CONSOLIDATED FINANCIAL STATEMENTS, SUPPLEMENTARY INFORMATION AND REPORTS ON FEDERAL AND STATE AWARD PROGRAMS

CHRISTUS Health Years Ended June 30, 2017 and 2016 With Reports of Independent Auditors

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EY Building a better working world CHRISTUS Health

Consolidated Financial Statements, Supplementary Information and Reports on Federal and State Award Programs

Years Ended June 30. 2017 and 2016

Contents

Part I — Financial Report of Independent Auditors 1 Consolidated Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations and Changes in Net Assets 5 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 9 Supplementary Information Report of Independent Auditors on Supplementary Information 76 Community Benefit (Unaudited) 77 Supplementary Information - Federal and State Awards Schedule of Compensation Information 78 Schedule of Expenditures of Federal and State Awards 79 Notes to Schedule of Expenditures of Federal and State Awards 85 Part II — Internal Control and Compliance Reports Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance With Government Auditing Standards 87 Report of Independent Auditors on Compliance for Each Major Federal and State Program; Report on Internal Control Over Compliance Required by the Uniform Guidance and State of Uniform Grant Management Standards 89 Schedule of Findings and Questioned Costs Section I - Summary of Auditor's Results 92 Section II - Financial Statement Findings 93 Section III - Federal Award Findings and Questioned Costs 94 Section IV - State Award Findings and Questioned Costs 94

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Report of Independent Auditors

The Board of Directors and Management CHRISTUS Health

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of CHRISTUS Health, which comprise the consolidated balance sheets as of June 30, 2017 and 2016, 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 conformity 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 of material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and the State of Texas Uniform Grant Management Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CHRISTUS Health as of June 30, 2017 and 2016, and the results of its consolidated operations and changes in its net assets and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of compensation information as required by the Revised Statute 24: 513A(l)(a)(3) and schedule of expenditures of federal and state awards as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirementsfor Federal Awards and the State of Texas Uniform Grant Management Standards are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain other procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States. In our opinion, the schedule of compensation information and the schedule of expenditures of federal and state awards are fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we also have issued our report dated September 15, 2017, on our consideration of CHRISTUS Health's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering CHRISTUS Health's internal control over financial reporting and compliance.

September 15, 2017

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Consolidated Balance Sheets

June 30 2017 2016 (In Thousands) Assets Current assets: Cash and cash equivalents $ 528,259 a5 483,664 Short-term investments and equity in managed funds 586,560 620,490 Assets whose use is limited or restricted, required for current liabi