thereof and provision for such payment has not been made in such manner as to have resulted in the defeasance of all Related Bond Indentures, an opinion of nationally recognized municipal bond counsel to the effect that, under then existing law, the consummation of such transaction will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable on such Related Bond to which such Bond would otherwise be entitled; and

C-19 (e) Exhibit A to the Master Indenture shall be amended or replaced to add such Person as a Member.

Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the above-described conditions to becoming, a Member of the Obligated Group prior to any such succession, assignment or other change in such Member’s corporate status.

Cessation of Status as a Member of the Obligated Group

Each Member covenants that it will not take any action, corporate or otherwise, which would cause it or any successor thereto into which it is merged or consolidated under the terms of the Master Indenture to cease to be a Member of the Obligated Group unless:

(a) if the Member proposing to withdraw from the Obligated Group is a party to any Related Loan Documents with respect to Related Bonds which remain outstanding, another Member of the Obligated Group has issued an Obligation under the Master Indenture evidencing or assuming the obligation of the Obligated Group in respect of such Related Bonds;

(b) prior to cessation of such status, there is delivered to the Master Trustee an opinion of nationally recognized municipal bond counsel to the effect that, under then existing law, the cessation by the Member of its status as a Member will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable on such Related Bond to which such Bond would otherwise be entitled;

(c) immediately after such cessation, no event of default exists under the Master Indenture and no event shall have occurred which with the passage of time or the giving of notice, or both, would become such an event of default;

(d) prior to such cessation there is delivered to the Master Trustee an opinion of Counsel to the effect that the cessation by such Member of its status as a Member will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status;

(e) prior to the cessation of such status, the Obligated Group Agent consents in writing to the withdrawal of such Member; and

(f) Exhibit A to the Master Indenture shall be amended or replaced to delete such Person as a Member.

General Covenants; Right of Contest

Each Member covenants in the Master Indenture to, and each Controlling Member covenants to cause each of its Designated Affiliates to:

(a) Except as otherwise expressly provided in the Master Indenture (i) preserve its corporate or other separate legal existence, (ii) preserve all its rights and licenses to the extent necessary or desirable in the operation of its business and affairs as then conducted and (iii) be qualified to do business and conduct its affairs in each jurisdiction where its ownership of Property or the conduct of its business or affairs requires such qualification; provided, however, that nothing contained in the Master Indenture shall be construed to obligate such Member or Designated Affiliate to retain, preserve or keep in effect the rights, licenses or qualifications no longer used or useful in the conduct of its business.

(b) In the case of the Corporation and any Person which is a Tax-Exempt Organization at the time it becomes a Member or Designated Affiliate, so long as the Master Indenture shall remain in force and effect and so long as all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or provision for such payment has not been made, to take no action or suffer any action to be taken by others, including any action which would result in the alteration or loss of its status as a Tax-Exempt Organization, which could result in any such Related Bond being declared invalid or result in the interest on any Related Bond, which is otherwise exempt from federal or state income taxation, becoming subject to such taxation.

C-20 (c) At its sole cost and expense, promptly comply with all present and future laws, ordinances, orders, decrees, decisions, rules, regulations and requirements of every duly constituted governmental authority, commission and court and the officers thereof which may be applicable to it or any of its affairs, business, operations and Property, any part thereof, any of the streets, alleys, passageways, sidewalks, curbs, gutters, vaults and vault spaces adjoining any of its Property or any part thereof or to the use or manner of use, occupancy or condition of any of its Property or any part thereof, if the failure to so comply would have a materially adverse affect on the operations or financial affairs of the Obligated Group, taken as a whole.

The foregoing notwithstanding, any Member, Designated Affiliate or System Affiliate may (i) cease to be a not for profit corporation or (ii) take actions which could result in the alteration or loss of its status as a Tax-Exempt Organization if prior thereto there is delivered to the Master Trustee an opinion of nationally recognized municipal bond counsel to the effect that such actions would not adversely affect the validity of any Related Bond, the exemption from federal or state income taxation of interest payable on any Related Bond otherwise entitled to such exemption or adversely affect the enforceability in accordance with its terms of the Master Indenture against any Person.

No Member, Designated Affiliate or System Affiliate shall be required to remove any Lien required to be removed pay or otherwise satisfy and discharge its obligations, Indebtedness (other than any Obligations), demands and claims against it or to comply with any Lien, law, ordinance, rule, order, decree, decision, regulation or requirement referred to in the Master Indenture, so long as such Member, Designated Affiliate or System Affiliate shall contest, in good faith and at its cost and expense, in its own name and behalf, the amount or validity thereof, in an appropriate manner or by appropriate proceedings which shall operate during the pendency thereof to prevent the collection of or other realization upon the obligation, Indebtedness, demand, claim or Lien so contested, and the sale, forfeiture, or loss of its Property or any part thereof, provided, that no such contest shall subject any Related Issuer, any Obligation holder or the Master Trustee to the risk of any liability. While any such matters are pending, such Member, Designated Affiliate or System Affiliate shall not be required to pay, remove or cause to be discharged the obligation, Indebtedness, demand, claim or Lien being contested unless such Member, Designated Affiliate or System Affiliate agrees to settle such contest. Each such contest shall be promptly prosecuted to final conclusion (subject to the right of such Member, Designated Affiliate or System Affiliate engaging in such a contest to settle such contest), and in any event the Member, Designated Affiliate or System Affiliate will save all Obligation holders and the Master Trustee harmless from and defend against all losses, judgments, decrees and costs (including attorneys’ fees and expenses in connection therewith) as a result of such contest and will, promptly after the final determination of such contest or settlement thereof, pay and discharge the amounts which shall be determined to be payable therein, together with all penalties, fines, interests, costs and expenses (including attorney’s fees) thereon or incurred in connection therewith.

Insurance

Each Member shall and each Controlling Member covenants to cause each of its Designated Affiliates to, maintain or cause to be maintained at its sole cost and expense, insurance (or self-insurance, as the case may be) with respect to its Property, the operation thereof and its business against such casualties, contingencies and risks (including but not limited to public liability and employee dishonesty) and in amounts not less than is customary in the case of corporations engaged in the same or similar activities and similarly situated and as is adequate to protect its Property and operations.

Historical Debt Service Coverage Ratio

Each Member covenants and agrees to, and each Controlling Member covenants to cause each of its Designated Affiliates to, conduct its business on a revenue producing basis and to charge such fees and rates and to exercise such skill and diligence as to provide income from its Property together with other available funds sufficient to pay promptly all payments of principal and interest on its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it under the Master Indenture to the extent permitted by law. Each Member further covenants and agrees that it will, and each Controlling Member covenants that it will cause each of its Designated Affiliates to, from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the provisions of the Master Indenture.

C-21 The Obligated Group Agent shall calculate the Income Available for Debt Service of the System for each Fiscal Year and the Historical Debt Service Coverage Ratio of the System for such Fiscal Year and deliver a copy of such calculations to the Persons to whom financial statements are required to be delivered under the Master Indenture.

If in any Fiscal Year the Historical Debt Service Coverage Ratio of the System is less than 1.10 to 1, the Master Trustee shall require the Obligated Group Agent at its expense to retain a Consultant to make recommendations with respect to the rates, fees and charges of the System Affiliates and the System’s methods of operation and other factors affecting their financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.10 to 1.

A copy of the Consultant’s report and recommendations, if any, shall be filed with the Obligated Group Agent and the Master Trustee. Each Member shall follow and each Controlling Member shall cause each Designat- ed Affiliate to follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member) and permitted by law. The Corporation shall take such steps as it considers feasible to cause System Affiliates that are not Members or Designated Affiliates to follow each recommendation of the Consultant applicable to such System Affiliate. This section shall not be construed to prohibit any Person from serving indigent patients to the extent required for such Person to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of patients without charge or at reduced rates so long as such service does not prevent the System from satisfying the other requirements of the Master Indenture.

The foregoing provisions notwithstanding, if in any Fiscal Year the Historical Debt Service Coverage Ratio of the System is less than 1.10 to 1, the Master Trustee shall not be obligated to require the Obligated Group Agent to retain a Consultant to make such recommendations if: (a) there is filed with the Master Trustee a written report addressed to it of a Consultant which contains an opinion of such Consultant to the effect that applicable laws or regulations have prevented the System from generating Income Available for Debt Service during such Fiscal Year in an amount sufficient to produce a Historical Debt Service Coverage Ratio of the System of 1.10 to 1 or higher; (b) the report of such Consultant indicates that the fees and rates charged by the System Affiliates are such that, in the opinion of the Consultant, the System Affiliates have generated the maximum amount of Revenues reasonably practicable given such laws or regulations; and (c) the Historical Debt Service Coverage Ratio of the System was at least 1.00 to 1 for such Fiscal Year. The Obligated Group Agent shall not be required to cause the Consultant’s report referred to in the preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two Fiscal Years the Obligated Group Agent provides to the Master Trustee an Officer’s Certificate or an opinion of Counsel to the effect that the applicable laws and regulations underlying the Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.

Merger, Consolidation, Sale or Conveyance

(a) Each Member agrees that it will not merge into, or consolidate with, one or more corporations which are not Members, or allow one or more of such corporations to merge into it, or sell or convey all or substantially all of its Property to any Person who is not a Member, unless:

(i) Any successor corporation to such Member (including without limitation any purchaser of all or substantially all the Property of such Member) is a corporation organized and existing under the laws of the United States of America or a state thereof and shall execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee, containing the agreement of such successor corporation to assume, jointly and severally, the due and punctual payment of the principal of, premium, if any, and interest on all Obligations according to their tenor and the due and punctual performance and observance of all the covenants and conditions of the Master Indenture to be kept and performed by such Member;

(ii) Immediately after such merger or consolidation, or such sale or conveyance, no Member would be in default in the performance or observance of any covenant or condition of any Related Loan Document or the Master Indenture; and

(iii) If all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or fully provided for, there shall be delivered to the Master Trustee an opinion of nationally

C-22 recognized municipal bond counsel to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance would not adversely affect the validity of such Related Bonds or the exemption otherwise available from federal or state income taxation of interest payable on such Related Bonds.

(b) In case of any such consolidation, merger, sale or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for its predecessor, with the same effect as if it had been named in the Master Indenture as such Member and the Member party to such transaction, if it is not the survivor, shall thereupon be relieved of any further obligation or liabilities under the Master Indenture or upon the Obligations and such Member as the predecessor or non-surviving corporation may thereupon or at any time thereafter be dissolved, wound up or liquidated. Any successor corporation to such Member thereupon may cause to be signed and may issue in its own name Obligations under the Master Indenture and the predecessor corporation shall be released from its obligations under the Master Indenture and under any Obligations, if such predecessor corporation shall have conveyed all Property owned by it (or all such Property shall be deemed conveyed by operation of law) to such successor corporation. All Obligations so issued by such successor corporation under the Master Indenture shall in all respects have the same legal rank and benefit under the Master Indenture as Obligations theretofore or thereafter issued in accordance with the terms of the Master Indenture as though all of such Obligations had been issued under the Master Indenture by such prior Member without any such consolidation, merger, sale or conveyance having occurred.

(c) In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in Obligations thereafter to be issued as may be appropriate.

(d) The Master Trustee may rely upon an opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of this section in the Master Indenture and that it is proper for the Master Trustee to join in the execution of any instrument required to be executed and delivered by this section.

(e) Except as may be expressly provided in any Supplemental Master Indenture, the ability of any Designated Affiliate or any System Affiliate to merge into, or consolidate with, one or more corporations, or allow one or more corporations to merge into it, or sell or convey all or substantively all of its Property to any Person is not limited by the provisions of the Master Indenture. Notwithstanding anything to the contrary in the Master Indenture, no System Affiliate shall engage in any merger or consolidation or disposition of substantially all of its assets if any Outstanding Related Bonds have been issued for the benefit of such System Affiliate until there is delivered to the Master Trustee an opinion of nationally recognized municipal bond counsel to the effect that, under then existing law, such action will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable thereon to which such Related Bond would otherwise be entitled.

Financial Statements, Etc.

The Corporation and each Member covenant that they will, and will cause each System Affiliate controlled by the Corporation or such Member to, keep or cause to be kept proper books of records and accounts in which full, true and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Corporation and the System Affiliates in accordance with generally accepted accounting principles consistently applied except as may be disclosed in the notes to the audited financial statements referred to in subsection (a) below, and will furnish to the Master Trustee:

(a) As soon as practicable after they are available, but in no event more than 150 days after the last day of each Fiscal Year, a financial report of the System for such Fiscal Year certified by a firm of nationally recognized independent certified public accountants selected by the Obligated Group Agent prepared on a combined or consolidated, or combining or consolidating, basis in accordance with generally accepted accounting principles, covering the operations of the System for such Fiscal Year and containing an audited consolidated statement of financial position of the System as of the end of such Fiscal Year and an audited consolidated statement of changes in net assets and statement of cash flows of the System for such Fiscal Year and an audited consolidated statement of operations of the System for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year.

C-23 (b) If the statements referred to in subsection (a) above do not include the results of operations of any Material Designated Affiliate, as soon as practicable, but in no event more than 150 days after the last day of each Fiscal Year for such Material Designated Affiliate, a financial statement for such Material Designated Affiliate for such Fiscal Year certified by a firm of nationally recognized independent certified public accountants selected by such Material Designated Affiliate prepared on a combined or consolidated basis to include the results of operations of all Persons required to be consolidated or combined with such Material Designated Affiliate in accordance with generally accepted accounting principles and containing at least the results of operations of such Material Designated Affiliate for the Fiscal Year and a statement for financial position as of the end of such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year for such Material Designated Affiliate.

(c) If financial statements have been delivered to the Master Trustee pursuant to the provisions of subsection (b) above, then, as soon as practicable, but in no event more than 180 days after the last day of each Fiscal Year of the Corporation, the result of operations and statement of financial position of the Obligated Group prepared by or at the direction of the chief financial officer of the Corporation based upon the audited financial statements described in subsections (a) and (b) above (such result of operations and statement of financial position being referred to in the Master Indenture as the “Obligated Group Financial Statements”), together with a certificate of the chief financial officer of the Corporation stating that the Obligated Group Financial Statements were prepared in accordance with generally accepted accounting principles (except for required consolidations) and that the Obligated Group Financial Statements reflect the results of the operations of only the Members of the Obligated Group and that all Members of the Obligated Group are included.

(d) At the time of delivery of the financial report referred to in subsection (a) above, an Officer’s Certificate of the Obligated Group Agent, stating that the Obligated Group Agent has made a review of the activities of each Member, Designated Affiliate and System Affiliate during the preceding Fiscal Year for the purpose of determining whether or not the Members, Designated Affiliates and System Affiliates have complied with all of the terms, provisions and conditions of the Master Indenture and that each Member, Designated Affiliate and System Affiliate has kept, observed, performed and fulfilled each and every covenant, provision and condition of the Master Indenture on its part to be performed and is not in default in the performance or observance of any of the terms, covenants, provisions or conditions of the Master Indenture, or if any such Person shall be in default such certificate shall specify all such defaults and the nature thereof.

Indebtedness

Except as may be expressly provided in any Supplemental Master Indenture, the ability of the Members of the Obligated Group, any Designated Affiliate or any System Affiliate to incur Indebtedness including, with respect to Members, Indebtedness evidenced by Obligations and the amount and terms of such Indebtedness, is not limited by the provisions of the Master Indenture.

Sale, Lease or Other Disposition of Property

Except as may be expressly provided in any Supplemental Master Indenture, the ability of the Members of the Obligated Group, any Designated Affiliate or any System Affiliate to sell, lease or otherwise dispose of (including without limitation any involuntary disposition) any Property is not limited by the provisions of the Master Indenture.

Liens on Property

No Member shall create or incur or permit to be created or incurred or to exist any Lien on any Property of such Member, and no Controlling Member shall permit to be created or incurred or to exist any Lien on any Property of any Material Designated Affiliate controlled by it except, in each instance, Permitted Encumbrances.

Right to Consent, Etc.

Each Member shall have the right to agree in any Related Bond Indenture, Related Loan Document or Supplemental Master Indenture pursuant to which an Obligation is issued that, so long as any Related Bonds remain outstanding under such Related Bond Indenture or such Obligation remains outstanding, any or all provisions of the

C-24 Master Indenture which provide for approval, consent, direction or appointment by the Master Trustee, provide that anything must be satisfactory or acceptable to the Master Trustee or not unacceptable to the Master Trustee, allow the Master Trustee to request anything or contain similar provisions granting discretion to the Master Trustee may also require or allow, as the case may be, the approval, consent, appointment, satisfaction, acceptance, request or like exercise of discretion by the Related Issuer, the Related Trustee or the holders of some specified percentage of such Obligations as provided for in such Obligations, or any one thereof, and that all items required to be delivered or addressed to the Master Trustee under the Master Indenture may also be delivered or addressed to the Related Issuer, such Obligation holders and the Related Trustee, or any one thereof, unless waived thereby.

Notices to Ratings Agencies

The Corporation covenants that it will, within 10 Business Days, provide each Rating Agency rating any Related Bonds with written notice of the following material events:

(a) any change in Exhibit A or Exhibit B to the Master Trust Indenture;

(b) any change in the Person acting as Obligated Group Agent;

(c) (i) any merger, acquisition, divestiture of assets (whether through sale or conveyance and including any divestiture to any Affiliate) or other change in the corporate structure (including the creation of any subsidiaries) of any System Affiliate or the sale of any assets not in the ordinary course of business by the System Affiliates in any twelve month period in excess of ten percent (10%) of the amount of assets which the Obligated Group owned at the beginning of such twelve month period or (ii) any change in the status of any Person as a Member, Designated Affiliate or System Affiliate which results in a reduction in the assets of the Obligated Group of more than ten percent (10%);

(d) the creation of Liens on the assets of the System Affiliates in excess of ten percent (10%) of the aggregate amount of such assets;

(e) the incurring of any Indebtedness in excess of $10,000,000 by any System Affiliate, including a summary of the amount, purpose and creditor relating thereto.

DEFAULTS AND REMEDIES

Extension of Payment

In case the time for the payment of principal of or the interest on any Obligation shall be extended, whether or not such extension be by or with the consent of the Master Trustee, such principal or such interest so extended shall not be entitled in case of default under the Master Indenture to the benefit or security of the Master Indenture except subject to the prior payment in full of the principal of all Obligations then outstanding and of all interest thereon, the time for the payment of which shall not have been extended.

Events of Default

Each of the following events is pursuant to the Master Indenture declared an “event of default”:

(a) failure of the Obligated Group to pay any installment of interest or principal, or any premium, on any Obligation when the same shall become due and payable, whether at maturity, upon any date fixed for prepayment or by acceleration or otherwise and the continuance of such failure for ten days (or any shorter grace period required in the Supplemental Master Indenture pursuant to which such Obligation was issued); provided, however, that in no event shall any grace period continue for a period of time longer than is allowed under the Related Bond Indenture to which the Related Bonds were issued; or

(b) failure of any Member to comply with, observe or perform any other covenants, conditions, agreements or provisions of the Master Indenture and to remedy such default within 60 days after written notice thereof to such Member and the Obligated Group Agent from the Master Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Obligations; provided, that if such default cannot with due diligence and dispatch be wholly cured within 60 days but can be wholly cured, the failure of the Member to remedy such

C-25 default within such 60-day period shall not constitute a default under the Master Indenture if the Member shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or

(c) any representation or warranty made by any Member in the Master Indenture or in any Supplemental Master Indenture or in any statement or certificate furnished to the Master Trustee or the purchaser of any Obligation or Related Bond in connection with the delivery of any Obligation or sale of any Related Bond or furnished by any Member pursuant to the Master Indenture or any Supplemental Master Indenture proves untrue in any material respect as of the date of the issuance or making thereof and shall not be corrected or brought into compliance within 60 days after written notice thereof to the Obligated Group Agent by the Master Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Obligations; or

(d) default in the payment of the principal of, premium, if any, or interest on any Indebtedness for borrowed money (other than Non-Recourse Indebtedness) of any Member, including without limitation any Indebtedness created by any Related Loan Document, as and when the same shall become due, or an event of default as defined in any mortgage, indenture, loan agreement or other instrument under or pursuant to which there was issued or incurred, or by which there is secured, any such Indebtedness (including any Obligation) of any Member, and which default in payment or event of default entitles the holder thereof to declare such Indebtedness due and payable prior to the date on which it would otherwise become due and payable; provided, however, that if such Indebtedness is not evidenced by an Obligation or issued, incurred or secured by or under a Related Loan Document, a default in payment or other event of default thereunder shall not constitute an “event of default” under the Master Indenture unless the unpaid principal amount of such Indebtedness, together with the unpaid principal amount of all other Indebtedness so in default, exceeds 10% of Current Assets of the System as shown on or derived from the then latest available audited consolidated financial statements of the System; or

(e) any judgment or similar process shall be entered or filed against any Member or against any Property of any Member and remains unvacated, unpaid, unbonded, unstayed or uncontested in good faith for a period of 60 days; provided, however, that the foregoing shall not constitute an event of default where (i) the judgment or similar process is payable from proceeds of insurance (including self-insurance or a captive insurance company), (ii) the judgment or similar process remains unvacated, unpaid, unbonded, unstayed or uncontested due to a good faith dispute as to the insurance coverage of the underlying claim to which the judgment or similar process pertains or (iii) the amount of such judgment or similar process, together with the amount of all other such judgments or similar processes so unvacated, unpaid, unbonded, unstayed or uncontested, does not exceed 10% of Current Assets of the System as shown on or derived from the then latest available audited consolidated financial statements of the System; or

(f) any Member admits insolvency or bankruptcy or its inability to pay its debts as they mature, or is generally not paying its debts as such debts become due, or makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for such Member, or for the major part of its Property; or

(g) a trustee, custodian or receiver is appointed for any Member or for the major part of its Property and is not discharged within 60 days after such appointment; or

(h) bankruptcy, dissolution, reorganization, arrangement, insolvency or liquidation proceedings, proceedings under Title 11 of the United States Code, as amended, or other proceedings for relief under any bankruptcy law or similar law for the relief of debtors are instituted by or against any Member (other than bankruptcy proceedings instituted by any Member against third parties), and if instituted against any Member are allowed against such Member or are consented to or are not dismissed, stayed or otherwise nullified within 60 days after such institution.

Acceleration

If an event of default has occurred and is continuing, the Master Trustee may, and if requested by either the holders of not less than 25% in aggregate principal amount of Outstanding Obligations or the holder of any Accelerable Instrument under which Accelerable Instrument an event of default exists (which event of default

C-26 permits the holder thereof to request that the Master Trustee declare such Indebtedness evidenced by an Obligation due and payable prior to the date on which it would otherwise become due and payable), shall, by notice in writing delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations then outstanding under the Master Indenture and the interest accrued thereon immediately due and payable, and the entire principal and such interest shall thereupon become immediately due and payable, subject, however, to the provisions of Section 511 of the Master Indenture with respect to waivers of events of default. The foregoing notwithstanding, if the Supplemental Master Indenture creating an Obligation or Obligations includes a requirement that the consent of any credit enhancer, liquidity provider or any other Person be obtained prior to the acceleration of such Obligation or Obligations, the Master Trustee may not accelerate such Obligation or Obligations without the consent of such Person.

Remedies; Rights of Obligation Holders

Upon the occurrence of any event of default under the Master Indenture, the Master Trustee may pursue any available remedy including a suit, action or proceeding at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Obligations outstanding under the Master Indenture and any other sums due under the Master Indenture and may collect such sums in the manner provided by law out of the Property of any Member wherever situated.

If an event of default shall have occurred, and if it shall have been requested so to do by either the holders of 25% or more in aggregate principal amount of Obligations then outstanding or the holder of an Accelerable Instrument upon whose request pursuant to the Master Indenture the Master Trustee has accelerated the Obligations (and upon the provision of indemnity satisfactory to the Master Trustee in its sole discretion), the Master Trustee shall be obligated to exercise such one or more of the rights and powers conferred by the Master Indenture as the Master Trustee shall deem most expedient in the interests of the holders of Obligations; provided, however, that the Master Trustee shall have the right to decline to comply with any such request if the Master Trustee shall be advised by Counsel (who may be its own Counsel) that the action so requested may not lawfully be taken or the Master Trustee in good faith shall determine that such action would be unjustly prejudicial to the holders of Obligations not parties to such request.

No remedy by the terms of the Master Indenture conferred upon or reserved to the Master Trustee (or to the holders of Obligations) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Master Trustee or to the holders of Obligations under the Master Indenture now or hereafter existing at law or in equity or by statute.

No delay or omission to exercise any right or power accruing upon any default or event of default shall impair any such right or power or shall be construed to be a waiver of any such default or event of default, or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient.

No waiver of any default or event of default under the Master Indenture, whether by the Master Trustee or by the holders of Obligations, shall extend to or shall affect any subsequent default or event of default or shall impair any rights or remedies consequent thereon.

Direction of Proceedings by Holders

The holders of a majority in aggregate principal amount of the Obligations then outstanding which have become due and payable in accordance with their terms or have been declared due and payable under the Master Indenture and have not been paid in full in the case of remedies exercised to enforce such payment, or the holders of a majority in aggregate principal amount of the Obligations then outstanding in the case of any other remedy, shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Master Indenture or for the appointment of a receiver or any other proceedings under the Master Indenture; provided, that such direction shall not be otherwise than in accordance with the provisions of law and of the Master Indenture and that the Master Trustee shall have the right to decline to comply with any such request if the Master Trustee shall be advised by Counsel (who may be its own Counsel) that the action so directed may not lawfully be taken or the Master Trustee in good faith shall determine that such action would be unjustly

C-27 prejudicial to the holders of the Obligations not parties to such direction. Pending such direction from the holders of a majority in aggregate principal amount of the Obligations outstanding, such direction may be given in the same manner and with the same effect by the holder of an Accelerable Instrument upon whose request the Master Trustee has accelerated the Obligations.

The foregoing notwithstanding, the holders of a majority in aggregate principal amount of the Obligations then outstanding which are entitled to the exclusive benefit of certain security in addition to that intended to secure all or other Obligations shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Master Indenture, the Supplemental Master Indenture or Indentures pursuant to which such Obligations were issued or so secured or any separate security document in order to realize on such security; provided, however, that such direction shall not be otherwise than in accordance with the provisions of law and of the Master Indenture.

Application of Moneys

All moneys received by the Master Trustee pursuant to any right given or action taken under the provisions of the Master Indenture (except moneys held for the payment of Obligations called for prepayment or redemption which have become due and payable) shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the fees of, expenses, liabilities and advances incurred or made by the Master Trustee, any Related Issuers and any Related Trustees, be applied as follows:

(a) Unless the principal of all the Obligations shall have become or shall have been declared due and payable, all such moneys shall be applied:

First: To the payment to the persons entitled thereto of all installments of interest then due on the Obligations, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; and

Second: To the payment to the persons entitled thereto of the unpaid principal and premium, if any, on the Obligations which shall have become due (other than Obligations called for redemption or payment for payment of which moneys are held pursuant to the provisions of the Master Indenture), in the order of the scheduled dates of their payment, and, if the amount available shall not be sufficient to pay in full Obligations due on any particular date, then to the payment ratably, according to the amount of principal and premium due on such date, to the persons entitled thereto without any discrimination or privilege; and

Third: To the payment to the persons entitled thereto of all unpaid principal and interest on Obligations, payment of which was extended by such persons as described in “The Master Indenture – Extension of Payment”.

(b) If the principal of all the Obligations shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal, premium, if any, and interest then due and unpaid upon the Obligations without preference or priority of principal, premium or interest over the others, or of any installment of interest over any other installment of interest, or of any Obligation over any other Obligation, ratably, according to the amounts due respectively for principal, premium, if any, and interest to the persons entitled thereto without any discrimination or privilege; provided that no amount shall be paid to any Obligation holder who has extended the time for payment of either principal or interest until all other principal, premium, if any, and interest owing on Obligations has been paid; and

(c) If the principal of all the Obligations shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled then, subject to the provisions of paragraph (b) of this section in the event that the principal of all the Obligations shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this section.

C-28 Whenever moneys are to be applied by the Master Trustee pursuant to the provisions of this section, such moneys shall be applied by it at such times, and from time to time, as the Master Trustee shall determine, having due regard for the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Master Trustee shall apply such moneys, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Master Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the holder of any unpaid Obligation until such Obligation shall be presented to the Master Trustee for appropriate endorsement or for cancellation if fully paid.

Whenever all Obligations and interest thereon have been paid under the provisions of this section and all expenses and charges of the Master Trustee have been paid, any balance remaining shall be paid to the person entitled to receive the same; if no other person shall be entitled thereto, then the balance shall be paid to the Obligated Group Agent on behalf of the Members.

Rights and Remedies of Obligation Holders

No holder of any Obligation shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Master Indenture or for the execution of any trust of the Master Indenture or for the appointment of a receiver or any other remedy under the Master Indenture, unless a default shall have become an event of default and (a) the holders of 25% or more in aggregate principal amount (i) of the Obligations which have become due and payable in accordance with their terms or have been declared due and payable pursuant to of “The Master Indenture – Acceleration” and have not been paid in full in the case of powers exercised to enforce such payment or (ii) of the Obligations then outstanding in the case of any other exercise of power or (b) the holder of an Accelerable Instrument upon whose request the Master Trustee has accelerated the Obligations, shall have made written request to the Master Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers granted under the Master Indenture or to institute such action, suit or proceeding in its own name, and unless the Master Trustee shall thereafter fail or refuse to exercise the powers granted under the Master Indenture, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are pursuant to the Master Indenture declared in every case at the option of the Master Trustee to be conditions precedent to the execution of the powers and trusts of the Master Indenture and to any action or cause of action for the enforcement of the Master Indenture, or for the appointment of a receiver or for any other remedy under the Master Indenture; it being understood and intended that no one or more holders of the Obligations shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Master Indenture by its, his or their action or to enforce any right under the Master Indenture except in the manner provided in the Master Indenture, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner provided in the Master Indenture and for the equal benefit of the holders of all Obligations outstanding. Nothing in the Master Indenture contained shall, however, affect or impair the right of any holder to enforce the payment of the principal of, premium, if any, and interest on any Obligation at and after the maturity thereof, or the obligation of the Members to pay the principal, premium, if any, and interest on each of the Obligations issued under the Master Indenture to the respective holders thereof at the time and place, from the source and in the manner in said Obligations expressed.

Termination of Proceedings

In case the Master Trustee shall have proceeded to enforce any right under the Master Indenture by the appointment of a receiver, or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Master Trustee, then and in every case the Members and the Master Trustee shall, subject to any determination in such proceeding, be restored to their former positions and rights under the Master Indenture with respect to the Property pledged and assigned under the Master Indenture, and all rights, remedies and powers of the Master Trustee shall continue as if no such proceedings had been taken.

Waiver of Events of Default

If, at any time after the principal of all Obligations shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as provided in the Master Indenture and before the acceleration of any Related Bond, any Member shall pay or shall deposit with the

C-29 Master Trustee a sum sufficient to pay all matured installments of interest upon all such Obligations and the principal and premium, if any, of all such Obligations that shall have become due otherwise than by acceleration (with interest on overdue installments of interest and on such principal and premium, if any, at the rate borne by such Obligations to the date of such payment or deposit, to the extent permitted by law) and the expenses of the Master Trustee, and any and all events of default under the Master Indenture, other than the nonpayment of principal of and accrued interest on such Obligations that shall have become due by acceleration, shall have been remedied, then and in every such case the holders of a majority in aggregate principal amount of all Obligations then outstanding and the holder of each Accelerable Instrument who requested the giving of notice of acceleration, by written notice to the Obligated Group Agent and to the Master Trustee, may waive all events of default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or affect any subsequent event of default, or shall impair any right consequent thereon.

THE MASTER TRUSTEE

Successor Master Trustee

Any corporation or association into which the Master Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor Master Trustee under the Master Indenture and vested with all of the title to the whole property or trust estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of and of the parties to the Master Indenture, anything in the Master Indenture to the contrary notwithstanding.

Corporate Master Trustee Required; Eligibility

There shall at all times be a Master Trustee under the Master Indenture which shall be a bank or trust company organized under the laws of the United States of America or any state thereof, authorized to exercise corporate trust powers, subject to supervision or examination by federal or state authorities, and (except for the Master Trustee initially appointed under the Master Indenture and its successors) having a reported combined capital and surplus of at least $50,000,000. If at any time the Master Trustee shall cease to be eligible, it shall resign immediately in the manner provided in the Master Indenture. No resignation or removal of the Master Trustee and no appointment of a successor Master Trustee shall become effective until the successor Master Trustee has accepted its appointment.

Resignation by the Master Trustee

The Master Trustee and any successor Master Trustee may at any time resign from the trusts created under the Master Indenture by giving thirty days’ written notice to the Obligated Group Agent and by registered or certified mail to each registered owner of Obligations then outstanding and to each holder of Obligations as shown by the list of Obligation holders required by the Master Indenture to be kept at the office of the Master Trustee. Such resignation shall take effect at the end of such thirty days or when a successor Master Trustee has been appointed and has assumed the trusts created under the Master Indenture, whichever is later, or upon the earlier appointment of a successor Master Trustee by the Obligation holders or by the Obligated Group. Such notice to the Obligated Group Agent may be served personally or sent by registered or certified mail.

Removal of the Master Trustee

The Master Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Master Trustee and to the Obligated Group Agent, and signed by the owners of a majority in aggregate principal amount of Obligations then outstanding. So long as no event of default or event which with the passage of time or giving of notice or both would become such an event of default has occurred and is continuing under the Master Indenture, the Master Trustee may be removed with or without cause at any time by an instrument or concurrent instruments in writing signed by the Obligated Group Agent, delivered to the Master Trustee.

C-30 Appointment of Successor Master Trustee by the Obligation Holders; Temporary Master Trustee

In case the Master Trustee under the Master Indenture shall resign or be removed, or be dissolved, or shall be in the process of dissolution or liquidation, or otherwise becomes incapable of acting under the Master Indenture, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the owners of 51% in aggregate principal amount of Obligations then outstanding, by an instrument or concurrent instruments in writing signed by such owners, or by their attorneys in fact, duly authorized. The foregoing notwithstanding, so long as the Obligated Group is not in default under the Master Indenture, the Obligated Group shall have the right to approve any such successor trustee and to appoint any such successor trustee in lieu of the owners of 51% of the aggregate principal amount of the Obligations then Outstanding. Every such successor Master Trustee shall be a trust company or bank in good standing under the law of the jurisdiction in which it was created and by which it exists, having corporate trust powers and subject to examination by federal or state authorities, and having a reported capital and surplus of not less than $50,000,000.

SUPPLEMENTAL MASTER INDENTURES

Supplemental Master Indentures Not Requiring Consent of Obligation Holders

Subject to the limitations set forth in the Master Indenture, the Members and the Master Trustee may, without the consent of, or notice to, any of the Obligation holders, amend or supplement the Master Indenture, for any one or more of the following purposes:

(a) To cure any ambiguity or defective provision in or omission from the Master Indenture in such manner as is not inconsistent with and does not impair the security of the Master Indenture or adversely affect the holder of any Obligation;

(b) To grant to or confer upon the Master Trustee for the benefit of the Obligation holders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Obligation holders and the Master Trustee, or either of them, to add to the covenants of the Members for the benefit of the Obligation holders or to surrender any right or power conferred under the Master Indenture upon any Member;

(d) To evidence the succession of another corporation to the agreements of a Member or the Master Trustee, or the successor of any thereof under the Master Indenture;

(e) To permit the qualification of the Master Indenture under the Trust Indenture Act of 1939, as then amended, or under any similar federal statute hereafter in effect or to permit the qualification of any Obligations for sale under the securities laws of any state of the United States;

(f) To provide for the refunding or advance refunding of any Obligation;

(g) To provide for the issuance of Obligations;

(h) To reflect the addition to or withdrawal of a Member from the Obligated Group or the addition or deletion of any Designated Affiliate, including the necessary changes to Exhibit A and Exhibit B to the Master Indenture;

(i) To provide for the issuance of Obligations with original issue discount, provided such issuance would not materially adversely affect the holders of Outstanding Obligations;

(j) To permit an Obligation to be secured by security which is not extended to all Obligation holders;

(k) To permit the issuance of Obligations which are not in the form of a promissory note;

(l) To modify or eliminate any of the terms of the Master Indenture; provided, however, that such Supplemental Master Indenture shall expressly provide that any such modifications or eliminations shall become

C-31 effective only when there is no Obligation outstanding of any series created prior to the execution of such Supplemental Master Indenture;

(m) To modify, eliminate or add to the provisions of the Master Indenture if the Master Trustee shall have received (i) written confirmation from each Rating Agency that such change will not result in a withdrawal or reduction or its credit rating assigned to any series of Obligations or Related Bonds, as the case may be, of a report, opinion or certification of a Consultant to the effect that such change is consistent with then current industry standards, and (ii) an Officer’s Certificate of the Obligated Group Agent to the effect that, in the judgment of the Obligated Group Agent, such change is necessary to permit any Member of the Obligated Group to affiliate or merge with, on acceptable terms, one or more corporations that provide health care services and such modification is in the best interests of the holders of the Outstanding Obligations; and

(n) To make any other change which does not materially adversely affect the holders of any of the Obligations and does not materially adversely affect the holders of any Related Bonds, including without limitation any modification, amendment or supplement to the Master Indenture or any indenture supplemental to the Master Indenture in such a manner as to establish or maintain exemption of interest on any Related Bonds under a Related Bond Indenture from federal income taxation under applicable provisions of the Code.

Any Supplemental Master Indenture providing for the issuance of Obligations shall set forth the date thereof, the date or dates upon which principal of, premium, if any, and interest on such Obligations shall be payable, the other terms and conditions of such Obligations, the form of such Obligations and the conditions precedent to the delivery of such Obligations which shall include, among other things:

(a) delivery to the Master Trustee of an opinion of Counsel acceptable to the Master Trustee to the effect that all requirements and conditions to the issuance of such Obligations, if any, set forth in the Master Indenture and in the Supplemental Master Indenture have been complied with and satisfied; and

(b) delivery to the Master Trustee of an opinion of Counsel acceptable to the Master Trustee to the effect that registration of such Obligations under the Securities Act of 1933, as amended, is not required, or, if such registration is required, that the Obligated Group has complied with all applicable provisions of said Act.

If at any time the Obligated Group Agent shall request the Master Trustee to enter into any Supplemental Master Indenture pursuant to subsection (m) above, the Master Trustee shall cause notice of the proposed execution of such Supplemental Master Indenture to be given to each Rating Agency then maintaining a rating on any Obligations or Related Bonds, at least 15 days prior to the execution of such Supplemental Master Indenture, which notice shall include a copy of the proposed Supplemental Master Indenture.

Supplemental Master Indentures Requiring Consent of Obligation Holders

The holders of not less than 51% in aggregate principal amount of the Obligations which are outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture or, in case less than all of the several series of Obligations are affected thereby, the holders of not less than 51% in aggregate principal amount of the Obligations of each series affected thereby which are outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture, shall have the right, from time to time, anything contained in the Master Indenture to the contrary notwithstanding, to consent to and approve the execution by the Members and the Master Trustee of such Supplemental Master Indentures as shall be deemed necessary and desirable by the Members for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Master Indenture or in any Supplemental Master Indenture; provided, however, that nothing contained in the Master Indenture shall permit, or be construed as permitting, (a) an extension of the stated maturity or reduction in the principal amount of or reduction in the rate or extension of the time of paying of interest on or reduction of any premium payable on the redemption of, any Obligation, without the consent of the holder of such Obligation, (b) a reduction in the aforesaid aggregate principal amount of Obligations the holders of which are required to consent to any such Supplemental Master Indenture, without the consent of the holders of all the Obligations at the time outstanding which would be affected by the action to be taken, (c) the creation of any lien ranking prior to or on a parity with the lien of the Master Indenture with respect to the trust estate, if any, subject thereto or terminate the lien of the Master Indenture on any Property at any time subject thereto or deprive the holder of any Obligation of the security afforded by the lien of the Master

C-32 Indenture except as otherwise provided in the Master Indenture, or (d) modification of the rights, duties or immunities of the Master Trustee, without the written consent of the Master Trustee.

If at any time the Obligated Group Agent shall request the Master Trustee to enter into any such Supplemental Master Indenture, the Master Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Master Indenture to be mailed by first class mail postage prepaid to each holder of an Obligation or, in case less than all of the series of Obligations are affected thereby, of an Obligation of the series affected thereby. Such notice shall briefly set forth the nature of the proposed Supplemental Master Indenture and shall state that copies thereof are on file at the principal corporate trust office of the Master Trustee for inspection by all Obligation holders. The Master Trustee shall not, however, be subject to any liability to any Obligation holder by reason of its failure to mail such notice, and any such failure shall not affect the validity of such Supplemental Master Indenture when consented to and approved. If the holders of not less than 51% in aggregate principal amount of the Obligations or the Obligations of each series affected thereby, as the case may be, which are outstanding under the Master Indenture at the time of the execution of any such Supplemental Master Indenture shall have consented to and approved the execution thereof as provided in the Master Indenture, no holder of any Obligation shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Master Trustee or the Members from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental Master Indenture as permitted and provided, the Master Indenture shall be and be deemed to be modified and amended in accordance therewith.

Note and Document Substitution

(a) The Master Indenture may be amended or supplemented as provided in the Master Indenture.

(b) In addition, the Obligated Group and the Master Trustee, may, without the consent of any of the Holders of any Obligations or any Related Bonds, but only with the prior written consent of the credit enhancers of the Related Bonds of the affected series of Related Bonds, enter into one or more supplements, amendments, restatements, replacements or substitutions to the Master Indenture, to modify, amend, restate, supplement, replace, substitute, change or remove any covenant, agreement, term or provision of the Master Indenture, in whole or in part, including, but not limited to, an amendment, restatement or substitution of the Master Indenture, in whole to relate to all Related Bonds, or in part to relate to a portion of the Related Bonds, including but not limited to a series or subseries of the Related Bonds secured by payment obligations of the health care facilities on whose behalf the allocable portion of the proceeds of the Related Bonds were utilized, or an affiliate of such health care facilities, in order to effect (i) the affiliation of the Corporation, the Obligated Group, any Members of the Obligated Group, any System Affiliates or any Designated Affiliates with any of the foregoing or with another entity or entities in order to create a new or modified credit group or structure or in order to provide for the inclusion of the Corporation, the Obligated Group, any Members of the Obligated Group, any System Affiliates or any Designated Affiliates in another obligated group, combined group or other unified credit group or structure, (ii) the release or discharge of any collateral securing the Related Bonds, including, but not limited to, the release or discharge of (A) any or all Obligations, in whole or in part, issued pursuant to the Master Indenture to secure the Related Bonds and (B) the Corporation, the Obligated Group, any Members of the Obligated Group, any System Affiliates or any Designated Affiliates from any or all liability (whether direct or indirect) with respect to the Related Bonds or a portion thereof, any Related Loan Document, any Related Bond Indenture, the Obligations, or the Master Indenture or any portion of any thereof, in consideration for the issuance of a note or notes to secure the Related Bonds or portion of the Related Bonds that are to become an obligation of the new affiliated entities or the new obligated group, combined group or other unified credit group, which note or notes would constitute obligations of the new affiliated entities or the members of the new obligated group, combined group or other unified credit group, (iii) the replacement of all or a portion of the financial and operating covenants and related definitions set forth in the Master Indenture with those of the new affiliated entities or the new obligated group, combined group or other unified credit group, set forth in the new agreement or master indenture, and (iv) the termination of the status of any Designated Affiliates as Designated Affiliates (the “Undesignated Affiliates”), concurrently with (A) the substitution of the underlying credit source for any Related Bonds the proceeds of which are allocable to the facilities of such Undesignated Affiliates, from being the Corporation under any Related Loan Document and the Corporation and the Obligated Group under the Obligations and the Master Indenture to being such Undesignated Affiliates or any affiliate of such Undesignated Affiliates, under a replacement or substitute loan agreement, bond indenture, note or notes and master

C-33 indenture, and (B) the release and discharge of (1) any or all Obligations, in whole or in part, issued pursuant to the Master Indenture to secure such Related Bonds allocable to such Undesignated Affiliates and (2) the Corporation, the Obligated Group, any Members of the Obligated Group, any System Affiliates or any Designated Affiliates from any or all liability (whether direct or indirect) with respect to the Related Bonds allocable to the Undesignated Affiliates, any Related Loan Document, any Related Bond Indenture, the Obligations, or the Master Indenture or any portion of any thereof allocable to the Undesignated Affiliates (such transaction is referred to collectively in the Master Indenture as the “Substitution Transaction”).

(c) If all amounts due or to become due on the Related Bonds have not been fully paid to the Holder thereof, at or prior to the implementation of the Substitution Transaction there shall also be delivered to the Master Trustee: (i) an opinion of bond counsel to the effect that under then existing law the implementation of the Substitution Transaction and the execution of the amendments, supplements, restatements, replacements or substitutions contemplated “The Master Indenture – Note and Document Substitution”, in and of themselves, would not adversely affect the validity of the Related Bonds or the exclusion from federal income taxation of interest payable on the Related Bonds, and (ii) an opinion of counsel to the new affiliated entities or the new obligated group, combined group or other unified credit group to the effect that (A) the note or notes of the new affiliated entities or the new obligated group, combined group or other unified credit group to be delivered to secure the Related Bonds allocable to the Undesignated Affiliates constitute legal, valid and binding obligations of the new affiliated entities or the new obligated group, combined group or other unified credit group enforceable in accordance with their terms, except to the extent that the enforceability of such note or notes may be limited by any applicable bankruptcy, insolvency, liquidation, rehabilitation or other similar laws or enactment affecting the enforcement of creditors’ rights, and (B) the issuance of the note or notes will not cause the Related Bonds or such note or notes to become subject to the registration requirements pursuant to the Securities Act of 1933, as amended.

(d) In addition, upon the implementation of the Substitution Transaction, the Corporation shall direct the Master Trustee to give written notice thereof, by first-class mail, to the Holders of the Obligations then Outstanding.

SATISFACTION OF THE MASTER INDENTURE

Defeasance

If the Members shall pay or provide for the payment of the entire indebtedness on all Obligations (including for the purposes described under this subheading any Obligations owned by a Member) outstanding in any one or more of the following ways:

(a) by paying or causing to be paid the principal of (including redemption premium, if any) and interest on all Obligations outstanding, as and when the same become due and payable;

(b) by depositing with the Master Trustee, in trust, at or before maturity, moneys in an amount sufficient to pay or redeem (when redeemable) all Obligations outstanding (including the payment of premium, if any, and interest payable on such Obligations to the maturity or redemption date thereof), provided that such moneys, if invested, shall be invested at the direction of the Obligated Group Agent in Escrow Obligations, in an amount, without consideration of any income or increment to accrue thereon, sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations outstanding at or before their respective maturity dates; it being understood that the investment income on such Escrow Obligations may be used at the direction of the Obligated Group Agent for any other purpose permitted by law;

(d) by depositing with the Master Trustee, in trust, before maturity, Escrow Obligations in such amount as the Master Trustee shall determine, based upon a verification report of independent certified public accountants, will, together with the income or increment to accrue thereon, without consideration of any reinvestment thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations outstanding at or before their respective maturity dates;

C-34 and if the Obligated Group shall also pay or cause to be paid all other sums payable under the Master Indenture and any Related Bond Indenture or Indentures by the Obligated Group and, if any such Obligations are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given in accordance with the requirements of the Master Indenture or provisions satisfactory to the Master Trustee shall have been made for the giving of such notice, then and in that case (but subject to the provisions of the Master Indenture) the Master Indenture and the estate and rights granted under the Master Indenture shall cease, determine, and become null and void, and thereupon the Master Trustee shall, upon written request of the Obligated Group Agent, and upon receipt by the Master Trustee of an Officer’s Certificate from the Obligated Group Agent and an opinion of Counsel acceptable to the Master Trustee, each stating that in the opinion of the signers all conditions precedent to the satisfaction and discharge of the Master Indenture have been complied with, forthwith execute proper instruments acknowledging satisfaction of and discharging the Master Indenture and the lien of the Master Indenture. The satisfaction and discharge of the Master Indenture shall be without prejudice to the rights of the Master Trustee to charge and be reimbursed by the Obligated Group for any expenditures which it may thereafter incur in connection herewith. The foregoing notwithstanding, the liability of the Obligated Group in respect of the Obligations shall continue, but the holders thereof shall thereafter be entitled to payment only out of the moneys or Escrow Obligations deposited with the Master Trustee as aforesaid.

Any moneys, funds, securities, or other property remaining on deposit under the Master Indenture (other than said Escrow Obligations or other moneys deposited in trust as above provided) shall, upon the full satisfaction of the Master Indenture, forthwith be transferred, paid over and distributed to the Obligated Group Agent.

The Obligated Group may at any time surrender to the Master Trustee for cancellation by it any Obligations previously authenticated and delivered which the Obligated Group may have acquired in any manner whatsoever, and such Obligations, upon such surrender and cancellation, shall be deemed to be paid and retired.

Provision for Payment of a Particular Series of Obligations or Portion Thereof

If the Obligated Group shall pay or provide for the payment of the entire indebtedness on all Obligations of a particular series or a portion of such a series (including any such Obligations owned by a Member) in one of the following ways:

(a) by paying or causing to be paid the principal of (including redemption premium, if any) and interest on all Obligations of such series or portion thereof outstanding, as and when the same shall become due and payable;

(b) by depositing with the Master Trustee, in trust, at or before maturity, moneys in an amount sufficient to pay or redeem (when redeemable) all Obligations of such series or portion thereof outstanding (including the payment of premium, if any, and interest payable on such Obligations to the maturity or redemption date), provided that such moneys, if invested, shall be invested at the direction of the Obligated Group Agent in Escrow Obligations in an amount, without consideration of any income or increment to accrue thereon, sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations of such series or portion thereof outstanding at or before their respective maturity dates; it being understood that the investment income on such Escrow Obligations may be used at the direction of the Obligated Group Agent for any other purpose permitted by law;

(c) by delivering to the Master Trustee, for cancellation by it, all Obligations of such series or portion thereof outstanding; or

(d) by depositing with the Master Trustee, in trust, Escrow Obligations in such amount as the Master Trustee shall determine, based upon a verification report of independent certified accountants, will, together with the income or increment to accrue thereon without consideration of any reinvestment thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations of such series or portion thereof at or before their respective maturity dates; and if the Obligated Group shall also pay or cause to be paid all other sums payable under the Master Indenture by the Obligated Group with respect to such series of Obligations or portion thereof, and, if any such Obligations of such series or portion thereof are to be redeemed prior to the maturity of the Master Indenture, notice of such

C-35 redemption shall have been given in accordance with the requirements of the Master Indenture or provisions satisfactory to the Master Trustee shall have been made for the giving of such notice, then in that case (but subject to the provisions of the Master Indenture) such Obligations shall cease to be entitled to any lien, benefit or security under the Master Indenture. The liability of the Obligated Group in respect of such Obligations shall continue but the holders thereof shall thereafter be entitled to payment (to the exclusion of all other Obligation holders) only out of the moneys or Escrow Obligations deposited with the Master Trustee as aforesaid.

Satisfaction of Related Bonds

The provisions of other sections of the Master Indenture notwithstanding, any Obligation which secures a Related Bond (i) shall be deemed paid and shall cease to be entitled to the lien, benefit and security under the Master Indenture in the circumstances described in subsection (b)(ii) of the definition of “Outstanding Obligations” contained in the Master Indenture; but (ii) shall not be deemed paid and shall continue to be entitled to the lien, benefit and security under the Master Indenture unless and until such Related Bond shall cease to be entitled to any lien, benefit or security under the Related Bond Indenture pursuant to the provisions thereof.

THE TWENTY-SEVENTH SUPPLEMENTAL MASTER TRUST INDENTURE

Creation of Series of Notes

A Note Obligation is created and authorized to be issued in the total aggregate principal amount of each series of 2017 Bonds (each, a “Series 2017 Note” and together, the “Series 2017 Notes”).

Payments on Series 2017 Notes; Credits

Except as provided in the following sentences with respect to credits and as provided below under “Prepayment of Series 2017 Notes,” payments on each Series 2017 Note shall be made in the manner provided in the Master Indenture and the Program Loan Agreement. The Obligated Group shall receive credit for payment on the Series 2017 Notes, in addition to any credits resulting from payment or prepayment from other sources, as set forth in the Program Loan Agreement. In the event that any date for making any payment of principal or interest on the Series 2017 Notes is not a Business Day, interest on the Series 2017 Notes shall continue to accrue until the date payment is actually made.

Prepayment of Series 2017 Notes

The Series 2017 Notes are subject to prepayment as set forth in the Program Loan Agreement, and with the same effect as is applicable to the 2017 Bonds under the Indenture.

Redemption of Notes

Upon the selection and call for redemption, and the surrender of, any fully registered Series 2017 Note for redemption in part only, the Obligated Group shall cause to be executed and the Master Trustee shall authenticate and deliver to or upon the written order of the holder thereof, at the expense of the Obligated Group, a new Series 2017 Note in an aggregate principal amount equal to the unredeemed portion of the Series 2017 Notes surrendered, which shall be a fully registered Series 2017 Note.

The Obligated Group Agent may agree with any holder of any such fully registered Series 2017 Note without coupons that such holder may, in lieu of surrendering the same for a new fully registered Series 2017 Note without coupons, endorse on such Series 2017 Note a notice of such partial redemption which notice shall set forth over the signature of such holder, the payment date, the principal amount redeemed and the principal amount remaining unpaid. Such partial redemption shall be valid upon payment or deposit of the amount thereof to the benefit of the registered owner of any such fully registered Series 2017 Note and the Obligated Group and the Master Trustee shall be fully released and discharged from all liability to the extent of such payment irrespective of whether such endorsement shall or shall not have been made upon the reverse of such fully registered Series 2017 Note by the holder thereof and irrespective of any error or omission in such endorsement.

On the date designated for redemption by notice given as provided in the Twenty-Seventh Supplemental Master Trust Indenture, a Series 2017 Note called for redemption shall become and be due and payable at the

C-36 redemption price provided for redemption of such Series 2017 Note on such date. If on the date fixed for redemption moneys for payment of the redemption price and accrued interest are held by the Master Trustee or paying agents as provided in the Twenty-Seventh Supplemental Master Trust Indenture, or are held in the related Debt Service Fund created under the Indenture, interest on such Series 2017 Note so called for redemption shall cease to accrue, such Series 2017 Note shall cease to be entitled to any benefit or security under the Twenty-Seventh Supplemental Master Trust Indenture except the right to receive payment from the moneys held by the Master Trustee or the paying agents and the amount of such Series 2017 Note so called for redemption shall be deemed paid and no longer Outstanding.

Notice of any redemption of a Series 2017 Note shall be mailed to each registered holder of a Series 2017 Note to be so redeemed at the address shown on the books of the Master Trustee not less than 35 nor more than 45 days prior to the date set for redemption, but failure to so mail such notice shall not be a condition precedent to, nor shall such failure affect the validity of the proceedings for, the redemption of any Series 2017 Note. The Trustee, as registered holder of a Series 2017 Note, may waive all or a portion of the required notice period.

Registration, Number, Negotiability and Transfer of Series 2017 Notes

Except as provided in the next paragraph, so long as any 2017 Bond remains Outstanding (within the meaning of that term as defined in the Indenture), the Series 2017 Notes shall consist of one note without coupons registered as to principal and interest in the name of the Trustee, as assignee of the Authority, on the register the Obligated Group Agent is required to maintain at the corporate trust office of the Master Trustee or its agent for the registration and transfer of the Series 2017 Notes. No transfer of the Series 2017 Notes shall be registered under the Master Indenture except for transfers to a successor Trustee.

Upon the principal of all Notes that are Outstanding Obligations being declared immediately due and payable upon and during the continuance of an Event of Default under the Master Indenture, the Series 2017 Notes may be transferred and such transfer shall be registered by the Master Trustee, and may be exchanged for other Series 2017 Notes as provided below, if and to the extent a Trustee requests that the restrictions of subsection (a) of this section on transfers and exchanges be terminated.

Form of Series 2017 Notes

The Series 2017 Notes shall be in substantially the form set forth in an exhibit to the Twenty-Seventh Supplemental Master Trust Indenture, with such necessary and appropriate omissions, insertions and variations as are permitted or required thereby or by the Master Indenture and are approved by those officers executing such Series 2017 Notes on behalf of the Obligated Group and the execution thereof by such officers shall constitute conclusive evidence of such approval.

C-37 THE INDENTURE

Pledge of Revenues

Pursuant to the Indenture, the Authority grants to the Trustee (a) all of its right, title and interest of the Authority in and to the Program Loan Agreement (except for certain rights of the Authority), all funds and accounts established under the Indenture and the Revenues and (b) a security interest in the Series 2017 Notes and all security therefor pursuant to the Master Indenture.

Revenue Fund

All Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the “Revenue Fund” which the Trustee shall establish, maintain, and hold in trust. The Trustee shall transfer from the Revenue Fund, and deposit into the following respective funds, on each Interest Payment Date, in the following order of priority (with the requirements of each such fund at the time of deposit, including the making up of any deficiencies in any such fund resulting from lack of Revenues sufficient to make any earlier required deposit, to be satisfied before any transfer is made to any fund subsequent in priority); provided, however, that the Trustee shall, from time to time at the written direction of the Program Administrator, (i) deposit amounts on deposit in the Revenue Fund to the Program Fund, to the extent such amounts are not currently needed to pay the principal or redemption price of or interest on the 2017 Bonds, or (ii) retain in the Revenue Fund amounts necessary to pay principal of and/or interest on the 2017 Bonds becoming due within twelve months from the date of deposit of such amounts into the Revenue Fund:

First: To the Debt Service Fund, an amount sufficient, together with other available amounts therein, to pay the aggregate amount of interest with respect to all 2017 Bonds then Outstanding becoming due on such Interest Payment Date;

Second: To the Debt Service Fund, an amount sufficient, together with other available amounts therein, to pay the aggregate amount of principal becoming due on the Outstanding 2017 Bonds on such Interest Payment Date;

Third: To the Program Fund, all amounts remaining in the Revenue Fund.

Debt Service Fund

A Debt Service Fund will be established and maintained with the Trustee under the Indenture. The amounts with respect to the payment of principal and interest on the 2017 Bonds derived under the Program Loan Agreement, the Series 2017 Notes and certain other amounts specified in the Indenture will be deposited in the Debt Service Fund. While the 2017 Bonds are outstanding, moneys in the Debt Service Fund will be used solely for the payment of the principal or redemption price of and interest on the 2017 Bonds as they mature or become due. Any amounts remaining in the Debt Service Fund, after payment in full of the principal or redemption price of, if any, and interest on the 2017 Bonds (or provision for the payment thereof) shall be paid to the Program Administrator for distribution as the Program Administrator deems appropriate.

The Program and Program Fund

The Trustee will establish a “Series 2017 Program Fund” for the purpose of financing, refinancing or reimbursing the Costs of the Projects. The Program Administrator will have the discretion to select such Members of the Obligated Group and Affiliates thereof and those particular Projects of such entities, as comply with the requirements of the Indenture, to participate in the Program.

The following restrictions apply to financings, refinancings, and reimbursements of the Costs of Projects under the Indenture:

(a) Each Participant shall agree during the term of its Loan not to purchase or permit any “related person” (as defined in Section 1.150-1 of the Treasury Regulations) to purchase, pursuant to any arrangement, formal or informal, the 2017 Bonds in an amount related to the amount of the Loan.

C-38 (b) Without the Approval of Bond Counsel, no more than three percent (3%) of the aggregate amount of outstanding disbursements from the Program Fund for any Loan may be used to finance, refinance, or reimburse the costs of a Project (or portion thereof) used or to be used (i) in unrelated trades or businesses (within the meaning of Section 513(a) of the Code) of an organization described in Section 501(c)(3) of the Code, or (ii) in the trade or business of a Person other than an organization so described.

(c) Without the Approval of Bond Counsel, no Participant shall use moneys disbursed from the Program Fund to refinance, refund or advance refund any obligations issued by it or on its behalf; provided however, that the limitation described in this subsection (c) shall not apply to Loans made pursuant to Loan Schedules executed and delivered on the date of original authentication and delivery of the 2017 Bonds.

(d) No disbursement from the Program Fund shall be made to reimburse a Participant for amounts spent from the Participant's own funds to pay costs of Capital Assets prior to the date of issuance of the 2017 Bonds and the execution of the applicable Loan Schedule unless (a) such costs were paid not earlier than 60 days prior to the date on which the Board of Directors of the Corporation adopted a declaration of intent to finance certain expenditures with proceeds of a debt obligation or (b) such costs were preliminary expenditures (as defined in Treas. Reg. § 1.150-2(f)), including architectural, engineering, surveying, soil testing, reimbursement bond issuance, and similar costs that are incurred prior to commencement of acquisition, construction or rehabilitation of a Capital Asset) up to an amount not in excess of 20% of the principal amount of the 2017 Bonds; provided further, however, that 2017 Bond proceeds will not be applied to reimbursement expenditures described above, other than preliminary expenditures, paid more than 18 months before the later of the date the expenditure was paid and the date the Capital Asset is placed in service, but in no event later than three years from the date the expenditure was paid.

(e) Each Participant shall be a not-for-profit corporation which (i) is organized and existing under the laws of the Commonwealth of Pennsylvania, (ii) is described in Section 501(c)(3) of the Code, and (iii) is not a “private foundation” as defined in Section 509(a) of the Code.

(f) Each Participant shall be a Member of the Obligated Group or an Affiliate thereof and shall be a “hospital” or a “health center” under the Act. The Corporation may be a Participant notwithstanding it is simultaneously acting as Program Administrator.

(g) Each Participant shall agree that it shall not take or permit any action which would cause the 2017 Bonds to be “arbitrage bonds” under Section 148 of the Code.

(h) The average maturity of each Loan shall not exceed 120 percent of the average reasonably expected economic life (determined as of the date of closing or the later date on which the Capital Assets are expected to be placed in service or, in the event the Capital Assets are placed in service prior to the Closing, the remaining economic life of such Capital Assets as of the Closing) of the Capital Assets being financed, refinanced, or the costs of which are being reimbursed, by such Loan, as provided, and to the extent required, by Section 147(b) of the Code.

No closing shall be held if, as of the date thereof, any Event of Default under the Indenture described below in subparagraph (a) or (b) under the subheading “THE INDENTURE – Events of Defaults and Remedies” shall have occurred and be continuing.

In addition, each Participant shall deliver to the Program Administrator and the Trustee copies of each of the following documents in connection with any closing:

(a) The Loan Schedules for existing loans made pursuant to the Program with the proceeds of the 2017 Bonds and a Loan Schedule for new loans made pursuant to the Program with the proceeds of the 2017 Bonds, substantially in the form set forth in the Indenture, which will set forth among other things, a description of the Project to be financed, the costs of the Project, the amount of the Loan, the payment and prepayment provisions, the interest provisions, an agreement by the Participant to pay its share of the expenses of the Program and to be bound by the Program Loan Agreement;

C-39 (b) An opinion of Counsel with respect to matters set forth in the Indenture, including the validity of the Loan Schedule, the existence of all necessary governmental approvals, no litigation and the statute of the Participant as a 501(c)(3) organization under the Code;

(c) Evidence satisfactory to the Program Administrator (which may include a certificate of the Participant or a copy of such Participant’s capital budget) that the Capital Assets have been acquired or constructed or that a commitment to acquire or construct the Capital Assets has been made and that such Capital Assets will be located in the Commonwealth of Pennsylvania;

(d) Except for Participants and Projects listed in an exhibit to the Indenture or with the Approval of Bond Counsel, evidence of public approval of the Loan, following publication of due notice and public hearing, as may be required by Section 147(f) of the Code and evidence that the governmental unit whose residents are served by the Project has made the “health, safety and welfare” determination required by the Act and the ordinance of the Board of County Commissioners of the County of Montour;

(e) Such other certificates, opinions, documents, and other information as the Program Administrator or the Trustee may reasonably require to assure that the making of the Loan and the financing of the Project complies with the provisions of the Program Loan Agreement and the Indenture, the laws of the Commonwealth of Pennsylvania, including the Act, the Code, and the public purposes of the Authority; and

(f) A certificate of the Program Administrator in substantially the form set forth in the Indenture.

Additionally, each Participant delivering a Loan Schedule for the purpose of refinancing an obligation previously incurred by the Participant to finance the original cost of Capital Assets shall deliver evidence satisfactory to the Program Administrator of the release and satisfaction of the outstanding obligation being refinanced.

The Trustee shall debit and disburse from the Program Fund, to or upon the order of the Participant, funds to finance, refinance, or reimburse the Participant for the Costs of the Capital Assets identified in the Loan Schedule upon satisfaction of the conditions described in the Program Loan Agreement.

Loan Payments

The final principal payment date of each Loan shall be a date, determined by the Program Administrator (which determination shall be made subject to the limitation described above in subparagraph (h) under the heading “The Program and Program Fund”), which is not later than the final maturity date of the 2017 Bonds.

The Loan Repayments shall be due on such dates and in such amounts as shall be determined by the Program Administrator to be sufficient, together with other amounts available therefor, to pay as the same become due whether at maturity, upon redemption or acceleration or otherwise, the principal and redemption price of the 2017 Bonds.

Loan Interest shall be due on the dates and calculated at such rate or rates applied from time to time to the Loan Balances as shall be determined by the Program Administrator to be sufficient, together with other amounts available therefor, to provide for the payment as the same shall become due of the interest on the 2017 Bonds. The rate of interest on a specific Loan may be a fixed or variable rate and may be higher or lower than the rate of interest borne by the 2017 Bonds.

Each Loan Schedule may contain a provision permitting the Participant to prepay the Loan Balance at any time, in whole or in part, which prepayment may be conditioned upon prior approval of the Program Administrator.

Each Participant shall be required under its Loan Schedule to make payments of the Participant’s Share of administrative fees and expenses as the same shall become due, as determined by the Program Administrator, including administrative expenses and any annual or other periodic administrative fees and expenses and any non- recurring fees, costs, and expenses which are outside the scope of services covered by annual or periodic administrative fees and expenses.

C-40 Program Termination

If the Program Administrator determines by written notification to the Trustee, the Authority, the Remarketing Agent, the Bank, if any, and the Liquidity Facility Issuer, if any, that: (i) no additional demand for Program Fund is anticipated; or (ii) it is not practicable for potential Participants to make Loan Repayments or to pay Loan Interest which, when aggregated with Loan Repayments and Loan Interest of all other Participants and other funds available therefor, would be sufficient to pay the principal of and interest on the 2017 Bonds when due, at maturity or on any mandatory redemption date; or (iii) no further Loans are permitted under the Indenture, and with the Approval of Bond Counsel; then any moneys remaining or thereafter deposited in the Program Fund (other than moneys required to be disbursed under existing Loan Schedules) shall be transferred to the Debt Service Fund for application to the redemption of Bonds on the earliest practicable redemption date.

Liquidity Facility

Any Liquidity Facility entered into with respect to the 2017B Bonds must be accompanied by an opinion of counsel to the provider of such Liquidity Facility addressed to the Trustee stating that such Liquidity Facility is a legal, valid, binding and enforceable obligation of such provider in accordance with its terms. In addition, if the Participants or the Members of the Obligated Group grant a security interest in any cash, securities or investment property to the provider of such Liquidity Facility, the Participants or the Members of the Obligated Group must furnish the Trustee with an opinion of Bond Counsel stating that such grant is permitted under the Indenture and will not adversely affect the exclusion from gross income of interest on the 2017B Bonds for purposes of federal income tax.

Draws on Existing Liquidity Facility. Trustee shall draw or shall cause the Tender Agent to draw on the existing Liquidity Facility, if any, in effect on the date of any such delivery of an Alternate Liquidity Facility or termination of the Liquidity Facility then held by the Trustee and the Tender Agent, and shall use the proceeds of such drawing to pay the purchase price of the tendered 2017B Bonds, if any, on such date. The Trustee shall then accept such Alternate Liquidity Facility and surrender the previously held Liquidity Facility, if any, to the previous Liquidity Provider for cancellation promptly on or after the day the Alternate Liquidity Facility becomes effective. The Liquidity Facility should not be surrendered by the Trustee until all outstanding drawings under the Liquidity Facility then due and owing have been honored. Notwithstanding the foregoing, the then current Liquidity Facility may not be replaced with an Alternate Liquidity Facility, if any, if the 2017B Bonds are in a Long Term Rate Period and are not then subject to optional redemption without premium.

Notices of Expiration, Replacement or Termination of Liquidity Facility. (a) Trustee shall notify the Bondholders of the 2017B Bonds and the Remarketing Agent of the expiration or termination or replacement of the Liquidity Facility by first class mail at least 15 days (30 days if the Interest Rate Mode for the 2017B Bonds is the Long Term Rate) but not more than 60 days before such expiration or replacement regardless whether a mandatory tender will occur. If the Trustee receives written notice from the Liquidity Facility Issuer that the Liquidity Facility is to terminate under the terms of the Liquidity Facility (except in the case of an automatic, immediate termination or suspension), the Trustee shall notify the Bondholders of such termination by first class mail at least 10 days before any Purchase Date resulting from such termination. Each notice of expiration, replacement or termination of the Liquidity Facility will state:

(i) that the Liquidity Facility is expiring or being replaced or terminating and that such expiration, replacement or termination may result in a reduction or withdrawal of the ratings on the 2017B Bonds;

(ii) that the 2017B Bonds will be subject to mandatory purchase on the Purchase Date in accordance with the Indenture, in the event such expiration, replacement or termination will subject the 2017B Bonds to mandatory purchase under the Indenture; and

(iii) if there will be an Alternate Liquidity Facility, information relating to it, including a confirmation of the ratings on the 2017B Bonds or the new ratings on the 2017B Bonds.

(b) Copies of any notices required by the Indenture shall also be sent to the Tender Agent, the Remarketing Agent and the Paying Agent.

C-41 Amendments to the Liquidity Facility. The Indenture provides that the Trustee will notify Bondholders of a proposed amendment of a Liquidity Facility which would adversely affect the interests of the Bondholders and may consent to it with the consent of the owners of at least a majority in aggregate principal amount of the 2017 Bonds then Outstanding which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the owners of all 2017 Bonds then outstanding, consent to any amendment which would (a) decrease the amount payable under the Liquidity Facility or (b) reduce the term of the Liquidity Facility.

Investment or Deposit of Funds

Moneys on deposit in the Funds established under the Indenture shall be invested and reinvested by the Trustee as follows:

(a) All investments shall constitute Permitted Investments and shall mature, or be subject to repurchase, withdrawal without penalty or redemption at the option of the holder on or before the dates on which the amounts invested are required for the purposes of the Indenture.

(b) All investments shall be made by the Trustee, at the written direction of the Program Administrator which shall be subject to the foregoing in giving such direction. The Program Administrator shall not direct the Trustee to make any investments which would cause the 2017 Bonds to become “arbitrage bonds” within the meaning of Section 148(a) of the Code, and the applicable regulations promulgated thereunder.

(c) The principal of the Permitted Investments and the interest, income and gains received in respect thereof shall be applied as follows: (i) except as otherwise directed in writing by the Program Administrator, all interest, income and profits received in respect of Permitted Investments standing to the credit of the Program Fund, the Revenue Fund or the Debt Service Fund or proceeds from the sale or other disposition of such Permitted Investments shall (after deduction of any losses) be retained in or transferred to the Debt Service Fund and credited against subsequent deposit requirements as provided in the Indenture; (ii) except as otherwise provided in a supplemental indenture and as provided in clause (i), all interest, income and profits received in respect of Permitted Investments standing to the credit of a fund established under the Indenture or proceeds from the sale or other disposition of such Permitted Investments shall (after deduction of losses) be credited to said fund; and (iii) whenever any other transfer or payment is required to be made from any particular fund, such transfer or payment shall be made from such combination of maturing principal, redemption or repurchase prices, liquidation proceeds and withdrawals of principal as the Trustee deems appropriate for such purpose, after taking into account any future transfers or payments from the fund in question.

(d) Neither the Authority nor the Trustee shall be accountable for any depreciation in the value of the Permitted Investments or any losses incurred upon any authorized disposition thereof. The Trustee shall provide the Corporation with periodic statements that include the investment activity undertaken pursuant to Article VII of the Indenture. As long as the Trustee provides such statements, it shall not be required to provide the Authority, the Program Administrator, the Corporation with brokerage confirmations.

The Trustee is required to value the assets in each of the funds established under the Indenture as of June 30 of each year, after taking into account all transfers or payments then required to be made from each fund. In computing the assets of any fund or account therein, investments and accrued interest thereon shall be deemed a part thereof, except as described in the preceding paragraphs. Such investments shall be valued at the current market value thereof.

Covenants of the Authority

The Authority covenants, among other things, to promptly pay the interest on and the principal or redemption price of every 2017 Bond, but only out of Revenues and in the manner provided in the Indenture.

The Authority covenants to cooperate with the Trustee in enforcing the payment of all amounts under the Series 2017 Notes and the Program Loan Agreement and shall require the Members of the Obligated Group and the Participants, respectively, to perform their obligations thereunder.

C-42 The Authority covenants that it shall not amend the Program Loan Agreement (except with respect to the execution of additional Loan Schedules) without the consent of the Liquidity Facility Issuer.

Prior to making any amendment, except with respect to those previously specified above, the Authority shall file with the Trustee (i) a copy of the proposed amendment and (ii) an opinion of Bond Counsel to the effect that such amendment or supplement will not have an adverse effect on the exclusion from gross income of interest on the 2017 Bonds for purposes of federal income tax.

The Authority further covenants based solely on covenants made by the Program Administrator and the Participants that it will permit no investment or other use of proceeds of the 2017 Bonds, which, if such investment or use of the proceeds of the 2017 Bonds on the date of issue of the 2017 Bonds, would have caused the 2017 Bonds to be arbitrage bonds under Section 148 of the Code, and that it will comply with the requirements of such Code.

Defaults and Remedies

The Indenture provides that each of the following events will constitute an “Event of Default” thereunder:

(a) Payment of the principal or redemption price of any 2017 Bond is not made when it becomes due and payable at maturity or upon call for redemption; or

(b) Payment of any interest on any 2017 Bond is not made when it becomes due and payable; or

(c) Any “event of default” under the Series 2017 Notes, the Master Indenture or Program Loan Agreement occurs and is continuing; or

(d) If payment of the purchase price of any 2017 Bond required to be purchased pursuant to “The INDENTURE – Purchase of Bonds” is not made when such payment has become due and payable; or

(e) If the Authority fails to comply with any provision of the Act or for any reason is rendered incapable of fulfilling its obligations under the Indenture or the Act.

The Indenture provides that if any Event of Default occurs and is continuing, the Trustee may, and if the Series 2017 Note shall have been accelerated pursuant to the Master Trust Indenture or upon written direction of the owners of 25% in principal amount of a series of 2017 Bonds then Outstanding shall, by notice in writing delivered to the Authority and the Program Administrator, declare the principal of a series of 2017 Bonds then Outstanding to be immediately due and payable; and such principal and interest shall thereupon become immediately due and payable. Upon the occurrence of any acceleration, the Trustee shall immediately exercise such rights as it may have as the owner of the Series 2017 Note or under the Program Loan Agreement to declare all payments under the Series 2017 Notes or under the Program Loan Agreement to be due and payable immediately to the extent they have not already become so declared.

Within five days of the occurrence of any such acceleration, the Trustee shall notify by first class mail, postage prepaid, the owners of all 2017 Bonds then outstanding of the occurrence of such acceleration.

In addition, upon the occurrence and continuation of an event of default under the Indenture, the Trustee may pursue any available remedy at law or in equity by suit, action, mandamus or other proceeding to enforce all rights of the Bondholders.

The above provisions, however, are subject to the condition that if, after the principal of all 2017 Bonds has become due and payable, all arrears of interest upon such series of 2017 Bonds are paid by the Authority, and the Authority performs all other things with respect to which it may have been in default under the Indenture and pays the reasonable charges of the Trustee and the Bondholders, including reasonable attorneys’ fees, costs and expenses, then owners of a majority in principal amount of such series of 2017 Bonds then outstanding, by notice to the Authority and to the Trustee, may annul such acceleration and its consequences.

C-43 Application of Moneys in Event of Default

Following an Event of Default, all moneys on deposit in any fund or account established under the Indenture and certain other moneys received by the Trustee under the Indenture or the Master Indenture shall be applied:

First: to the payment of the outstanding fees and expenses of the Trustee, if any, and of the reasonable costs of the Trustee, including counsel fees, costs and expenses, any disbursements of the Trustee with interest thereon and its reasonable compensation; and

Second: to the payment of the unpaid principal then due or overdue, whether at maturity or by call for redemption or acceleration, of Outstanding 2017 Bonds and interest then owing on Outstanding 2017 Bonds and, if the amount available shall not be sufficient to pay in full all principal and interest then due or overdue, then to payment thereof ratably, according to the amounts of principal and interest then due or overdue, without any discrimination or preference.

The surplus, if any, shall be paid to the Authority or the Person lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

Bondholders May Direct Proceedings

The owners of a majority in principal amount of a series of 2017 Bonds then Outstanding under the Indenture have the right after furnishing indemnity satisfactory to the Trustee, to direct in writing the method and place of conducting all remedial proceedings by the Trustee under the Indenture, provided such direction shall not be otherwise than in accordance with law or the provisions of the Indenture, and that the Trustee has the right to decline to follow any such direction which in the opinion of the Trustee (which may be based on the advice of its counsel) would be unjustly prejudicial to Bondholders not parties to such direction.

Limitations on Actions by Bondholders

No Bondholder has a right to pursue any remedy under the Indenture unless (a) the Trustee shall have been given written notice of an Event of Default, (b) the holders of at least 25% in principal amounts of a series of 2017 Bonds then Outstanding shall have requested the Trustee, in writing, to exercise the powers with respect to remedies granted under the Indenture or to pursue such remedy in its or their name or names, (c) the Trustee shall have been offered indemnity satisfactory to it against fees, costs, expenses and liabilities (including attorney’s fees, costs and expenses), and (d) the Trustee shall have failed to comply with such request within a reasonable time.

The Trustee

The Trustee may execute any powers under the Indenture and perform any duties required of it through attorneys, agents, officers, or employees, and shall be entitled to advice of counsel concerning all questions under the Indenture; and the Trustee shall not be answerable for the negligence or misconduct of any attorney or agent (other than an officer or an employee) selected by it with reasonable care. The Trustee may pay reasonable compensation in all cases to all of the attorneys, agents, officers and employees actually employed by it in connection with the Indenture and the trusts under the Indenture. The Trustee may act or refrain from acting upon the approval or advice of any attorney, and the Trustee shall not be responsible for any loss or damage resulting from any action taken or omitted in reliance on such opinion or advice. The Trustee shall not be answerable for the exercise of any discretion or power under the Indenture or for anything whatever in connection with the trust under the Indenture, except only its own negligence or willful misconduct or that of its officers or employees.

The Trustee shall not be deemed to have notice of any default or Event of Default under the Indenture, except as Events of Default as described in subparagraphs (a), (b) and (d) under the subheading “THE INDENTURE - Defaults and Remedies” unless it has been notified by the holders of at least 25% in principal amount of a series of 2017 Bonds then Outstanding, the Authority or the Bank. In the absence of delivery of a notice satisfying these requirements, the Trustee shall assume conclusively that there is no default or Event of Default except as noted above.

C-44 The Trustee is under no obligation to take any action in respect of any default or Event of Default or otherwise, including a default with respect to the payments of principal purchase price or interest as the same shall become due and payable unless it is requested in writing to do so by the holders of at least 25% in principal amount of a series of 2017 Bonds then Outstanding and, if in its opinion such action may tend to involve expense or liability, unless it is also furnished with indemnity satisfactory to it.

The Trustee, the Tender Agent, the Bond Registrar and each Paying Agent may in good faith buy, sell, own, hold and deal in any of the 2017 Bonds and may join in any action which any Bondholders may be entitled to take with like effect as if the Trustee, the Bond Registrar and the Paying Agent were not a party to the Indenture. The Trustee, the Tender Agent, the Bond Registrar and each Paying Agent may also engage in or be interested in financial or other transactions with the Participants and the Authority; provided that such transactions are not in conflict with its duties under the Indenture. The Trustee, the Tender Agent, the Remarketing Agent, any Broker- Dealer and the Bank may be affiliated entities.

The Trustee may resign and be discharged of the trusts created by the Indenture by written resignation filed with the Secretary of the Authority, with a copy to the Program Administrator not less than 60 days before the date when such resignation is intended to take effect; provided that notice of any such resignation shall be mailed by the resigning Trustee to the holders of all Outstanding 2017 Bonds at their registered addresses not less than 30 days prior to the intended effective date of the resignation, and that no resignation shall take effect until a successor Trustee has been appointed and has accepted such appointment.

Any Trustee under the Indenture may be removed at any time upon thirty (30) days’ written notice by an instrument appointing a successor to the Trustee so removed, executed by the holders of a majority in principal amount of the 2017 Bonds then Outstanding and filed with the Trustee and the Authority. If no Event of Default under the Program Loan Agreement has occurred and is continuing, the Program Administrator may upon thirty (30) days’ written notice remove the Trustee unless the holders of a majority in principal amount of 2017 Bonds then Outstanding object to the removal in writing (each such objection to be evidenced in a writing delivered to the Trustee no later than the effective date of the removal). The Trustee shall give written notice of any removal pursuant to the provisions to the Indenture to each Bondholder at least 30 days prior to the effective date of the removal. Any such removal shall be effective on the date on which a successor Trustee has been appointed and has accepted such appointment.

If the Trustee or any successor trustee resigns or is removed or dissolved, or if its property or business is taken under the control of any state or federal court or administrative body, the Authority shall appoint at the direction of the Program Administrator a successor and shall mail or cause to be mailed notice of such appointment. If the Authority fails to make such appointment within 30 days, the appointment may be made by the holders of a majority in principal amount of the 2017 Bonds then Outstanding or, if no Event of Default under the Program Loan Agreement has occurred and is continuing, by the Program Administrator. Notice of any such appointment shall be mailed promptly by the successor Trustee to the holders of all Outstanding 2017 Bonds at their registered addresses and to the Liquidity Facility Issuer.

A successor trustee shall be a national bank with trust powers, a bank with trust powers, or a bank and trust company or a trust company organized under the laws of the Commonwealth of Pennsylvania, in each case having a combined net capital and surplus of at least $50,000,000.

Amendments and Supplements

The Indenture provides that it may be amended or supplemented at any time without the consent of the Bondholders, but with the written consent of the Liquidity Facility Issuer, if any, or the Bank, if any, which shall not be withheld unreasonably, by a supplemental indenture authorized by the Authority filed with the Trustee for any one or more of the following purposes:

(a) to add additional covenants of the Authority or to surrender any right or power conferred upon the Authority in the Indenture;

(b) for any purposes not inconsistent with the terms of the Indenture or to cure any ambiguity or to correct or supplement any provision of the Indenture or in any supplemental indenture which may be defective or

C-45 inconsistent with any other provision in the Indenture or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under the Indenture which shall not materially adversely affect the interests of the Bondholders;

(c) to facilitate the Conversion from one Interest Rate Mode to another Interest Rate Mode or the Conversion of the 2017 Bonds to certificateless securities or securities represented by a master certificate held in trust, ownership of which, in either case, is evidenced by book entries on the books of the Bond Registrar, for any period of time;

(d) to permit the appointment of a co-trustee under the Indenture;

(e) to authorize different authorized denominations of the 2017 Bonds and to make correlative amendments and modifications to the Indenture regarding exchangeability of 2017 Bonds of different authorized denominations, redemptions of portions of 2017 Bonds of particular authorized denominations and similar amendments and modifications of a technical nature;

(f) to modify, alter, supplement or amend the Indenture in such manner as shall permit qualification under the Trust Indenture Act of 1939, as from time to time amended;

(g) to modify, alter, amend or supplement the Indenture in such manner as may be necessary or advisable in order to obtain or maintain a securities rating of the 2017 Bonds;

(h) to modify, alter, amend or supplement the Indenture in such manner as maybe necessary or advisable in connection with the provision by the Program Administrator of a Liquidity Facility, including, without limitation, (1) changes to the provisions of the Indenture relating to the times and methods for delivering notices of tender and for delivering tendered 2017 Bonds and the times for demanding purchase of 2017 Bonds under the Liquidity Facility, (2) amendments to the method of calculating the Bank Bond Rate or the mandatory redemption provisions applicable to Bank Bonds and (3) creation of sub-series in connection with the delivery of multiple Alternate Liquidity Facilities; and

(i) in connection with any other change to the Indenture if (i) in the judgment of the Trustee in reliance on an opinion of Counsel (which may be Bond Counsel) satisfactory to the Trustee, the proposed change does not materially adversely affect the rights of the holders of any 2017 Bonds, or (ii) the Trustee receives a certificate of a financial advisor (as hereinafter defined) to the effect that the proposed change does not materially adversely affect the rights of the holders of any 2017 Bonds and that such proposed change is consistent with then current industry practice for public offerings of tax-exempt bonds of a type and quality reasonably comparable to the 2017 Bonds. The term “financial advisor” means for the purposes of the provisions described in this clause (i) either an investment banker or an independent financial advisory firm, appointed by the Program Administrator satisfactory to the Authority and the Trustee, which is qualified to pass upon questions relating to the financing of healthcare projects.

The Indenture may be amended from time to time, except with respect to (a) the principal, redemption price, purchase price or interest payable upon any of the 2017 Bonds, (b) the interest payment dates, the dates of maturity or the redemption or purchase provisions of any of the 2017 Bonds, and (c) the provisions relating to amendments of the Indenture, the Program Loan Agreement or the Liquidity Facility Issuer, by a supplemental indenture consented to by the Liquidity Facility Issuer, if any, the Bank, if any, the Program Administrator and if the amendment or supplement would affect or alter the duties or obligations of the Remarketing Agent or the Tender Agent under the Indenture, with the consent of the Remarketing Agent or the Tender Agent, as the case may be, and approved by the owners of at least a majority in aggregate principal amount of the 2017 Bonds then outstanding which would be affected by the action proposed to be taken. The Indenture may be amended with respect to the matters enumerated in clauses (a) through (c) above with the unanimous consent of all Bondholders, the Liquidity Facility Issuer, if any, the Bank, if any, the Program Administrator, and the Remarketing Agent or the Tender Agent if required by the preceding sentence of this paragraph.

C-46 Amendments to the Program Loan Agreement and the Series 2017 Notes

The Authority and the Program Administrator may amend the Program Loan Agreement or the Series 2017 Notes if (i) in the judgment of the Trustee in reliance on an opinion of Counsel (which may be Bond Counsel) satisfactory to the Trustee, the proposed amendment does not materially adversely affect the rights of the holders of any 2017 Bonds, or (ii) the Trustee receives a certificate of a financial advisor (as hereinafter defined) to the effect that the proposed change does not materially adversely affect the rights of the holders of any 2017 Bonds and that such proposed change is consistent with then current industry practice for public offerings of tax-exempt bonds of a type and quality reasonably comparable to the 2017 Bonds. For the purposes of this paragraph, the term “financial advisor” shall mean either an investment banker or an independent financial advisory firm, appointed by the Program Administrator and satisfactory to the Authority, which is qualified to pass upon questions relating to the financing of healthcare projects. In the case of other amendments to the Program Loan Agreement or the Series 2017 Notes, the Trustee shall notify Bondholders of the proposed amendment and may consent thereto with the consent of at least a majority in aggregate principal amount of the 2017 Bonds then Outstanding which would be affected by the action proposed to be taken and the Liquidity Facility Issuer, if any, or the Bank, if any; provided, that the Trustee shall not, without the unanimous consent of the owners of all 2017 Bonds then Outstanding, consent to any amendment which would (1) decrease the amounts payable on the Series 2017 Notes or under the Program Loan Agreement or (2) change the date of payment of principal of or interest on the Series 2017 Notes or change any of the prepayment provisions of the Series 2017 Notes.

Limitations on Recourse

No personal recourse shall be had for any claim based on the Indenture or the 2017 Bonds against any member, officer or employee, past, present or future, of the Authority or of any successor body as such, either directly or through the Authority or any such successor body, under any constitutional provision, statute or rule of law or by the enforcement of any assessment or penalty or otherwise. The 2017 Bonds are payable solely from the Revenues and other moneys held by the Trustee under the Indenture for such purpose.

Defeasance

When the principal or redemption price (as the case may be) of, and interest on the 2017 Bonds have been paid, or provision has been made for their payment, together with the compensation and expenses of the Trustee and all other sums payable by the Authority under the Indenture, the right, title and interest of the Trustee shall cease and the Trustee, on written demand of the Authority, will release the lien of the Indenture; provided however that the right of each owner to demand purchase of the owner’s 2017 Bonds as provided in the 2017 Bonds will survive discharge of the lien of the Indenture. If payment or provision for payment is made for less than all of the 2017 Bonds, the particular 2017 Bonds (or portions thereof) to be deemed paid shall be selected by lot by the Trustee, and the Trustee shall release the Indenture with respect to such 2017 Bonds.

Provision for the payment of a series of 2017 Bonds shall also be deemed to have been made when the Trustee holds in a separate escrow fund under an escrow deposit agreement, in trust and irrevocable set aside exclusively for such payment, (i) monies sufficient to make such payment and any payment of the purchase price of such series of 2017 Bonds pursuant to the Indenture; and/or (ii) Government Obligations maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys (without consideration of any reinvestment thereof) to make such payment and any payment of the purchase price of such series of Bonds pursuant to the Indenture. If such provision for payment of a series of 2017 Bonds, is made, then such series of 2017 Bonds shall be redeemed on the next available redemption date. No verification report of any independent certified account regarding the sufficiency of the escrow fund or Opinion of Bond Counsel regarding defeasance or the tax- exempt status of the 2017 Bonds being defeased shall be required unless requested by the Authority, the Trustee, the Liquidity Facility Issuer, the Corporation or the rating agency, or rating agencies, rating the 2017 Bonds. Notwithstanding the foregoing, no delivery to the Trustee under this subsection shall be deemed a payment of any 2017 Bonds which are to be redeemed prior to their stated maturity until such 2017 Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such 2017 Bonds may be redeemed in accordance with the provisions of the Indenture and proper notice of such redemption shall have been given in accordance with the Indenture or the Authority shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give, in the manner and at the times prescribed by the Indenture, notice of redemption. Neither the Government Obligations nor moneys deposited with the Trustee pursuant to this section shall be

C-47 withdrawn or used for any purpose other than, and shall be segregated and held in trust for, the payment of the principal or purchase price of, redemption price of and interest on the 2017 Bonds with respect to which such deposit has been made. In the event that such moneys or Government Obligations are to be applied to the payment of principal or redemption price of any 2017 Bonds more than 60 days following the deposit thereof with the Trustee, the Trustee shall mail, at the expense of the Corporation, by first class mail, postage prepaid, to all owners of 2017 Bonds for the payment of which such moneys or obligations are being held at their registered addresses, a notice stating that such moneys or Government Obligations have been deposited and identifying the 2017 Bonds for the payment of which such moneys or Government Obligations are being held and shall mail copies of all such notices to the rating agencies rating the 2017 Bonds and The Bond Buyer, or their respective successors, if any.

Unclaimed Moneys

Moneys deposited with the Trustee which remain unclaimed two years after the date payment thereof becomes due shall, upon written request of the Authority, if such moneys have not been escheated in accordance with applicable law and if the Authority is not at the time to the actual knowledge of a Responsible Officer of the Trustee in default with respect to any covenant in the Indenture or the 2017 Bonds contained, be paid to the Authority; and the holders of the 2017 Bonds for which the deposit was made shall thereafter be limited to the claim against the Authority; provided, however, that before making any such payments to the Authority, the Trustee shall, at the expense of the Program Administrator, publish in a financial journal or newspaper of general circulation published in New York, New York, a notice that said moneys remain unclaimed and that, after a date named in said notice, which date shall be not less than 30 days after the date of publication of such notice, the balance of such moneys then unclaimed will be paid to the Authority.

Concerning the Master Indenture

The Trustee is the holder of the Series 2017 Notes and shall exercise all rights available to the holders of Master Indenture Obligations pursuant to the terms thereof and of the Master Indenture. The Trustee shall hold such Series 2017 Notes and exercise such rights for the equal and ratable benefit and protection of the holders of all Outstanding 2017 Bonds.

The Trustee, as the holder of the Series 2017 Notes, may exercise any and all rights which it may have by reason of such status, including, without limitation, requesting the Master Trustee to enforce the provisions of the Master Indenture, attending any meeting of holders of Master Indenture Obligations and voting the Series 2017 Notes, and delivering any consents or waivers as may be requested by the Obligated Group or by the Master Trustee.

Notwithstanding the foregoing, the Trustee shall not vote the Series 2017 Notes in favor of, or give its consent to, any action which in the Trustee’s opinion (which may be based upon the advice of its counsel) would materially adversely affect the interest of the Bondholders, except upon notification by the Trustee to the Bondholders of such proposal and the consent thereto by holders of a majority in aggregate principal amount of the 2017 Bonds; provided, however that the Trustee shall not, without the consent of the holders of all 2017 Bonds then Outstanding, vote the Series 2017 Notes in favor of, or give its consent to, any proposed action which would require the consent, pursuant to the Master Indenture, of the holders of all Master Indenture Obligations then outstanding under the Master Indenture affected by such action.

Remarketing of the 2017B Bonds

With certain exceptions, the Remarketing Agent will, subject to the terms of the Remarketing Agreement, offer for sale the 2017B Bonds purchased upon demand of the owners thereof and upon mandatory purchase, provided that the 2017B Bonds will be offered for sale during the continuance of any Event of Default under the Indenture only in the sole discretion of the Remarketing Agent. Each such sale will be at a price equal to the principal amount of the 2017B Bonds, plus interest accrued, if any. The Remarketing Agent, the Corporation, the Trustee, the Tender Agent, the Bank, if any, or the Liquidity Facility Issuer, if any, may purchase the 2017B Bonds offered pursuant to the Indenture for their own account.

C-48 THE PROGRAM LOAN AGREEMENT

Loan Allocations and Payments

Pursuant to the Program Loan Agreement, the Authority agrees to loan from time to time, the proceeds of the 2017 Bonds to the Participants for the purpose of financing all or a portion of the costs of the Projects. Each Participant agrees to borrow, and agrees to repay, its Loan upon the terms and conditions set forth in the Program Loan Agreement and in the applicable Loan Schedule. Any portion of the proceeds of the 2017 Bonds which are at any time not loaned to a Participant shall be deemed to have been loaned to the Corporation.

As evidence of and security for the repayment obligations of the Participants, the Corporation, as attorney- in-fact for the Obligated Group, has delivered to the Master Trustee the Series 2017 Notes in a principal amount equal to the 2017 Bonds. Payments under the Series 2017 Notes are scheduled to be made at the times and in the amounts required to pay the principal or redemption price of and the purchase price of and interest on the applicable Bonds. Payments received from or on behalf of the Participants under the terms of the Series 2017 Notes issued in connection with the issuance of the 2017 Bonds shall be credited against the loan payment obligations.

In lieu of the portion of amounts payable pursuant to the Program Loan Agreement, the Participants or, at their discretion, the Authority or the Trustee may purchase 2017 Bonds next becoming due at maturity or upon mandatory redemption and present such 2017 Bonds to the Trustee for cancellation.

Disbursement of Loan

The Trustee shall disburse the Loan to the Participant in one or more advances, upon the delivery to the Trustee of a requisition signed by an authorized officer of the Participant, in form satisfactory to the Authority and the Program Administrator, which shall include among other things, satisfactory evidence or an opinion of Counsel to the effect that the pertinent Participant has made all submissions to governmental authorities and has obtained all licenses, permits and approvals required by law for the acquisition, financing or refinancing, installation or construction and operation of the Capital Assets, to the extent the same are needed at the time of the first requisition relating to such Capital Assets, given the current status of the Project, and in the case of such opinion, that based upon inquiry to appropriate officers of the pertinent Participant, such Counsel has no reason to believe that any approvals and permits thereafter required for such purpose will not be granted.

Compliance with Master Indenture

The Corporation and each Participant are required to comply with all applicable provisions of the Master Indenture and shall not take or cause or permit to be taken any action except as permitted by the Master Indenture, whether or not specifically permitted under the Program Loan Agreement and, at the request of the Authority or the Trustee, shall furnish to either or both such parties such documents, certificates and reports as it may be required under the terms of the Master Indenture to deliver to the Master Trustee.

Arbitrage Rebate

The Authority, the Corporation and the Participants covenant with each other and with the Holders of the 2017 Bonds that, notwithstanding any other provision of the Program Loan Agreement or any other instrument, they shall neither make nor instruct the Trustee (and the Participants and the Corporation shall not direct any authorized representative of the Participants and the Corporation to instruct the Trustee) to make any investment or other use of the proceeds of the 2017 Bonds, or take or omit to take any other action which would cause the 2017 Bonds to be arbitrage bonds under Section 148(a) of the Code and the regulations thereunder, and that they will comply with the requirements of the Code and regulations throughout the terms of the 2017 Bonds.

The Corporation shall determine, or shall retain a financial consultant to determine, within 60 days of the end of each Rebate Bond Year (or such shorter period as may be required by applicable Treasury regulations), the amount required to be rebated to the United States pursuant to Section 148(f) of the Code, as calculated from the date of original delivery of the 2017 Bonds.

C-49 The Corporation and the Participants shall pay over to the United States Treasury (1) not less frequently than once each five years after the date of issuance of the 2017 Bonds, an amount, as determined by the Corporation or by a financial consultant, at least equal to 90% of the amount required to be rebated pursuant to Section 148(f) of the Code, giving effect to any prior payments made pursuant to this paragraph during such period and (2) not later than sixty (60) days after the retirement of the last of the 2017 Bonds, 100% of the aggregate amount required to be rebated pursuant to Section 148(f) of the Code. The provisions relating to arbitrage rebate may be amended or deleted from the Program Loan Agreement upon receipt by the Trustee and the Authority of an opinion of Bond Counsel that amendment or deletion of the provisions in the Program Loan Agreement concerning arbitrage rebate will not adversely affect the exclusion from gross income for Federal tax purposes of interest on the 2017 Bonds.

Additional Covenants of the Corporation and the Participants

The Corporation and each Obligated Participant covenant to provide and maintain or cause to be maintained continuously insurance covering such risks and in such amounts as are required by the Master Indenture. Each Non-Obligated Participant covenants to provide and maintain or cause to be maintained continuously insurance covering such risks and in such amounts as may be required by the Program Administrator. The Corporation and each Participant further covenant and agree to provide and maintain or cause to be maintained such insurance covering such risks and in such amounts as may be necessary, in the reasonable judgment of the Corporation or the Participant as the case may be, to protect the interest of the Authority and the Trustee.

Each Participant is required to maintain the Capital Assets in good repair and operating condition, operate the same continuously in an economical and efficient manner, and make all ordinary repairs, renewals, replacements and improvements in order to maintain adequate service.

Each Participant is required to operate and maintain the Capital Assets in compliance with all applicable laws, ordinances, rules, regulations and orders of all regulatory bodies having jurisdiction or of any insurance company writing insurance on the Capital Assets. Notwithstanding the foregoing, any Participant shall be permitted to contest in good faith and by appropriate proceedings the legality or reasonableness of any such standards, or the imposition of any such standards upon it with respect to the Capital Assets, so long as the operation of the Capital Assets or the receipts of income therefrom would not be adversely affected by reason thereof.

The Corporation and the Participants shall not take any action or permit any action to be taken on their behalf, or cause or permit any circumstance within their control to arise or continue, if such action or circumstance would cause the interest on the 2017 Bonds to be subject to the federal income tax in the hands of the holders thereof.

Permitted Indebtedness

The Corporation and each Obligated Participant shall be permitted to incur Indebtedness in the manner and subject to the conditions and limitations contained in the Master Indenture. Any indebtedness so incurred may be secured to the extent permitted by the Master Indenture. Each Non-Obligated Participant shall be permitted to incur indebtedness without limitation, except as expressly set forth in the applicable Loan Schedule.

Events of Default and Remedies

The following constitute Events of Default under the Program Loan Agreement: (a) if the Corporation or any Participant fails to make any payment, as required under the Program Loan Agreement when the same shall become due and payable; (b) if the Corporation or any Participant fails to make any other payment or deposit required by the Program Loan Agreement and within 60 days of the due date thereof; (c) if the Corporation or any Participant fails to perform any of its other covenants or agreements under the Program Loan Agreement and such failure continues for 30 days after the Authority or the Trustee gives the Corporation and the Participant written notice thereof; provided, however, that if such performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such 30-day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the Corporation or the Participant, as the case may be, shall commence such performance within such 30-day period and shall diligently and continuously prosecute the same to completion; provided further, that no Event of Default shall be deemed to have occurred or to exist if by reason of acts of God, fires, epidemics, landslides, floods, strikes,

C-50 lockouts or other industrial disturbances, acts of public enemies, acts or orders of any kind of any governmental authority, insurrections, riots, civil disturbances, explosions, breakage or accident of machinery, transmission pipes or canals, partial or entire failure of utilities, or any cause or event not reasonably within the control of the Corporation or the Participant, as the case may be, a Participant or the Corporation is unable in whole or in part to carry out any covenant or agreement contained in the Program Loan Agreement; however, such Participant or the Corporation, as the case may be, shall use its best efforts to remedy with all reasonable dispatch, the cause or causes preventing the Participants or the Corporation, as the case may be, from carrying out such covenant or agreement; provided, that the Corporation or any Participant shall not in any event be required to settle strikes, lockouts or other industrial disturbances by acceding to the demands of the opposing party or parties when such course, in the judgment of its governing body, is unfavorable to the Corporation or the Participant, as the case may be; (d) if any “Event of Default” occurs and is continuing under the Master Indenture with respect to the Series 2017 Notes; or (e) if any “Event of Default” occurs and is continuing under the Indenture. If an Event of Default under the Program Loan Agreement occurred and is continuing, the Authority (or the Trustee as its assignee) shall be entitled to exercise such additional rights and remedies as may be provided in the Program Loan Agreement or may exist at the time at law or in equity.

If upon any default by the Authority under the Indenture, or upon the occurrence of an Event of Default by the Participant under the Program Loan Agreement, the Trustee shall declare the principal of the then outstanding 2017 Bonds immediately due and payable under the related Indenture, and if such acceleration is not annulled as provided therein, then there shall become immediately due and payable under the Program Loan Agreement as then current damages of the Authority an amount equal to all amounts then due and payable under the Indenture.

Amendments

The Authority and the Corporation may enter into any amendments and supplements to the Program Loan Agreement as described under the heading “THE INDENTURE - Amendment of the Loan Agreement and the Series 2017 Notes.”

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APPENDIX D

FORM OF BOND COUNSEL OPINION

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Form of Bond Counsel Opinion

May __, 2017

Geisinger Authority The Bank of New York Mellon Trust Danville, Pennsylvania Company, N.A., as trustee Philadelphia Pennsylvania

J.P. Morgan Securities LLC, as representative of Merrill Lynch, Pierce, Fenner & Smith the underwriters of the 2017A-1 Bonds Incorporated, as representative of the underwriters New York, New York of the 2017A-2 Bonds New York, New York

Re: $[______] Geisinger Authority Health System Revenue Bonds, Series A-1 of 2017 (Geisinger Health System) $[______] Geisinger Authority Health System Revenue Bonds, Series A-2 of 2017 (Geisinger Health System)

Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the Geisinger Authority (the “Authority”) of its $[______] aggregate principal amount of its Health System Revenue Bonds, Series A-1 of 2017 (Geisinger Health System) (the “2017A-1 Bonds”) and its $[______] aggregate principal amount of its Health System Revenue Bonds, Series A-2 of 2017 (Geisinger Health System) (the “2017A- 2 Bonds” and, together with the 2017A-1 Bonds, the “Bonds”). The Bonds are issued under and pursuant to the laws of the Commonwealth of Pennsylvania (the “Commonwealth”) including particularly the Pennsylvania Municipality Authorities Act, 53 Pa. Cons. Stat. §§5601-5623, as amended (the “Act”), and a Trust Indenture dated as of May 1, 2017 (the “Bond Indenture”) between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). All capitalized terms used herein and not otherwise defined shall have the same meanings as set forth in the Bond Indenture. The Authority is issuing the Bonds at the request of Geisinger Health (formerly, Geisinger Health System Foundation) (“Geisinger Health”) on behalf of itself and certain of its affiliates (collectively, the “Institutions”), each of which is an organization exempt from federal income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), to finance a pooled loan program and to make loans to Geisinger Health and the Institutions for the purpose of financing, refunding and reimbursing the costs of capital projects (the “Project”). The proceeds of the Bonds will be loaned to Geisinger Health pursuant to a Program Loan Agreement dated as of May 1, 2017 (the “Loan Agreement”) between the Authority and Geisinger Health. Geisinger Health is required to make payments under the Loan Agreement in amounts in the aggregate sufficient to pay the principal or redemption price of and interest on the Bonds. Each subseries of Bonds is secured under the Bond Indenture by an assignment of loan payments under the Loan Agreement to the Trustee and by a promissory note for each subseries (collectively, the “Notes”) dated the date hereof issued in favor of the Trustee. The Notes are being issued under a Master Trust Indenture dated as of August 1, 1998, as previously amended and supplemented and as further supplemented in connection with the issuance of the Bonds by a Twenty-Seventh Supplemental Master Trust Indenture dated as of May 1, 2017 (as so amended and supplemented, the “Master Indenture”)

D-1 Geisinger Authority The Bank of New York Mellon Trust Company, N.A., as trustee J.P. Morgan Securities LLC, as representative of the underwriters of the 2017A-1 Bonds Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the underwriters of the 2017A-2 Bonds May __, 2017 Page 2

between Geisinger Health and The Bank of New York Mellon Trust Company, N.A., as successor master trustee. Payments under the Notes will be credited against the loan payments of Geisinger Health under the Loan Agreement and applied to the principal or redemption price of and interest on the applicable subseries of Bonds. The Geisinger Health has represented in the Loan Agreement that it is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). Geisinger Health has covenanted that, throughout the term of the Loan Agreement, it will not carry on or permit to be carried on in any property now or hereafter owned by it or any of the Institutions any trade or business, nor will it take any action or permit any action to be taken on its behalf or cause or permit any circumstance within its control to arise or continue if the conduct of such trade or business or such other action or circumstance would cause the interest paid by the Authority on the Bonds to be subject to federal income tax in the hands of the holders thereof. Under the Bond Indenture and the Loan Agreement, respectively, the Authority and Geisinger Health have covenanted that they will comply with the requirements of Section 148 of the Code pertaining to arbitrage bonds. In addition, an officer of the Authority responsible for issuing the Bonds and a representative of Geisinger Health have executed a certificate stating the reasonable expectations of the Authority and Geisinger Health on the date of issue of the Bonds as to future events that are material for the purposes of such requirements of the Code. In our capacity as bond counsel, we have examined such documents, records of the Authority and other instruments as we deemed necessary to enable us to express the opinions set forth below, including original counterparts or certified copies of the Bond Indenture, the Loan Agreement, the Master Indenture, the Notes and the other documents listed in the closing memorandum in respect of the Bonds filed with the Trustee. We also have examined an executed Bond of each maturity, and we assume that all other Bonds have been similarly executed and have been authenticated and delivered. Based on the foregoing, it is our opinion that: 1. The Authority is a body corporate and politic validly existing under the Act with full power and authority to finance the Project, to execute and deliver the Bond Indenture and the Loan Agreement and to issue and sell the Bonds. 2. The Bond Indenture and the Loan Agreement have been duly authorized, executed and delivered by the Authority and the covenants of the Authority therein are valid and binding obligations of the Authority enforceable in accordance with their terms, except as the rights created thereunder and the enforcement thereof may be limited by bankruptcy, insolvency or other laws or equitable principles affecting the enforcement of creditors’ rights generally. 3. The issuance and sale of the Bonds have been duly authorized by the Authority and, on the assumption as to execution, authentication and delivery stated above, the Bonds have been duly executed and delivered by the Authority and authenticated by the Trustee, are valid and binding obligations of the Authority and are entitled to the benefit and security of the Bond Indenture, except as

D-2 Geisinger Authority The Bank of New York Mellon Trust Company, N.A., as trustee J.P. Morgan Securities LLC, as representative of the underwriters of the 2017A-1 Bonds Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the underwriters of the 2017A-2 Bonds May __, 2017 Page 3

the rights created thereunder and the enforcement thereof may be limited as described in paragraph 2 above. 4. Under the laws of the Commonwealth as presently enacted and construed, the Bonds are exempt from personal property taxes in Pennsylvania, and interest on the Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax. 5. Interest on the Bonds is excludable from gross income for purposes of federal income tax under existing laws as enacted and construed on the date of initial delivery of the Bonds, assuming the accuracy of the certifications of the Authority and Geisinger Health and continuing compliance by the Authority and Geisinger Health with the requirements of the Code. Interest on the Bonds is not an item of tax preference for purposes of either individual or corporate federal alternative minimum tax (“AMT”); however, interest on the Bonds held by a corporation (other than an S corporation, regulated investment company, or real estate investment trust) may be indirectly subject to federal AMT because of its inclusion in the adjusted current earnings of a corporate holder. We express no opinion regarding other federal tax consequences relating to ownership or disposition of, or the accrual or receipt of interest on, the Bonds. [Certain of the Bonds were offered at a premium (“original issue premium”) over their principal amount. For federal income tax purposes, original issue premium is amortizable periodically over the term of a Bond through reductions in the holder’s tax basis for the Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Amortization of premium does not create a deductible expense or loss.]

We express no opinion herein with respect to the adequacy of the security or sources of payment for the Bonds or the accuracy or completeness of any offering document used in connection with the sale of the Bonds. We call your attention to the fact that the Bonds are limited obligations of the Authority, payable only out of certain revenues of the Authority and certain other moneys available therefor as provided in the Bond Indenture, and that the Bonds do not pledge the credit or taxing power of the Authority, the Commonwealth or any political subdivision, agency or instrumentality thereof. The Authority has no taxing power. We render this opinion as of the date hereof on the basis of federal law and the laws of the Commonwealth as enacted and construed on the date hereof. We express no opinion as to any matter not set forth in the numbered paragraphs herein, including, without limitation, the accuracy or completeness of the preliminary or final official statement or other documents prepared or statements made in connection with the offering and sale of the Bonds, and make no representation that we have independently verified the contents thereof. Very truly yours,

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APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT [THIS PAGE INTENTIONALLY LEFT BLANK]

GEISINGER AUTHORITY HEALTH SYSTEM REVENUE BONDS SERIES 2017 (GEISINGER HEALTH SYSTEM)

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by the Geisinger Health (the “Corporation”) and The Bank of New York Mellon Trust Company, N.A. (the “Dissemination Agent”) in connection with the issuance of $______in aggregate principal amount of Geisinger Authority Health System Revenue Bonds, Series A of 2017 (the “Bonds”) by the Geisinger Authority (the “Authority”). The Bonds are being issued pursuant to a Trust Indenture, dated as of May 1, 2017 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as Trustee. The Corporation and the Dissemination Agent, intending to be legally bound, covenant and agree as follows:

1. Purpose of the Disclosure Agreement.

This Disclosure Agreement is being executed and delivered by the Corporation and the Dissemination Agent for the benefit of the Bondholders and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15(c)2-12(b)(5) and to provide the basis for disclosure by the Corporation upon the terms set forth in the Rule. The Corporation hereby appoints and designates the Dissemination Agent as its agent to make public the reports, notices and disclosures required by this Disclosure Agreement and the Rule that are prepared by the Corporation and the Dissemination Agent hereby accepts such appointment and designation.

2. Definitions.

In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any annual report provided by the Corporation, pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Business Day” shall mean a day other than a Saturday, a Sunday, a day on which the New York Stock Exchange is closed or a day on which banks located in the Commonwealth are authorized or required by law or executive order to be closed.

“Commonwealth” shall mean the Commonwealth of Pennsylvania.

“Disclosure Representative” shall mean the Executive Vice President Finance/Chief Financial Officer of the Corporation or his or her designee, or such other officer or

E-1 employee as the Corporation shall designate in writing to the Dissemination Agent from time to time.

“EMMA System” shall mean the MSRB’s Electronic Municipal Market System.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Disclosure Agreement.

“Participating Underwriter” shall mean each original underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds.

“Repository” shall mean the MSRB through the EMMA System.

“Rule” shall mean Rule l5c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“Submission Date” shall mean the date which is 180 days after the end of each fiscal year of the Corporation, commencing with the fiscal year ending June 30, 2017.

3. Provision of Annual Reports.

(a) At least fifteen (15) Business Days prior to each Submission Date, the Corporation shall provide to the Dissemination Agent an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. An Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement, provided that the consolidated audited financial statements of the Corporation may be submitted separately from the balance of the Annual Report.

(b) If, by the fifteenth Business Day prior to the Submission Date, the Dissemination Agent has not received copies of the Annual Report of the Corporation, the Dissemination Agent shall contact the Corporation to determine whether the Corporation has complied with its obligations to provide an Annual Report.

(c) Upon receipt, the Dissemination Agent shall deliver copies of the Annual Report to the Repository. If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repository by the Submission Date, the Dissemination Agent shall send a notice to the Repository in substantially the form attached as Exhibit A.

(d) The Dissemination Agent shall, on January 1 of each year commencing on January 1, 2018, file a report with the Corporation and (if the Dissemination Agent is not the Trustee) the Trustee, certifying, to the extent it may do so, that the Annual Report has been

E-2 provided pursuant to this Disclosure Agreement, stating the date provided or stating that a notice in the form attached as Exhibit A was filed with the Repository.

4. Content of Annual Report.

(i) The Corporation’s Annual Report shall contain or incorporate by reference the following operating data relative to the Geisinger Health System (the “System”):

(1) the historical revenues and expenses of the System, as reported in the System’s audited consolidated financial statements for the most recently ended fiscal year determined in accordance with generally accepted accounting principles consistently applied;

(2) updated data for the most recently ended fiscal year with respect to information of the type contained in the section in Appendix A of the Official Statement for the Bonds entitled “Financial and Operational Information” under the subcaptions “Utilization Statistics” and “Consolidated Statement of Operations and Changes in Net Assets”, provided that such data may be provided only on a consolidated basis; and

(3) such narrative explanation as the Corporation, in its sole discretion, may deem necessary to avoid misunderstanding and to assist the reader in understanding the presentation of financial and operating data concerning the System.

(ii) If not included in (i) above, annual audited consolidated financial statements of the System; such audited consolidated financial statements shall be prepared in accordance with generally accepted accounting principles as then in effect on the date of such statements.

Any or all of the items listed above may be incorporated by reference from other documents, including financial statements of debt issues of the Corporation or related public entities, which have been submitted to the Repository or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Corporation shall clearly identify each such other document so incorporated by reference.

5. Reporting of Material Events.

(a) The Corporation shall, within 10 Business Days of the occurrence of an event, provide written notice to the Dissemination Agent of the occurrence of any of the following events:

(i) principal and interest payment delinquencies;

(ii) non-payment related defaults;

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(iii) unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) unscheduled draws on credit enhancements reflecting financial difficulties;

(v) substitution of credit or liquidity providers, or their failure to perform;

(vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices of determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;

(vii) modifications to rights of security holders, if material;

(viii) bond calls, if material, and tender offers;

(ix) defeasances;

(x) release, substitution, or sale of property securing repayment of the securities, if material;

(xi) rating changes;

(xii) bankruptcy, insolvency, receivership or similar event of the Corporation;

(xiii) the consummation of a merger, consolidation, or acquisition involving the Corporation or the sale of all or substantially all of the assets of the Corporation, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(xiv) appointment of a successor or additional trustee or the change of name of a trustee, if material.

(b) Whenever the Dissemination Agent has been instructed in writing by the Corporation to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Repository and with the Trustee (if the Trustee is not the Dissemination Agent) in the form provided by the Corporation.

6. Transmission of Information and Notices. Unless otherwise required by law, all notices, documents and information provided to the MSRB shall be provided in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.

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7. Termination of Reporting Obligation.

The Corporation’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds or upon delivery to the Dissemination Agent of an opinion of counsel expert in federal securities laws selected by the Corporation to the effect that compliance with this Disclosure Agreement no longer is required by the Rule. If the Corporation’s obligations under the Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the Institution and the original Institution shall have no further responsibility hereunder.

8. Dissemination Agent.

The Corporation may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be The Bank of New York Mellon Trust Company, N.A.

9. Amendment: Waiver.

Notwithstanding any other provision of this Disclosure Agreement, the Corporation and the Dissemination Agent may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Corporation shall describe such amendment or waiver in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Corporation. Prior to executing any amendment or waiver pursuant to this Section 9, the Dissemination Agent

E-5 shall be entitled to receive an opinion of counsel to the effect that such amendment or waiver is permitted under this Disclosure Agreement and complies with the Rule.

10. Additional Information.

Nothing in this Disclosure Agreement shall be deemed to prevent the Corporation from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Corporation chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Corporation shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

11. Default.

In the event of a failure of the Corporation or the Dissemination Agent to comply with any provision of this Disclosure Agreement, any Bondholder may take, or the Trustee may take (and, at the written request of the Bondholders of at least twenty-five (25%) percent in aggregate principal amount of Outstanding Bonds and the provision of indemnity satisfactory to the Trustee, shall take) such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Corporation or Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Corporation or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. The requirement for the Trustee to take actions hereto is subject to satisfaction of Section 10.07 of the Indenture.

12. Duties. Immunities and Liabilities of the Dissemination Agent.

(a) The Dissemination Agent shall not be liable, except for its own negligence or willful misconduct. The Dissemination Agent shall have no duty, obligation or responsibility with regard to the accuracy or completeness of any information contained in any Annual Report or the notice of Listed Events furnished to it. The Corporation covenants and agrees to indemnify and hold the Dissemination Agent and its directors, officers, agents and employees (collectively, the “Indemnities”) harmless from and against any and all liabilities, losses, damages, fines, suits, actions, demands, penalties, costs and expenses, including out-of-pocket, incidental expenses, legal fees and expenses, the allocated costs and expenses of in-house counsel and legal staff and the costs and expenses of defending or preparing to defend against any claim (“Losses”) that may be imposed on, incurred by, or asserted against, the Indemnities or any of them for following any instruction or other direction upon which the Dissemination Agent is authorized to conclusively rely pursuant to the terms of this Disclosure Agreement. In addition to and not in limitation of the immediately preceding sentence, the Corporation also covenants and agrees to indemnify and hold the Indemnities and each of them harmless from and against any and all Losses that may be imposed on, incurred by, or asserted

E-6 against the Indemnities or any of them in connection with or arising out of the Dissemination Agent’s performance under this Disclosure Agreement, provided the Dissemination Agent has not acted with negligence or engaged in willful misconduct. The provisions of this Section 12 shall survive the termination of this Disclosure Agreement and the resignation or removal of the Dissemination Agent for any reason. Anything in this Disclosure Agreement to the contrary notwithstanding, in no event shall the Dissemination Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Dissemination Agent has been advised of such loss or damage and regardless of the form of action.

(b) This Disclosure Agreement exclusively sets forth all of the duties of the Dissemination Agent with respect to any and all matters pertinent hereto and no additional duties shall be implied. The Dissemination Agent shall have no obligation to make disclosure about the Bonds except as specifically provided herein.

(c) The Dissemination Agent shall conclusively rely and shall be fully protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. The Dissemination Agent shall be under no duty to inquire into or investigate the validity, accuracy or content of any such document. The Dissemination Agent shall not incur any liability for following the instructions herein contained or expressly provided for, or written instructions given by the Corporation. In the administration of this Disclosure Agreement, the Dissemination Agent may execute any of its powers and perform its duties hereunder directly or through agents or attorneys and may consult with counsel, accountants and other skilled persons to be selected and retained by it. The Dissemination Agent shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled persons. The Dissemination Agent may resign and be discharged of its duties and obligations hereunder by giving notice in writing of such resignation to the Corporation specifying a date when such resignation shall take effect. Any corporation or association into which the Dissemination Agent in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Dissemination Agent in its individual capacity shall be a party, or any corporation or association to which all or substantially all the corporate trust business of the Dissemination Agent in its individual capacity may be sold or otherwise transferred, shall be the Dissemination Agent under this Disclosure Agreement without further act.

(d) The Corporation shall pay or reimburse the Dissemination Agent upon request for all reasonable expenses, including attorneys’ fees, costs and expenses, incurred by it in the performance or enforcement of its duties under this Disclosure Agreement. The preceding sentence shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

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13. Notices.

All reports, notices and disclosures required to be given to the Dissemination Agent hereunder shall be in writing and shall be addressed as follows:

The Bank of New York Mellon Trust Company, N.A. Global Corporate Trust-Public Finance 1735 Market Street, 9th Floor Philadelphia, Pennsylvania 19103

All notices to be given to the Corporation shall be in writing and shall be addressed as follows:

Geisinger Health 100 North Academy Avenue Danville, Pennsylvania 17110 Attention: Executive Vice President, Finance and Treasurer

Any party may notify the other parties in writing of any change in address.

14. Beneficiaries.

This Disclosure Agreement shall inure solely to the benefit of the Corporation, the Trustee, the Dissemination Agent, the Participating Underwriter and Holders from time to time of the Bonds, and shall create no rights in any other person or entity.

15. Governing Law.

This Disclosure Agreement shall be construed, interpreted, governed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, without regard to conflict of law principles, except that the Rule, as such, shall be construed, interpreted and governed under applicable Federal law.

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16. Counterparts.

This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Dated as of May 1, 2017

GEISINGER HEALTH

By: Executive Vice President, Finance and Treasurer

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Dissemination Agent

By: Title:

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EXHIBIT A

FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Geisinger Authority (Pennsylvania)

Name of Bond Issue: Health System Revenue Bonds, Series A of 2017 (Geisinger Health System)

Date of Issuance: May __, 2017

Obligated Party: Geisinger Health

NOTICE IS HEREBY GIVEN that the above-named Obligated Party has not provided an Annual Report with respect to the above named Bonds as required by the Continuing Disclosure Agreement dated as of May 1, 2017 between the Obligated Party, and The Bank of New York Mellon Trust Company, N.A. as the Dissemination Agent. The Obligated Party has informed the Dissemination Agent that it anticipates that the Annual Report will be filed by.

Dated: ______

The Bank of New York Mellon Trust Company, N.A., as Dissemination Agent

cc: Geisinger Authority

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GEisinger Authority (Montour County, Pennsylvania) • Health System Revenue Bonds, Series A of 2017 (Geisinger Health System)