New Issue – Book-Entry Only RATINGS: See “RATINGS” herein.

In the opinion of Bond Counsel, under existing laws, regulations and judicial decisions, interest on the 2013A Bonds (including any original issue discount properly allocable to an owner and treated as interest) is excluded from gross income for federal income tax purposes. Furthermore, in the opinion of Bond Counsel, interest on the 2013A Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. Furthermore, in the opinion of Bond Counsel, under the laws of the Commonwealth of Pennsylvania, as presently enacted and construed, the 2013A Bonds are exempt from personal property taxes in Pennsylvania and interest on the 2013A Bonds is exempt from Pennsylvania personal income tax and from Pennsylvania corporate net income tax. Bond Counsel’s opinion is subject to continuing compliance to satisfy certain provisions of the Internal Revenue Code of 1986, as amended (See “TAX EXEMPTION AND OTHER TAX MATTERS”).

$14,570,000 Washington County Hospital Authority (Washington County, Pennsylvania) Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project)

Dated: Date of Issuance Due: July 1, as shown on inside cover

The above-referenced bonds (the “2013A Bonds”) will be issued as fully registered bonds, and shall initially be registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York, which will act as securities depository for the 2013A Bonds. Purchasers will not receive certificates representing their ownership interests in the 2013A Bonds. So long as Cede & Co. is the registered owner, as nominee of DTC, references herein to “Owners,” “registered owners” or “Bondholders” shall mean Cede & Co., as aforesaid, and shall not mean the beneficial owners of the 2013A Bonds. Beneficial ownership of the 2013A Bonds may be acquired in denominations of $5,000 and integral multiples thereof. Principal of and interest on the 2013A Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., Pittsburgh, Pennsylvania, as trustee (the “Trustee”). So long as DTC or its nominee, Cede & Co., is the registered owner, such payments will be made directly to Cede & Co. Disbursements of such payments to the DTC Participants is the responsibility of DTC and disbursements of such payments to the beneficial owners is the responsibility of the DTC Participants and the Indirect Participants, as more fully described herein. Interest will be payable commencing on July 1, 2013 and on each January 1 and July 1 thereafter (each an “Interest Payment Date”) by check mailed to the registered Bondholders as of the close of business on the applicable record date preceding each Interest Payment Date; provided that, upon written request to the Trustee on file at least one business day prior to a Regular Record Date (defined herein), registered owners of $500,000 or more in aggregate principal amount of 2013A Bonds may elect to receive payments of interest by wire transfer to a designated account of a member bank of the Federal Reserve System commencing on the first Interest Payment Date following such Regular Record Date or in such other manner as is agreed upon between the registered owner and the Trustee. The 2013A Bonds are subject to redemption prior to maturity as set forth herein. The 2013A Bonds will be issued pursuant to a Trust Indenture dated as of May 1, 1987, as previously amended and supplemented, and as further amended and supplemented by an Eighth Supplemental Trust Indenture dated as of February 1, 2013 (collectively, the “Bond Indenture”) between the Trustee and the Washington County Hospital Authority (the “Authority”). The principal of, premium, if any, and interest on the 2013A Bonds will be payable from, and secured by, the Authority’s pledge and assignment to the Trustee of the Trust Estate, which includes payments to be made under a Loan Agreement dated as of April 1, 1998, as previously amended and supplemented, and as further amended and supplemented by a Fifth Supplemental Loan Agreement dated as of February 1, 2013 (collectively, the “Loan Agreement”) between the Authority and The Washington Hospital (the “Hospital”).

MATURITY SCHEDULE (see inside front cover page)

THE 2013A BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM THE SOURCES DESCRIBED IN THE BOND INDENTURE. NEITHER THE GENERAL CREDIT OF THE AUTHORITY NOR THE FULL FAITH, CREDIT OR TAXING POWER OF THE COUNTY OF WASHINGTON, THE COMMONWEALTH OF PENNSYLVANIA OR ANY POLITICAL SUBDIVISION OF THE COMMONWEALTH OF PENNSYLVANIA HAS BEEN OR WILL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2013A BONDS. THE ISSUANCE OF THE 2013A BONDS WILL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE WASHINGTON COUNTY, THE COMMONWEALTH OR ANY OTHER POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATSOEVER THEREFOR. THE AUTHORITY HAS NO TAXING POWER. The 2013A Bonds are offered when, as and if issued by the Authority and accepted by the Underwriter, subject to prior sale, withdrawal of or modification of the offer without notice, and subject to the approving legal opinion of Buchanan Ingersoll & Rooney PC, Pittsburgh, Pennsylvania, Bond Counsel, to be furnished upon delivery of the 2013A Bonds. Certain legal matters will be passed upon for the Authority by Robert N. Clarke, Esquire, Washington, Pennsylvania; for the Hospital by Goldfarb, Posner, Beck, DeHaven & Drewitz, Washington, Pennsylvania; and for the Underwriter by Cohen & Grigsby, P.C., Pittsburgh, Pennsylvania. It is expected that the 2013A Bonds will be available for delivery on or about February 12, 2013.

The date of this Official Statement is January 29, 2013

$14,570,000 Washington County Hospital Authority (Washington County, Pennsylvania) Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project)

SERIAL MATURITIES

Maturity (July 1) Principal Amount Interest Rate Yield Price CUSIP* No.

2013 $485,000 3.000% 0.850% 100.826% 938592 HR6 2014 $1,015,000 3.000% 1.150% 102.535% 938592 HS4 2015 $1,040,000 3.000% 1.580% 103.311% 938592 HT2 2016 $1,080,000 4.000% 1.840% 107.057% 938592 HU9 2017 $1,085,000 4.000% 2.020% 108.269% 938592 HV7 2018 $755,000 2.000% 2.270% 98.637% 938592 HW5 2019 $780,000 4.000% 2.580% 108.309% 938592 HX3 2020 $805,000 3.000% 2.850% 100.990% 938592 HY1 2021 $825,000 3.000% 3.070% 99.483% 938592 HZ8 2022 $850,000 3.000% 3.260% 97.910% 938592 JA1 2023 $880,000 3.125% 3.450% 97.180% 938592 JB9

TERM MATURITIES

Maturity (July 1) Principal Amount Interest Rate Yield Price - C CUSIP* No.

2028 $4,970,000 5.000% 3.770% 110.486% 938592 JC7

C – Priced to first optional call date of July 1, 2023.

* CUSIP data herein is provided by Standard & Poor's, CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. All rights reserved. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. CUSIP numbers are provided for convenience or reference only. Neither the Authority, the Hospital nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2013A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity.

TABLE OF CONTENTS PAGE

INTRODUCTORY STATEMENT ...... 1 Purpose ...... 1 Washington County Hospital Authority ...... 1 The Hospital ...... 1 Purpose of the 2013A Bonds ...... 1 Security ...... 1 Limited Obligations ...... 2 Redemption and Tenders ...... 2 Underlying Documents ...... 2

THE 2013A BONDS ...... 3 General Description ...... 3 Payment of Principal and Interest ...... 3 Delivery Of Certificates; Registered Owners ...... 3 Transfers and Exchanges ...... 3 Mandatory Redemption ...... 4 Optional Redemption ...... 4 Extraordinary Redemption...... 4 Notice ...... 4

BOOK-ENTRY ONLY SYSTEM ...... 5

WASHINGTON COUNTY HOSPITAL AUTHORITY ...... 6 General ...... 6 Members of the Authority Board ...... 7 Previous Authority Revenue Bond Issues ...... 7

THE PROJECT AND PLAN OF FINANCING ...... 7

ESTIMATED SOURCES AND USES OF FUNDS ...... 7

ANNUAL DEBT SERVICE REQUIREMENTS ...... 8

SECURITY AND SOURCES OF PAYMENT FOR THE 2013A BONDS ...... 9 Limited Obligations of the Authority ...... 9 The Bond Indenture ...... 9 The Loan Agreement ...... 9 The Mortgage ...... 9

BONDHOLDERS' RISKS ...... 9 Impact of Market Risk ...... 10 Budget Control Act of 2011 ...... 10 Federal Health Care Reform ...... 11 Additional Health Care Legislation and Reform ...... 12 Reimbursement from Third Parties...... 12 Medicare Reimbursement ...... 13 Inpatient Services ...... 13 Medicaid Reimbursement ...... 14 Non-Governmental Contracts ...... 15 Retroactive Adjustments of Payments ...... 15 Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other Performance Measures ...... 16 Nonprofit Health Care Environment...... 17 Charity/Uncompensated Care ...... 18

Consolidation of Health Care Market ...... 18 Competition and Service Areas ...... 18 Antitrust ...... 19 Claims Processing...... 19 Other Legislative and Regulatory Actions ...... 19 Regulation of Provider Relationships ...... 19 HIPAA Regulations ...... 20 The HITECH Act...... 21 Security Breaches and Unauthorized Releases of Personal Information ...... 21 Property Tax Assessments ...... 21 Certain Matters Relating to Enforceability of Obligations; Bankruptcy ...... 22 Malpractice Costs ...... 22 Medicare Care Availability and Reduction of Error Act ...... 22 Tax-Exempt Status of the Hospital ...... 23 Tax-Exempt Status of the 2013A Bonds ...... 24 Indigent Care ...... 25 Bond Examinations ...... 25 Other Risks ...... 25

INDEPENDENT AUDITORS ...... 29

FINANCIAL STATEMENTS ...... 29

LIMITED OBLIGATIONS ...... 29

ABSENCE OF MATERIAL LITIGATION ...... 29

THE TRUSTEE ...... 29

APPROVAL OF LEGALITY ...... 30

TAX EXEMPTION AND OTHER TAX MATTERS ...... 30

UNDERWRITING ...... 31

RATINGS ...... 31

CONTINUING DISCLOSURE ...... 32

CONCLUDING STATEMENT ...... 33

APPENDIX A - INFORMATION CONCERNING THE WASHINGTON HOSPITAL APPENDIX B - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION OF WASHINGTON HEALTH CARE SERVICES, INC. AND AFFILIATES FOR THE FISCAL YEARS ENDED JUNE 30, 2012 AND 2011 WITH REPORT OF INDEPENDENT AUDITORS APPENDIX C - SUMMARY OF PRINCIPAL FINANCING DOCUMENTS APPENDIX D - FORM OF BOND COUNSEL OPINION

This Official Statement and the information herein are subject to completion or amendment. Under no circumstances shall this 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 or qualification under the securities laws of any such jurisdiction. No dealer, broker, salesman or any other person has been authorized by the Authority, the Hospital or the Underwriter to give any information or make any representation, other than those contained in this Official Statement, in connection with the offering of or solicitation of offers for the 2013A Bonds. If given or made, such information or representation must not be relied upon as having been authorized by the Authority, the Hospital or the Underwriter.

Information contained in this Official Statement was obtained in part from officials of the Authority and the Hospital, trade and statistical services, and from other sources which are deemed to be reliable. Such sources are not guaranteed as to accuracy or completeness. Such information is not intended to be, and should not be relied upon, as a complete report or analysis; it is not to be construed as a representation by the Underwriter or, as to information from sources other than the Authority or Hospital, by the Authority or Hospital.

All quotations from and summaries and explanations of provisions of laws and documents in this Official Statement do not purport to be complete and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice; neither the delivery of this Official Statement nor any sale of the 2013A Bonds shall under any circumstances create any implication that there has been no change in matters described herein since the date of this Official Statement.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2013A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE.

THE 2013A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE BOND INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939 IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE 2013A BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE 2013A BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN THE OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE 2013A BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS A PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. ______CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT

Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act"). Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS DEPENDS, AMONG OTHER THINGS, ON KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE HOSPITAL DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED, OCCUR.

[ THIS PAGE INTENTIONALLY LEFT BLANK ]

OFFICIAL STATEMENT $14,570,000 Washington County Hospital Authority (Washington County, Pennsylvania) Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project)

INTRODUCTORY STATEMENT

For definitions of terms used but not defined, herein, see "Definitions of Terms" in APPENDIX C.

Purpose. The purpose of this Official Statement, including the cover page and the appendices hereto, is to set forth information in connection with the offering of $14,570,000 Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project) (the "2013A Bonds") of the Washington County Hospital Authority (the "Authority") on behalf of The Washington Hospital (the "Hospital"), a Pennsylvania nonprofit corporation. The 2013A Bonds will be issued under and secured by a Trust Indenture dated as of May 1, 1987 (the "Original Indenture"), as amended and supplemented by a First Supplemental Trust Indenture dated as of July 1, 1990 (the "First Supplemental Indenture"), a Second Supplemental Trust Indenture dated as of April 15, 1993 (the "Second Supplemental Indenture"), a Third Supplemental Trust Indenture dated as of April 1, 1998 (the "Third Supplemental Indenture"), a Fourth Supplemental Trust Indenture dated as of May 15, 2001 (the "Fourth Supplemental Indenture"), a Fifth Supplemental Trust Indenture dated as of July 1, 2004 (the "Fifth Supplemental Indenture"), a Sixth Supplemental Trust Indenture dated as of March 15, 2007 (the "Sixth Supplemental Indenture"), a Seventh Supplemental Trust Indenture dated as of June 15, 2008 (the "Seventh Supplemental Indenture"), and an Eighth Supplemental Trust Indenture dated as of February 1, 2013 (the "Eighth Supplemental Indenture" and, together with the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental Indenture, and the Seventh Supplemental Indenture, the "Bond Indenture"), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., Pittsburgh, Pennsylvania, as trustee (the "Trustee").

Washington County Hospital Authority. The Authority is the issuer of the 2013A Bonds and is a body corporate and politic organized and existing pursuant to an Act of the General Assembly of the Commonwealth of Pennsylvania (the "Commonwealth" or "Pennsylvania") approved May 2, 1945, P.L. 382, as continued by an Act of the General Assembly of the Commonwealth approved June 19, 2001, P.L. 22 (53 Pa.C.S. Ch. 56), known as the Municipality Authorities Act (the "Act"). For a more detailed description of the Authority, see "WASHINGTON COUNTY HOSPITAL AUTHORITY" herein.

The Hospital. The Hospital is a Pennsylvania nonprofit corporation and is recognized by the Internal Revenue Service to be exempt from federal income taxation under Section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as an organization described in Section 501(c)(3) of the Code. The Hospital is licensed by the Department of Health for 260 beds. The Hospital is the largest hospital in Washington County, Pennsylvania (the "County") and is located approximately 36 miles southwest of Pittsburgh, Pennsylvania. It provides a full range of acute care and psychiatric services in its service area. For a more detailed description of the Hospital, see APPENDIX A hereto.

Purpose of the 2013A Bonds. The proceeds from the sale of the 2013A Bonds, together with other funds, will be used by the Hospital for (a) the current refunding of all of the currently outstanding Washington County Hospital Authority Hospital Revenue Bonds, Series 1998 (The Washington Hospital Project) originally issued in the aggregate principal amount of $27,590,000 (the "1998 Bonds"); and (b) paying all or a portion of the costs of issuance of the 2013A Bonds (collectively, the "Project"). For a more detailed description of the Project, see "THE PROJECT AND PLAN OF FINANCING" herein.

Security. The 2013A Bonds are limited obligations of the Authority, secured by and payable from the Trust Estate, which includes payments required to be made by the Hospital under a Loan Agreement dated as of April 1, 1998, as amended and supplemented by a First Supplemental Loan Agreement dated as of May 15, 2001, a Second Supplemental Loan Agreement dated as of July 1, 2004, a Third Supplemental Loan Agreement dated as of March 15, 2007, a Fourth Supplemental Loan Agreement dated as of June 15, 2008, and a Fifth Supplemental Loan Agreement dated as of February 1, 2013 (collectively, the "Loan Agreement") between the Authority, as lender,

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and the Hospital, as borrower. Under the Loan Agreement, the Hospital has made certain affirmative and negative covenants for the benefit of the owners of the Bonds (as hereinafter defined). The Loan Agreement also permits the Hospital to incur additional indebtedness and certain other obligations secured on a parity basis with the 2013A Bonds and all other Bonds issued and outstanding under the Bond Indenture by a lien on the Hospital’s Gross Revenues. A summary description of the covenants contained in the Loan Agreement is contained in APPENDIX C hereto.

In order to secure the performance of its obligations under the Loan Agreement, the Hospital has pledged to the Trustee on behalf of the Bondholders a security interest in its Gross Revenues, which security interest is on parity with the security interest granted to the banks issuing the letters of credit supporting payments on the 2001B Bonds (as hereinafter defined), the 2007A Bonds (as hereinafter defined), the 2007B Bonds (as hereinafter defined), and the 2008A Bonds (as hereinafter defined), and to the counterparties under certain swap agreements. Upon the issuance of the 2013A Bonds and the defeasance of the 1998 Bonds, the 2013A Bonds will be secured on a parity basis with (a) the Authority’s Hospital Revenue Refunding Bonds, Series 2001A (The Washington Hospital Project) (the "2001A Bonds"), (b) the Authority’s Adjustable Rate Demand Hospital Revenue Bonds, Series of 2001B (The Washington Hospital Project) (the "2001B Bonds"), (c) the Authority’s Adjustable Rate Demand Hospital Revenue Bonds, Series 2007A (The Washington Hospital Project) (the "2007A Bonds"), (d) the Authority’s Adjustable Rate Demand Hospital Revenue Bonds, Series 2007B (The Washington Hospital Project) (the "2007B Bonds"), and (e) the Authority’s Adjustable Rate Demand Hospital Revenue Bonds, Series 2008A (The Washington Hospital Project) (the "2008A Bonds" and, together with the 2001A Bonds, the 2001B Bonds, the 2007A Bonds, the 2007B Bonds, and the 2013A Bonds the "Bonds").

In addition, to secure the Hospital's obligations under the Loan Agreement and the reimbursement agreements relating to the 2001B Bonds, the 2007A Bonds, the 2007B Bonds, and 2008A Bonds, the Hospital granted and pledged to the Trustee on behalf of the Bondholders and to the banks issuing letters of credit supporting the 2001B Bonds, the 2007A Bonds, the 2007B Bonds, and the 2008A Bonds, a first mortgage lien on the Hospital’s main campus, as more fully described in the Open End Mortgage, Assignment of Leases and Security Agreement dated as of July 1, 2004, as amended and supplemented by a First Supplement to Open-End Mortgage, Assignment of Leases and Security Agreement dated as of March 15, 2007, a Second Supplement to Open-End Mortgage, Assignment of Leases, Security Agreement and Fixture Filing dated as of June 15, 2008, a Third Supplement to Open-End Mortgage, Assignment of Leases, Security Agreement and Fixture Filing dated as of July 2, 2012, and a Fourth Supplement to Open-End Mortgage, Assignment of Leases, Security Agreement and Fixture Filing dated as of February 1, 2013, and as modified by a Partial Release of Mortgage dated March 2, 2011 (collectively, the "Mortgage").

Limited Obligations. The 2013A Bonds are limited obligations of the Authority and are secured by and payable from the Trust Estate, which includes payments made by the Hospital under the Loan Agreement (except certain fees and indemnification payments required to be made to the Authority), certain funds held by the Trustee under the Bond Indenture and the investments and investment earnings of those moneys. Neither the general credit of the Authority nor the full faith, credit or taxing power of the County, the Commonwealth or any political subdivision of the Commonwealth has been or will be pledged to the payment of the principal of or interest on the 2013A Bonds. The issuance of the 2013A Bonds will not directly, indirectly or contingently obligate the County, the Commonwealth or any other political subdivision or instrumentality thereof to levy or to pledge any form of taxation whatsoever therefor. The Authority has no taxing power.

Redemption and Tenders. The 2013A Bonds are subject to redemption prior to maturity. See "THE 2013A BONDS" herein. The 2013A Bonds are not subject to optional or mandatory tender for purchase.

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 such document for complete details of all terms and conditions. All statements herein are qualified in their entirety by the terms of each such document. Copies of the Bond Indenture, the Loan Agreement and the Mortgage are available in reasonable quantities upon request and reimbursement for copies and postage to the corporate trust office of the Trustee in Pittsburgh, Pennsylvania. For a further description of certain definitions, the Bond Indenture, the Loan Agreement and the Mortgage, see APPENDIX C hereto.

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THE 2013A BONDS

General Description. The 2013A Bonds are scheduled to mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The 2013A Bonds are issuable only as fully registered bonds without coupons in denominations of $5,000 and integral multiples thereof. The 2013A Bonds will bear interest (computed on the basis of a 360-day year comprised of twelve 30-day months) at the rates set forth on the inside cover page of this Official Statement. Interest on the 2013A Bonds will be payable on each January 1 and July 1, commencing July 1, 2013 (each an "Interest Payment Date") until the principal or redemption price of the 2013A Bonds has been paid or provided for in accordance with the Bond Indenture. Each 2013A Bond shall bear interest from the January 1 or July 1 which immediately precedes the date the 2013A Bond was authenticated unless (i) such date of authentication is an Interest Payment Date, in which case interest shall accrue from said Interest Payment Date, (ii) such date of authentication is on or prior to June 15, 2013, in which case interest shall accrue from the Date of Issuance, (iii) such Bond is authenticated after a Regular Record Date (as hereinafter defined) and before the next succeeding Interest Payment Date, in which case such 2013A Bond shall bear interest from such succeeding Interest Payment Date, or (iv) interest on the 2013A Bond shall be in default, in which case interest shall accrue from the date on which interest on the 2013A Bond was last provided for or paid to the date of maturity.

Payment of Principal and Interest. Subject to the provisions described under "BOOK-ENTRY ONLY SYSTEM" below, the principal or redemption price of 2013A Bonds is payable upon surrender thereof at the principal corporate trust office of the Trustee. Interest on the 2013A Bonds will be paid to the person in whose name such 2013A Bond is registered on the close of business on the fifteenth day of the month immediately preceding the relevant interest payment date (the "Regular Record Date"), provided that any such interest which is not deposited with the Trustee on or before any such interest payment date for payment to the holders of record on the Regular Record Date shall forthwith cease to be payable to the registered holder on the Regular Record Date, and shall be paid to the person in whose name such 2013A Bond is registered on a special record date (to be fixed by the Trustee) for the payment of such defaulted interest, notice of which shall be given to Bondholders not less than 15 days prior to such special record date. Such notice shall be mailed to the persons in whose names the 2013A Bonds are registered at the close of business on the fifth business day prior to such mailing. Upon written request to the Trustee on file at least one business day prior to a Regular Record Date, registered owners of $500,000 or more in aggregate principal amount of 2013A Bonds may elect to receive payments of interest by wire transfer to a designated account of a member bank of the Federal Reserve System commencing on the first Interest Payment Date following such Regular Record Date or in such other manner as is agreed upon between the registered owner and the Trustee.

So long as The Depository Trust Company ("DTC"), New York, New York, or its nominee, Cede & Co., is the registered owner of the 2013A Bonds, payments of the principal or redemption price of and interest on the 2013A Bonds will be made by the Trustee directly to Cede & Co. Disbursements of such payments to the DTC Participants (as hereinafter defined) is the responsibility of DTC. Disbursement of such payments to the owners of beneficial interests in the 2013A Bonds is the responsibility of the DTC Participants and the Indirect Participants (as hereinafter defined). See "BOOK-ENTRY ONLY SYSTEM" below.

Delivery Of Certificates; Registered Owners. Subject to the provisions described under "BOOK-ENTRY ONLY SYSTEM" below, bond certificates in fully registered form will be delivered to, and registered in the names of, the Bondholders, in authorized denominations. The ownership of the 2013A Bonds so delivered (and any 2013A Bonds thereafter delivered upon a transfer or exchange described below) shall be registered in the Bond Register to be kept by the Trustee at its corporate trust office, and the Authority, the Hospital and the Trustee shall be entitled to treat the registered owners of such 2013A Bonds, as their names appear in such Bond Register as of the appropriate dates, as the owners thereof for all purposes described herein and in the Bond Indenture.

Transfers and Exchanges. Subject to the provisions described under "BOOK-ENTRY ONLY SYSTEM" below, a 2013A Bond may be transferred or exchanged only on the Bond Register in the manner and subject to the conditions set forth in the Bond Indenture. Any 2013A Bonds surrendered for transfer shall be accompanied by a duly executed instrument of transfer, in form and with guarantee of signature satisfactory to the Authority and the Trustee. A 2013A Bond is transferable by the registered holder hereof or his agent duly authorized in writing at the principal corporate trust office of the Trustee, upon surrender of such 2013A Bond. Upon any such transfer a new fully registered 2013A Bonds or Bonds of the same maturity in the same aggregate principal amount and bearing the same rate of interest will be issued to the transferee. 2013A Bonds, upon surrender thereof at the principal corporate trust office of the Trustee, may be exchanged for an equal aggregate principal amount of registered 2013A Bonds of

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the same maturity and interest rate of other authorized denominations. No service charge shall be made for any transfer or exchange of any 2013A Bonds, but the Trustee shall require the payment by any registered holder thereof requesting an exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The Authority shall not be required to issue, or to register the transfer or exchange of, any 2013A Bonds (a) for a period commencing on the 15th day next preceding the date of any selection of 2013A Bonds to be redeemed and ending at the close of business on the day on which the applicable notice of redemption is mailed, (b) once being called, or called for redemption or (c) for a period commencing on the 15th day next preceding the maturity of the 2013A Bonds.

Mandatory Redemption. In the manner and upon the terms and conditions in the Bond Indenture, the 2013A Bonds maturing on July 1, 2028 shall be redeemed or otherwise retired through the operation of the sinking fund, in part, by lot, in order of their maturities on July 1 of each year in the amounts shown below at a redemption price equal to 100% of the principal amount thereof, together with interest accrued to the date fixed for redemption:

2013A Bonds Maturing on July 1, 2028

Year (July 1) Amount 2024 $915,000.00 2025 $955,000.00 2026 $1,005,000.00 2027 $1,055,000.00 2028† $1,040,000.00 † Maturity

Optional Redemption. The 2013A Bonds maturing on July 1, 2028 are subject to optional redemption by the Authority, at the direction of the Hospital, in whole or in part at any time on and after July 1, 2023 at a redemption price of 100% of the principal amount thereof plus interest accrued thereon to the redemption date. Redemption in part shall be made the order of maturity designated by the Hospital and within any maturity by lot.

Extraordinary Redemption. The 2013A Bonds are subject to extraordinary redemption prior to maturity in whole or in part at any time, at the option of the Authority and at the direction of the Hospital, from insurance proceeds, condemnation awards and the proceeds of conveyance in lieu of condemnation deposited with the Trustee in such amounts as is determined pursuant to the Bond Indenture as a result of damage to, destruction or condemnation of or taking under power of eminent domain of, all or a substantial portion of the Hospital Premises. Any such redemption shall be made in the order of maturity designated by the Hospital and within any maturity by lot as selected by the Trustee, upon payment of a redemption price of 100% of the principal amount thereof, together with interest accrued to the date fixed for redemption.

Notice. Any redemption shall be made upon at least 30 days but not more than 45 days prior notice given by first class mail, postage prepaid, to all registered holders of 2013A Bonds to be redeemed at the respective addresses of such holders as they appear in the Bond Register, which notice shall be given in the manner, under the terms and conditions, and with the effect provided in the Bond Indenture; provided, however, that failure to mail such notice or any defect in the notice so mailed or in the mailing thereof with respect to any one 2013A Bonds shall not affect the validity of the proceedings for the redemption of any other 2013A Bonds and provided further, that if the Authority will have duly given notice of redemption and will have provided funds for the payment of the redemption price of the 2013A Bonds so called for redemption, with interest thereon to the date fixed for redemption, interest on such 2013A Bonds or portions thereof, called for redemption, shall cease to accrue from such redemption date.

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BOOK-ENTRY ONLY SYSTEM

The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the 2013A Bonds. The 2013A 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 2013A Bond certificate will be issued for each of the 2013A Bonds set forth on the inside cover of this Official Statement, each in the aggregate principal amount of such 2013A Bond, 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 a Standard & Poor’s 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.

Purchases of 2013A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2013A Bonds on DTC's records. The ownership interest of each actual purchaser of each 2013A Bond ("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, however, are 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 2013A 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 the 2013A Bonds, except in the event that use of the book-entry only system for the 2013A Bonds is discontinued.

To facilitate subsequent transfers, all 2013A 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 the 2013A Bonds with DTC and their registration in the name of Cede & Co., or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2013A Bonds. DTC's records reflect only the identity of the Direct Participants to whose accounts such 2013A 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. Beneficial Owners of the 2013A Bonds may wish to take certain steps to augment transmission to them of notices of significant documents. For example, Beneficial Owners of the 2013A Bonds may wish to ascertain that the nominee holding the 2013A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

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Redemption notices, if any, shall be sent to Cede & Co. If less than all of the 2013A Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each DTC Participant to be redeemed.

Redemption proceeds, if any, on the 2013A 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 the Hospital or the Trustee 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 to DTC nor its nominee, the Trustee, or the Hospital, subject to any statutory or regulatory requirements as my be in effect from time to time. Payment of redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Hospital or the Trustee, 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 2013A Bonds any time by giving reasonable notice to the Hospital or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, 2013A Bond certificates are required to be printed and delivered. The Hospital may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2013A Bond certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Hospital believes to be reliable, but the Hospital takes no responsibility for the accuracy thereof.

WASHINGTON COUNTY HOSPITAL AUTHORITY

General. The Authority, which is the issuer of the 2013A Bonds, is a body corporate and politic created pursuant to an Ordinance of the Board of Commissioners of the County under the Act. Pursuant to the Act, the Authority may acquire, finance, hold, 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 December 11, 1975, as amended on June 5, 1996, has been issued to the Authority by the Secretary of the Commonwealth. The Authority’s existence shall continue beyond the final maturity date of the 2013A Bonds. The Authority’s address is Courthouse Square, Room 702, 100 West Beau Street, Washington, PA 15301.

THE AUTHORITY HAS NOT PREPARED OR ASSISTED IN THE PREPARATION OF THIS OFFICIAL STATEMENT, EXCEPT THE STATEMENTS UNDER THIS SECTION AND UNDER THE HEADING "ABSENCE OF MATERIAL LITIGATION" WITH RESPECT TO THE AUTHORITY, AND EXCEPT AS AFORESAID, THE AUTHORITY IS NOT RESPONSIBLE FOR ANY STATEMENTS MADE HEREIN. ACCORDINGLY, EXCEPT AS AFORESAID, THE AUTHORITY DISCLAIMS RESPONSIBILITY FOR THE DISCLOSURE SET FORTH HEREIN MADE IN CONNECTION WITH THE OFFER, SALE AND DISTRIBUTION OF THE 2013A BONDS.

The Hospital has agreed pursuant to the Loan Agreement to indemnify the Authority and to hold it harmless from and against any liabilities which may arise out of (i) the Authority’s participation in the Loan Agreement and (ii) the issuance of the 2013A Bonds. Reference must be made to the applicable documents for a more complete description of these provisions.

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Members of the Authority Board. The governing body of the Authority is a Board (the "Authority Board") of five members appointed by the County Commissioners of the County, the latter of whom are elected officials. 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 as follows:

Member Office George H. Crompton Chairman John A. Holets, M.D. Vice Chairman Mindy Zatta Secretary James Gregorakis, Sr. Treasurer Eric Crunick Member

Previous Authority Revenue Bond Issues. The Authority has issued and is authorized to issue revenue bonds and notes for various hospital projects. Each of the bond and note issues is payable from receipts and revenues derived by the Authority from the hospital or health care facility on whose behalf the bonds or notes were issued and is secured separately and distinctly from the issues for every other hospital or health care facility. The Authority expects from time to time to enter into separate indentures or other agreements for projects for the same or other hospitals or health care facilities that will provide for the issuance of bonds or notes to be secured by revenues derived from such hospitals or health care facilities. The Authority has never been and presently is not in default under any of the foregoing obligations.

THE PROJECT AND PLAN OF FINANCING

The proceeds from the sale of the 2013A Bonds, together with other available funds, will be used by the Hospital for (a) the current refunding of all of the currently outstanding 1998 Bonds; and (b) paying all or a portion of the costs of issuance of the 2013A Bonds. The 1998 Bonds will be redeemed on March 4, 2013.

ESTIMATED SOURCES AND USES OF FUNDS

Sources of Funds: Principal Amount of 2013A Bonds $14,570,000.00 Plus Net Initial Offering Premium 766,902.00 Transfer from 1998 Trustee-held funds 2,348,287.66 Equity Contribution 51,043.85

Total Sources $17,736,233.51

Uses of Funds: Deposit to Redemption Fund for 1998 Bonds $17,429,495.47 Financing Fees and Expenses1 306,738.04

Total Uses $17,736,233.51

1 These fees include Underwriter's discount, the Authority's initial fees, the fees and expenses of Bond Counsel and Underwriter’s Counsel, Trustee fees, printing costs, rating fees and miscellaneous expenses.

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ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each respective fiscal year ending June 30, (a) the amounts required to be made available in such year for the payment of existing debt service, including the 2001A Bonds, the 2001B Bonds, the 2007A Bonds, the 2007B Bonds and the 2008A Bonds; (b) the amounts required to be made available in such fiscal year for the payment of principal of the 2013A Bonds; (c) the amounts required to be made available in such fiscal year for the payment of interest on the 2013A Bonds; (d) the total amounts required to be made available in such fiscal year for the payment of principal of and interest on the 2013A Bonds; and (e) estimated total debt service for the 2001A Bonds, the 2001B Bonds, the 2007A Bonds, the 2007B Bonds, the 2008A Bonds and the 2013A Bonds. Total Debt Total Debt Fiscal Year Existing Debt 2013A Bonds 2013A Bonds Service on Service Ending June 30, Service(1)(2) Principal Interest 2013A Bonds Requirements 2014 $6,531,152.44 $485,000.00 $488,504.17 $973,504.17 $7,504,656.61 2015 6,539,627.70 1,015,000.00 529,725.00 1,544,725.00 8,084,352.70 2016 6,548,368.38 1,040,000.00 498,900.00 1,538,900.00 8,087,268.38 2017 6,566,347.97 1,080,000.00 461,700.00 1,541,700.00 8,108,047.97 2018 6,592,493.23 1,085,000.00 418,400.00 1,503,400.00 8,095,893.23 2019 4,030,796.28 755,000.00 389,150.00 1,144,150.00 5,174,946.28 2020 4,049,832.52 780,000.00 366,000.00 1,146,000.00 5,195,832.52 2021 4,075,334.20 805,000.00 338,325.00 1,143,325.00 5,218,659.20 2022 4,097,238.97 825,000.00 313,875.00 1,138,875.00 5,236,113.97 2023 4,125,319.51 850,000.00 288,750.00 1,138,750.00 5,264,069.51 2024 4,149,409.35 880,000.00 262,250.00 1,142,250.00 5,291,659.35 2025 2,700,389.92 915,000.00 225,625.00 1,140,625.00 3,841,014.92 2026 2,718,121.75 955,000.00 178,875.00 1,133,875.00 3,851,996.75 2027 2,733,686.22 1,005,000.00 129,875.00 1,134,875.00 3,868,561.22 2028 2,761,640.39 1,055,000.00 78,375.00 1,133,375.00 3,895,015.39 2029 2,777,120.63 1,040,000.00 26,000.00 1,066,000.00 3,843,120.63 2030 2,799,975.44 2,799,975.44 2031 2,825,064.78 2,825,064.78 2032 2,832,513.66 2,832,513.66 2033 2,230,092.93 2,230,092.93 2034 2,238,079.20 2,238,079.20 2035 2,253,529.44 2,253,529.44 2036 2,256,642.40 2,256,642.40 2037 2,272,204.18 2,272,204.18 2038 2,284,970.82 2,284,970.82 Total $92,989,952.31 $14,570,000.00 $4,994,329.17 $19,564,329.17 $112,554,281.48

(1) Represents all estimated principal, mandatory redemption and interest payments on outstanding debt, including debt service on the 2001A Bonds, the 2001B Bonds, the 2007A Bonds, the 2007B Bonds and the 2008A Bonds, excluding guarantees and other obligations.

(2) Assumes the refunding of the 1998 Bonds. Includes the fixed rates payable on the 2001A Bonds. Excludes liquidity and credit support and remarketing fees for the 2001B Bonds, the 2007A Bonds, the 2007B Bonds and the 2008A Bonds. The interest rate assumed to calculate the estimated interest expense for the 2001B Bonds and the 2007A Bonds is 2.50%. The interest rate assumed to calculate the estimated interest expense for the 2007B Bonds is 3.6325% and for the 2008A Bonds is 3.2950%, which represent the current fixed swap rates. No assurance can be given that such interest rate for such variable rate indebtedness will be achieved or maintained.

Note: Totals may not add due to rounding.

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SECURITY AND SOURCES OF PAYMENT FOR THE 2013A BONDS

Limited Obligations of the Authority. The 2013A Bonds constitute limited obligations of the Authority payable from, and secured by, the Trust Estate, which includes the payments required to be made by the Hospital under the Loan Agreement (except certain fees and indemnification payments required to be made to the Authority), certain funds held under the Bond Indenture and the investments and investment earnings of those moneys. Neither the general credit of the Authority nor the full faith, credit or taxing power of the County, the Commonwealth or any political subdivision of the Commonwealth has been or will be pledged to the payment of the principal of or interest on the 2013A Bonds. The issuance of the 2013A Bonds will not directly, indirectly or contingently obligate the County, the Commonwealth or any other political subdivision or instrumentality thereof to levy or to pledge any form of taxation whatsoever therefor. The Authority has no taxing power.

The Bond Indenture. The 2013A Bonds are to be issued pursuant to the Bond Indenture. As security for the 2013A Bonds, the Authority will: (i) pledge to the Trustee certain funds established under the Bond Indenture and all income derived from the investment of such pledged funds; and (ii) assign to the Trustee all of its rights to receive payments due from the Hospital under the Loan Agreement (except for its right to indemnification and the payment of certain administrative fees and expenses). The Bond Indenture provides that the 2013A Bonds are limited obligations of the Authority, payable solely from and secured solely by the foregoing sources. The Authority’s assignment of the Loan Agreement is subject to any parity rights under any supplemental loan agreement which the Authority has granted or may grant in the future as security for outstanding Bonds and any Additional Bonds and any other agreements entered into by the Hospital to secure other types of parity Permitted Indebtedness or certain other obligations.

The Loan Agreement. The Loan Agreement requires the Hospital to make payments sufficient, together with other available moneys, to provide for the timely payment of principal of the 2013A Bonds on stated maturity dates and mandatory redemption dates, interest on the 2013A Bonds on Interest Payment Dates, and the fees and expenses of the Trustee and the Authority and to pay certain costs associated with the 2013A Bonds.

Under the Loan Agreement, the Hospital will make certain affirmative and negative covenants for the benefit of the owners of the 2013A Bonds. A description of the covenants contained in the Loan Agreement is contained in APPENDIX C hereto.

The Authority has pledged and assigned to the Trustee all of its right, title and interest, in the Loan Agreement (except for its right to indemnification), and certain funds held by the Trustee under the Bond Indenture, as security for the payment of the 2013A Bonds and the performance and observance of the covenants in the Bond Indenture.

The Mortgage. The obligations under the Loan Agreement are secured by the Mortgage, granting to the Trustee a shared mortgage lien on the Hospital's main campus located in the City of Washington, Washington County, Pennsylvania, as more fully described in the Mortgage. The Mortgage also secures the Hospital's obligations under the reimbursement agreements relating to the 2001B Bonds, the 2007A Bonds, the 2007B Bonds and the 2008A Bonds.

BONDHOLDERS' RISKS

The 2013A Bonds are limited obligations of the Authority and are secured by and payable from the Trust Estate, which includes the payments required to be made by the Hospital under the Loan Agreement (except certain fees and indemnification payments required to be made to the Authority), certain funds held under the Bond Indenture and the investments and investment earnings of those moneys. The payment of the principal of and interest on the 2013A Bonds to the registered owners thereof depends entirely upon the ability of the Hospital to pay debt service thereon and the ability of the Hospital to honor its obligations under the Loan Agreement. No representation or assurance can be given to the effect that the Hospital will generate sufficient revenues to meet its payment obligations under the Loan Agreement.

Various factors could adversely affect the Hospital's ability to pay the obligations under the Loan Agreement. The future financial condition of the Hospital could be adversely affected by, among other things, economic conditions in the service area, levels and methods of federal reimbursement under Medicare, federal and

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state reimbursement under Medicaid, reimbursement from other third-party payors, legislation, regulatory actions, increased competition from other health care providers, changes in the demand for health care services, demographic changes, malpractice claims and litigation. Some of such risk factors are described below. The Underwriter and the Authority have made no independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Hospital.

The following is intended only as a summary of certain risk factors attendant to an investment in the 2013A Bonds and is not intended to be exhaustive. In order to identify risk factors and make informed investment decisions, potential investors should be thoroughly familiar with the entire Official Statement (including each Appendix) in order to make a judgment as to whether the 2013A Bonds are an appropriate investment.

The descriptions set forth below of certain governmental policies affecting health care and other matters are not intended as a complete discussion of all aspects of laws and regulations and such matters which may affect the financial performance of health care providers such as the Hospital. Health care providers operate in a complicated regulatory environment, many aspects of which may adversely affect the revenues and operations of such providers.

Impact of Market Risk. The recent disruption of the credit and financial markets has led to volatility in the securities markets, significant losses in investment portfolios, increased business failures and consumer and business bankruptcies, and is a major cause of the current economic recession.

In response to that disruption, legislation is pending or under active consideration by Congress, and regulatory action is being considered by various Federal agencies and the Federal Reserve Board and foreign governments, which are intended to increase the regulation of domestic and global credit markets. The effects of these legislative, regulatory and other governmental actions, if implemented, are unclear.

The health care sector has been materially adversely affected by these developments. The consequences of these developments have generally included, among other things, realized and unrealized investment portfolio losses, increased borrowing costs and periodic disruption of access to the capital markets.

The economic recession may also adversely affect the operations of the Hospital as a result of, among other factors, increases in the number of uninsured patients or deferral of elective medical procedures. Unemployment rates have increased nationally. The recession is also increasing stresses on the budget of the Commonwealth, potentially resulting in reductions in Medicaid payment rates or Medicaid eligibility standards, and delays of payment of amounts due under Medicaid and other state or local payment programs.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (referred to as "ARRA"). ARRA includes several provisions that are intended to provide financial relief to the health care sector and also establishes a framework for the implementation of a nationally-based health information technology program, including incentive payments commencing in 2012 to health care providers to encourage implementation of certified health information technology and electronic medical records. The incentive payments will be payable through 2014 to hospitals and physicians that comply with federal requirements.

Budget Control Act of 2011. On August 3, 2011, President Obama signed the Budget Control Act of 2011 (the "Budget Control Act"). The Budget Control Act limits the federal government's discretionary spending caps at levels necessary to reduce expenditures by $917 billion from the current federal budget baseline for fiscal years 2011 and 2012. Medicare, Social Security, Medicaid and other entitlement programs will not be affected by the limit on discretionary spending caps.

The Budget Control Act also created a new Joint Select Committee on Deficit Reduction (the "Committee"), which was tasked with making recommendations to further reduce the federal deficit by $1.5 trillion. Committee recommendations could include reductions in Medicare, Medicaid, Social Security and other entitlement programs. The Committee was required to report its recommendations to Congress by a majority vote no later than November 23, 2011.

Because the Committee became deadlocked and failed to make the requisite recommendations, however, the Budget Control Act requires that the debt ceiling be automatically raised by $1.2 trillion and sequestration (across the board cuts) triggered in an amount necessary to achieve $1.2 trillion in savings. A wide range of

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spending is exempted from sequestration, including: Social Security, Medicaid, VA benefits and pensions, federal retirement funds, civil and military pay, child nutrition, and other programs. Medicare is not exempted from sequestration. Medicare payments could be reduced in part as a result of these across the board spending reductions, limited to 2% of total program costs.

At this time, it is unclear whether automatic sequestration will go into effect as planned in 2013, or if such provisions will be challenged, and, if challenged, what the result will be. Any associated cuts to Medicare, however, will likely have an adverse effect on the financial condition of the Hospital, which effect could be material.

Federal Health Care Reform. As a result of the Patient Protection and Affordable Care Act enacted in 2010 (the "ACA"), substantial changes are occurring and anticipated in the United States health care system.

The ACA was intended by its supporters to be transformative and includes numerous provisions affecting the delivery of health care services, the financing of health care costs, reimbursement of health care providers and the legal obligations of health insurers, providers, employers and consumers. These provisions are slated to take effect at specified times over approximately the next decade, and, therefore, the full consequences of the ACA on the health care industry will not be immediately realized. The ramifications of the ACA may also become apparent only following implementation or through later regulatory and judicial interpretations. Portions of the ACA may also be limited or nullified as a result of legal challenges or amendments, as discussed further below. In addition, the uncertainties regarding the implementation of the ACA create unpredictability for the strategic and business planning efforts of health care providers, which in itself constitutes a risk.

The changes in the health care industry brought about by the ACA will likely have both positive and negative effects, directly and indirectly, on the nation's hospitals and other health care providers, including the Hospital. For example, the projected increase in the number of individuals with health care insurance occurring as a consequence of Medicaid expansion, creation of health insurance exchanges, subsidies for insurance purchases and the mandate for individuals to purchase insurance, could result in lower levels of bad debt and increased utilization or profitable shifts in utilization patterns for hospitals. A significant negative impact to the hospital industry overall will likely result from substantial reductions in the rate of increase of Medicare "market basket" adjustments and in actual reductions in Medicare payments. The legislation's cost-cutting provisions to the Medicare program include reduction in Medicare market basket updates to hospital reimbursement rates under the inpatient prospective payment system, which are projected by the CMS (as hereinafter defined) actuary to result in Medicare savings of $112 billion over the next ten years, as well as reductions to or elimination of Medicare reimbursement for certain patient readmissions and hospital-acquired conditions.

Health care providers will likely be further subject to decreased reimbursement as a result of implementation of recommendations of the Medicare payment advisory board, whose directive is to reduce Medicare cost growth. The advisory board's recommended reductions, beginning in 2014, will be automatically implemented unless Congress adopts alternative legislation that meets equivalent savings targets. Industry experts also expect that government cost reduction actions may be followed by private insurers and payors.

The ACA will likely affect some health care organizations differently from others, depending, in part, on how each organization adapts to the legislation's emphasis on directing more federal health care dollars to integrated provider organizations and providers with demonstrable achievements in quality care. The ACA proposes a value- based purchasing system for hospitals under which a percentage of payments will be contingent on satisfaction of specified performance measures related to common and high-cost medical conditions, such as cardiac, surgical and pneumonia care. The legislation also funds various demonstration programs and pilot projects and other voluntary programs to evaluate and encourage new provider delivery models and payment structures, including "accountable care organizations" and bundled provider payments. The outcomes of these projects and programs, including the likelihood of their being made permanent or expanded or their effect on health care organizations' revenues or financial performance cannot be predicted.

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The ACA contains amendments to existing criminal, civil and administrative anti-fraud statutes and increases in funding for enforcement and efforts to recoup prior federal health care payments to providers. Under the ACA, a broad range of providers, suppliers and physicians are required to adopt a compliance and ethics program. While the government has already increased its enforcement efforts, failure to implement certain core compliance program features provide new opportunities for regulatory and enforcement scrutiny, as well as potential liability if an organization fails to prevent or identify improper federal health care program claims and payments.

Soon after its enactment, the ACA became the subject of court challenges and efforts to repeal or modify its substantive provisions. In a June 28, 2012 decision, the Supreme Court of the United States upheld most of the provisions of the ACA, including the "individual mandate," requiring most individuals to maintain a minimum level of health insurance by 2014 or be subject to a penalty, but rejected a requirement that states significantly expand Medicaid eligibility. Instead, each state must determine whether federal financial incentives included in the ACA merit expanding its Medicaid program. The ACA is highly politicized, and, in this volatile context, no projections can be made as to the future implementation or content of the ACA and its impact upon the Hospital.

Additional Health Care Legislation and Reform. Legislation also may be introduced from time to time in the Pennsylvania Legislature relating to the operations and reimbursement of health care providers, including hospitals. No precise determination can be made at this time whether the bills that have been or may be introduced or the regulations which may be proposed will be enacted or, if enacted, whether and to what degree such legislation will affect the future revenues of the Hospital or its ability to make future capital expenditures.

Other legislative initiatives anticipated to provide direct and indirect benefits to Pennsylvania providers include the Tobacco Settlement Act ("Act 77"). The Commonwealth joined 45 other states in December 1998 in a Master Settlement Agreement ("MSA") with the tobacco industry that was estimated to total $206 billion over the first 25 years. Pennsylvania's share is estimated to be about $11 billion between the years 2000 and 2025. Act 77, which allocates funds from the MSA, was enacted in 2001. Pennsylvania's entire share of tobacco settlement funds is being used for health-related initiatives. The Hospital receives annually settlement funds allocated from the MSA, which for the year ending June 30, 2012 approximated $485,000.

The Pennsylvania Department of Public Welfare ("DPW") administers the Pennsylvania Medical Assistance Program ("Medicaid"). Pennsylvania initiated a Medicaid managed care program known as "HealthChoices" in 1997 which is mandatory for Medicaid recipients. DPW has negotiated contracts with health maintenance organizations ("HMOs") which, in turn, contract with health care providers. The HealthChoices program has been implemented using a zone phase-in schedule. There is no assurance that the Commonwealth will adequately fund the HealthChoices program, that the HMOs will participate in the program, or that reimbursement for providing services to Medicaid recipients under the HealthChoices program will be sufficient to cover the costs of providing care.

On June 30, 2012, Governor Corbett signed a state budget that included funding for hospital payments and for health and human service programs. While the state budget may offer at least temporary stability to some Pennsylvania hospitals, hospitals still face a January 2013 federal payment reduction of 2% in Medicare payments as a result of the Congressional deficit reduction sequester, and $7.7 billion in payment reductions that will be absorbed by hospitals as part of federal health insurance reform and state Medicaid expansion.

Reimbursement from Third Parties. Most of the patient service revenue of the Hospital is derived from third-party payors, which reimburse or pay for the services provided to patients covered by such third parties. Such payors include, among others, the federal Medicare program, Medicaid, Highmark Blue Cross and Highmark Blue Shield, and other third-party payors such as health maintenance organizations, employers under self-insurance programs, commercial insurers and preferred provider organizations. Most of these programs, some of which are described in greater detail below, make payments at rates other than the provider's direct charges or at rates which are determined other than on the basis of the actual costs incurred in providing services to such patients. Rates from non-governmental third-party payors are contracted for a period of time and must be renegotiated when the term of this contract term expires. Accordingly, there can be no assurance that payments made under such programs will be adequate to cover actual costs incurred or that, if payments currently cover actual costs incurred, said payments will continue to do so upon renewal or renegotiation of the contract. In addition, the financial performance of the Hospital could be adversely affected by the insolvency of, denial of payment or other delay in receipt of payments from third-party payors which provide coverage for services to patients.

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Medicare Reimbursement. Medicare is a federal program administered by the Secretary of the United States Department of Health and Human Services ("HHS"), which has delegated this responsibility to the Centers for Medicare & Medicaid Services ("CMS"), formerly the Health Care Financing Administration. Medicare provides certain health care benefits to individuals who are 65 or older, disabled, or qualify for the End Stage Renal Disease Program. In general, Medicare Part A covers inpatient hospital services, skilled nursing care, and some home health care, while Medicare Part B covers physician services, outpatient hospital services, diagnostic tests, and various health-related supplies. Such coverage, however, includes certain deductible and coinsurance obligations imposed on Medicare beneficiaries. In order to achieve and maintain Medicare certification, a health care provider must meet CMS's "Conditions of Participation" on an ongoing basis, as determined by the state in which such provider is located and/or The Joint Commission. Additional changes in Medicare and potential reductions of Medicare funding levels could have an adverse effect on the Hospital.

Inpatient Services. Medicare payments for the delivery of inpatient acute care hospital services currently are based on a prospective payment system ("PPS") which generally pays hospitals a predetermined fixed amount for each Medicare inpatient discharge based upon patient diagnosis and certain other factors used to classify each patient into a Diagnosis Related Group ("DRG"). Each DRG is given a relative value from which a fixed payment can then be established. With certain exceptions (referred to as "outliers"), such payments are not adjusted for actual costs or length of stay. The value assigned to the PPS/DRG's is subject to change by CMS. The costs of providing a unit of care may exceed the revenues realized from Medicare for providing that service. Additionally, the aggregate costs to a provider of providing care to Medicare beneficiaries may exceed aggregate Medicare revenues received during the relevant fiscal period. For information regarding the impact of the ACA on payments to hospitals for inpatient services, see "Medicare Reimbursement—Overall Reduction in Hospital Payments" below.

CMS established a new DRG classification system in its 2008 Prospective Payment Final Rule (the "2008 PPS Rule") replacing the prior 526 DRGs with 745 Medicare Severity DRGs ("MS-DRGs"). There can be no assurance that changes in classifications of patient hospitalizations at the facilities of the Hospital will not result in fluctuations or declines in revenue.

Outpatient Services. Hospitals are generally paid for outpatient services provided to Medicare beneficiaries based on established categories of treatments or conditions known as ambulatory payment classifications ("APCs"). The actual cost of care, including capital costs, may be more or less than the reimbursements. There is no guarantee that APC rates, as they change from time to time, will cover actual costs of providing services to Medicare patients.

Other Medicare Service Payments. Medicare payments for skilled nursing services, psychiatric services, inpatient rehabilitation services, general outpatient services and home health services are based on regulatory formulas or pre-determined rates. There is no guarantee that these rates, as they may change from time to time, will be adequate to cover the actual cost of providing these services to Medicare patients.

Reimbursement of Hospital Capital Costs. Hospital capital costs apportioned to Medicare patient use (including depreciation and interest) are paid by Medicare exclusively on the basis of a standard federal rate (based upon average national costs of capital), subject to limited adjustments specific to the hospital. There can be no assurance that future capital-related payments will be sufficient to cover the actual capital-related costs of the facilities of the Hospital applicable to Medicare patient stays or will provide flexibility for hospitals to meet changing capital needs.

The ACA institutes multiple mechanisms for reducing the costs of the Medicare program, including the following:

Overall Reduction in Hospital Payments. Beginning in federal fiscal year 2013, Medicare inpatient payments to hospitals will be reduced by 1%, progressing to 2% by federal fiscal year 2017. This reduction may be offset in part by new Medicare inpatient incentive payments commencing in federal fiscal year 2013 for hospitals that meet "value-based purchasing" standards for treatment of certain conditions.

Market Basket Reductions. Generally, Medicare payment rates to hospitals are adjusted annually based on a "market basket" of estimated cost increases, which have averaged approximately 2-4% annually in recent years.

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The ACA required automatic 0.25% reductions in the "market basket" for federal fiscal years 2010 and 2011, and calls for reductions ranging from 0.10% to 0.75% each year through federal fiscal year 2019.

Market Productivity Adjustments. Beginning in federal fiscal year 2012 and thereafter, the ACA provides for "market basket" adjustments based on national economic productivity statistics. This adjustment is anticipated to result in an approximately 1% additional annual reduction to the "market basket" update.

Hospital Acquired Conditions Penalty. Beginning in federal fiscal year 2015, Medicare inpatient payments to hospitals that are in the top quartile nationally for frequency of certain "hospital-acquired conditions" will be reduced by 1% of what would otherwise be payable to each hospital for the applicable federal fiscal year.

Readmission Rate Penalty. Beginning in federal fiscal year 2012, Medicare inpatient payments to each hospital will be reduced based on the dollar value of that hospital's percentage of preventable Medicare readmissions for certain medical conditions.

DSH Payments. Beginning in federal fiscal year 2014, hospitals receiving supplemental "DSH" payments from Medicare (i.e., those hospitals that care for a disproportionate share of Medicare beneficiaries) are slated to have their DSH payments reduced by 75%. This reduction will be adjusted to add-back payments based on the volume of uninsured and uncompensated care provided by each such hospital, and is anticipated to be offset by a higher proportion of covered patients as other provisions of the ACA go into effect. Separately, beginning in federal fiscal year 2014, Medicaid DSH allotments to each state will also be reduced, based on a methodology to be determined by HHS, accounting for statewide reductions in uninsured and uncompensated care. The Hospital receives approximately $1,500,000 in DSH payments per year.

Hospitals also receive payments from health plans under the Medicare Advantage program. The ACA includes significant changes to federal payments to Medicare Advantage plans. Payments to plans are frozen for fiscal year 2011 and thereafter will transition to benchmark payments tied to the level of fee-for-service spending in the applicable county. These reduced federal payments could in turn affect the scope of coverage of these plans or cause plan sponsors to negotiate lower payments to providers.

Components of ARRA provide for Medicare incentive payments beginning in 2011 to hospital providers meeting designated deadlines for the installation and use of electronic health information systems. For those hospital providers failing to meet a 2016 deadline, Medicare payments will be significantly reduced.

Medicaid Reimbursement. Medicaid is a jointly administered federal/state program providing payment of hospital benefits within prescribed limits within each state to persons meeting certain income limitations or other eligibility standards. The Pennsylvania Medicaid program, which is administered by DPW, generally reimburses hospitals in Pennsylvania for providing services to covered patients as described below. Because it is partially funded by, and its funding is administered through the Commonwealth, the timing and amount of payments under the Medicaid program may be particularly affected by Pennsylvania budgetary constraints.

Inpatient Services. Medicaid ("MA") payment for acute care services is based on a prospective payment system similar to the federal Medicare DRG-based, prospective payment system. However, effective April 1, 2002, Pennsylvania Medicaid recipients were required to enroll in a managed care plan under the Pennsylvania HealthChoices plan.

Outpatient Services. Traditional MA pays for hospital outpatient services rendered based on the lower of the usual charge to the general public for the same service or the MA maximum allowable fee. Managed care MA pays based on negotiated contract rates.

Capital Expenditures. Historically, traditional MA provided payments for capital costs (including depreciation and interest, but excluding costs for moveable equipment) which were integrated into the inpatient payment rates noted above. Managed care MA pays based on negotiated contract rates. There is no assurance that MA reimbursement levels for depreciation and interest for the remaining traditional MA business or the managed care MA contract rates will be adequate to satisfy capital requirements of the Hospital.

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Inpatient Rehabilitation Services. MA generally provides payment for inpatient rehabilitation services rendered to eligible recipients by rehabilitation units at a facility on a specific per diem rate with a statewide cap. The HealthChoices program provides reimbursement for physical health services through managed care organizations, which affects the amount of reimbursement received for these services.

Currently payments under the MA program are inadequate to cover the costs incurred by the Hospital, and there can be no assurance that payments under the MA program will not be decreased resulting in a further deficiency in covering the costs incurred by the Hospital in providing care to MA patients. Budgetary and financial constraints in the Commonwealth, as well as severe limitations on the method of acquiring increased federal financial participation through the use of provider taxes and donations, have called into question the ability of DPW to make adequate and timely payments to providers. In addition, MA enrollees have been transitioned to managed care programs, as previously described, and program expenditures have been limited. Pennsylvania has designated tobacco settlement funds to reduce uncompensated care losses and care costs of uninsured low-income individuals, which funds are made available based upon a formula mandated by Pennsylvania.

Non-Governmental Contracts. The Hospital also receives reimbursement from a variety of private payors, including plans administered by Highmark, Inc., AETNA, HealthAmerica, United Healthcare, Cigna and UPMC Health Plan. Such plans are prepaid health care programs that pay for a variety of defined benefits for their insured subscribers. Such plans generally make direct payments to hospitals or reimburse their policyholders, and such reimbursement is often subject to policyholder copayments and deductibles. Specific coverages in such plans vary substantially from plan to plan. In most cases, indemnity plans make payments on the basis of case rates for inpatient services and a fee schedule for outpatient services. There is no assurance that the Hospital will maintain such contracts or obtain other similar contracts in the future. Failure to maintain such contracts could have the effect of reducing the revenues of the Hospital.

Certain payors contract with hospitals on an "exclusive" or a "preferred" provider basis, and some payors have introduced PPO's. Under such plans, there may be financial incentives for subscribers to use only those hospitals that contract with the plans. In addition, HMOs and exclusive provider managed care plans limit coverage to those services provided by selected hospitals, except in certain cases of medical emergency. With this contracting authority, private payors may direct patients away from hospitals not selected, by denying or limiting coverage for services provided by them. In cases where an HMO is a major purchaser of services from a particular hospital, contract rate reduction, contract cancellation, inability to pay, business failure or bankruptcy of the HMO may have a substantial negative effect on such hospital's financial condition. There is no assurance that contracts with HMOs and PPOs will be maintained or that other similar contracts will be obtained in the future. Failure to execute and maintain such PPO and HMO contracts could have the effect of reducing the patient base or revenues of the Hospital. Conversely, participation may maintain or increase the patient base, but may result in reduced payment and lower net income to the Hospital.

Most PPOs and HMOs currently pay hospitals for inpatient services on a discounted fixed rate per day or a case rate basis and for outpatient services on a fee schedule. 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. The future availability and terms of such contracts are unknown and their effect on the financial results of the Hospital may be different in the future than that reflected in the financial statements for the current period.

HMO contracts may be enforceable for a stated term, regardless of provider losses. Furthermore, HMO and PPO contracts may contain a requirement that the hospital care for the enrollees for a certain limited period of time, regardless of whether the HMO or PPO has funds to make payment.

The introduction into the marketplace of new insurance products, including health savings accounts (HSAs), health reimbursement accounts (HRAs) and other high deductible plans, will make it important for healthcare providers to emphasize collection of co-insurance payments, deductibles and other payments for non- covered services. The Hospital periodically reviews its collection practices and updates its technology in order to address the need to maximize its collection of such payments.

Retroactive Adjustments of Payments. Funds received from Medicare, Medicaid and some third-party payors relating to certain types of services and years may be subject to audit. These audits can result in retroactive

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adjustments of payments received. If an audit determines that an overpayment was made, the excess amount must be repaid. If, on the other hand, it is determined that an underpayment was made, payors will make additional payments to the provider. Provisions for adjustments related to these programs are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Final settlements may differ materially from amounts currently recorded.

Medicare and Medicaid regulations also provide for withholding reimbursement payments in certain circumstances. New billing rules and reporting requirements for which there is no clear guidance from CMS or state Medicaid agencies could result in claims submissions being considered inaccurate. The penalties for violations may include an obligation to refund money to the Medicare or Medicaid program, payment of criminal or civil fines and, for serious or repeated violations, exclusion from participation in federal health programs.

Authorized by HIPAA (as hereinafter defined), the Medicare Integrity Program ("MIP") was established to deter fraud and abuse in the Medicare program. Funded separately from the general administrative contractor program, the MIP allows CMS to enter into contracts with outside entities and insure the "integrity" of the Medicare program. These entities, Medicare zone program integrity contractors ("ZPICs"), formerly known as program safeguard contractors, are contracted by CMS to review claims and medical charts, both on a prepayment and post- payment basis, conduct cost report audits and identify cases of suspected fraud. ZPICs have the authority to deny and recover payments as well as to refer cases to the Office of Inspector General. CMS is also planning to enable ZPICs to compile claims data from multiple sources in order to analyze the complete claims histories of beneficiaries for inconsistencies.

CMS also enlists recovery audit contractors ("RACs") to conduct periodic annual audits of Medicare payments to search for potentially improper Medicare payments from prior years that were not detected through CMS's routine program integrity efforts. The RACs are private contractors, paid on a contingency fee basis, and use their own software and review processes. Although required to identify both overpayments and underpayments, RACs have in practice collected significantly more in overpayments from providers in proportion to the underpayments made to providers. Under the ACA, recovery audits were expanded to Medicare Part C (Medicare Advantage plan) and Medicare Part D (prescription drug plans), and to include Medicaid by requiring states to contract with RACs to conduct such audits.

In addition, CMS has instituted a Medicaid Integrity Program, modeled on the MIP. Medicaid Integrity Program contractors assist state Medicaid agencies by analyzing Medicaid claims data to identify high-risk areas and potential vulnerabilities and conducting post-payment field audits and desk reviews audits of Medicaid provider payments.

Medicare audits may result in reduced reimbursement or repayment obligations related to past alleged overpayments and may also delay Medicare payments to providers pending resolution of the appeals process. The ACA explicitly gives HHS the authority to suspend Medicare and Medicaid payments to a provider or supplier during a pending investigation of fraud. The ACA also amended certain provisions of the FCA (as hereinafter defined) to include retention of overpayments as a violation. It also added provisions respecting the timing of the obligation to identify, report and reimburse overpayments. The effect of these changes on existing programs and systems of the Hospital cannot be predicted.

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," tiered hospital networks with higher copayments and deductibles for non-emergent use of lower-ranked providers, "pay for performance" 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 Hospital. Measures of quality based on clinical outcomes of patient care, reduction in costs, patient satisfaction and investment in health information technology are prevalent. Measures of performance set by others that characterize a hospital or a provider negatively may adversely affect its reputation and financial condition.

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Nonprofit Health Care Environment. The Hospital is a nonprofit corporation exempt from federal income taxation as an organization described in Section 501(c)(3) of the Code. As a nonprofit tax-exempt organization, the Hospital is subject to federal, state and local laws, regulations, rulings and court decisions relating to its organization and operation, including its operation for charitable purposes.

Over the past several years, an increasing number of the operations or practices of health care providers have been challenged or questioned to determine if they are consistent with the regulatory requirements for nonprofit tax-exempt organizations. These challenges are broader than concerns about compliance with federal and state statutes and regulations, such as Medicare and Medicaid compliance, and in many cases are examinations of core business practices of the health care organizations. Areas which have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption from real property taxation, and others. These challenges and questions have come from a variety of sources, including state Attorneys General, the Internal Revenue Service (the "IRS"), labor unions, Congress, state legislatures, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others:

Congressional Hearings. A number of House and Senate Committees have conducted hearings and/or investigations into issues related to nonprofit tax exempt health care organizations. For example, the House Committee on Energy and Commerce (the "House Committee") launched a nationwide investigation of hospital billing and collection practices and prices charged to uninsured patients. Twenty large hospital and health care systems were requested by the House Committee to provide detailed historical charge and billing practice information for acute care services.

The Senate Finance Committee also conducted hearings on required reforms to the nonprofit sector and released staff discussion drafts on proposals for reform in the area of tax-exempt organizations, including a proposal for a five-year review of tax-exempt status by the IRS. The IRS has requested information from a number of nonprofit hospitals and health care organizations regarding their charitable activities, patient billing and joint venture activities.

Internal Revenue Service Examination of Compensation Practices. In August 2004, the IRS announced a new enforcement effort to identify and halt abuses by tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. The IRS announced that it would contact nearly 2,000 charities and foundations to seek more information about their compensation practices and procedures. In February 2009, the IRS issued its Hospital Compliance Project Final Report (the "IRS Final Report") based on its examination of such tax- exempt organizations. The IRS Final Report indicates that the IRS (i) will continue to heavily scrutinize executive compensation arrangements, practices and procedures and (ii) in certain circumstances, may conduct further investigations or impose fines on tax-exempt organizations.

Revision of IRS Form 990 for Tax-Exempt Organizations. The IRS Form 990 is used by most 501(c)(3) nonprofit organizations (including the Hospital) exempt from federal income taxation to submit information required by the federal government. On December 20, 2007, the IRS released a revised Form 990 that requires detailed public disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The revised form also requires the disclosure of a significantly greater amount of information on community benefit. In addition, a new schedule to the Form 990 (Schedule H) requires hospitals to disclose certain details concerning their community benefit and charity care programs. The redesigned Form 990 is intended to result in enhanced transparency as to the operations of exempt organizations. It is also likely to result in enhanced enforcement, as the redesigned Form 990 will make detailed information on compliance risk areas available to the IRS and other stakeholders.

Nonprofit health care organizations are also subject to additional reporting for tax exempt bonds, the most significant of which is required for tax years beginning on or after January 1, 2009. These reporting and recordkeeping requirements go beyond what many hospitals have done historically and require substantial additional efforts on the part of hospitals with outstanding tax exempt bonds. A new schedule to the Form 990 return (Schedule K) is intended to address what the IRS believes is significant noncompliance with recordkeeping and record retention requirements. These concerns were reinforced, in the IRS's view, by the results of a bond questionnaire distributed to select hospitals in September 2007, the results of which were released in April 2008.

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Schedule K also focuses on the investment of bond proceeds that could violate the arbitrage rebate requirements and the private use of bond-financed facilities.

The foregoing are some examples of the challenges and scrutiny facing nonprofit health care organizations. They are indicative of a greater scrutiny of the billing, collection and other business practices of these organizations, and may indicate an increasingly more difficult operating environment for health care organizations, including the Hospital. The challenges and scrutiny, and any resulting legislation, regulations, judgments, or penalties, could have a material adverse effect on the Hospital.

Charity/Uncompensated Care. Hospitals are permitted to acquire tax-exempt status under the Code because the provision of health care historically has been treated as a "charitable" enterprise. This treatment arose before most Americans had health insurance, when charitable donations were required to fund the health care provided to the sick and disabled. Some commentators and others have taken the position that, with the onset of employer health insurance and governmental reimbursement programs, there is no longer any justification for special tax treatment for the health care industry, and the availability for tax-exempt status should be eliminated. Federal and state tax authorities are beginning to demand that tax-exempt hospitals justify their tax-exempt status by documenting their charitable care and other community benefits. It is not possible to predict the scope or effect of future legislative actions or regulatory actions with respect to nonprofit hospitals. There can be no assurance that future changes in the laws and regulations of federal, state or local governments will not adversely affect the operations and financial condition of the Hospital to pay income or property taxes.

Charity care issues also serve as the basis of certain claims against major hospital systems throughout the United States on behalf of uninsured patients. The numerous lawsuits filed against nonprofit hospitals raise a number of claims against the hospital defendants, including claims that the defendants, by accepting tax-exempt status, entered into agreements with the federal, state and local governments promising to provide free or reduced care to all those who need it; the uninsured patients are beneficiaries of those agreements and can bring suit on them; the defendants engaged in illegal and oppressive tactics against the uninsured; the defendants engaged in illegal price discrimination by charging the uninsured rates far in excess of the rates charged to such third-party payors as Medicare and certain insurers; the defendants violated state consumer fraud statutes; the defendants allowed a portion of their properties to be used by for-profit entities at less than fair value and engaged in other inappropriate transactions with doctors and certain insiders; the defendants transferred monies illegally to their affiliates for other than charitable purposes; and the defendants and the American Hospital Association, another named defendant in many of the lawsuits, conspired with the defendants to charge illegal prices to the uninsured. These cases have been largely unsuccessful.

The ACA requires tax-exempt hospitals to conduct tri-annual community health needs assessments, implement strategies to meet the needs identified in those assessments, adopt and publicize a written financial assistance policy, and follow certain billing and collection practices in order to maintain tax-exempt status. An excise tax penalty of $50,000 may be imposed on any tax-exempt hospital that fails to satisfy the community health- needs assessment requirement for any taxable year. See "BONDHOLDERS' RISKS — Tax-Exempt Status of the Hospital."

Consolidation of Health Care Market. The health care market has become increasingly dynamic and competitive. The challenges presented by managed care, declining reimbursement revenues and the expense of obtaining and maintaining the newest medical equipment, among other factors, has led health care providers to explore affiliations of various forms and types. Some providers have merged or entered into direct affiliation or similar agreements, leading to a significant consolidation in the market to a more limited number of networks or systems of health care providers. The Hospital remains independent in a market which has undergone significant consolidation.

Competition and Service Areas. The Hospital has experienced and will continue to experience competition from other hospitals and health care systems that offer similar health care services to the population which the Hospital presently serves. This could include the initiation of new health care services and the construction or the renovation of hospitals, ambulatory surgical centers, private laboratories and diagnostic imaging services. Medicare and Medicaid prospective payment systems provide incentives to control costs and deliver services in a more efficient and economical fashion. This change in federal reimbursement policy coincides with the development of alternative forms of health care delivery to replace inpatient care with outpatient services. The

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alternative forms of health care services, such as ambulatory surgical centers and skilled nursing facilities, are being pursued by HMOs and other insurance organizations as a way to reduce costs. No assurance can be given that utilization at the Hospital will not be adversely affected by competition from other health facilities in the primary service area of the Hospital.

The financial performance of the Hospital is, to some extent, dependent upon the economic vitality of its service area. If there were a general economic downturn in the geographic areas served by the Hospital, it could result in a decrease in the population served by the Hospital or a loss of insurance benefits for a portion of the patients of the Hospital, either or both of which would likely lead to a decrease in revenues of the Hospital.

Antitrust. Enforcement of federal and state antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, third party contracting, physician relations and joint ventures, merger, affiliation and acquisition activities. Violation of the antitrust laws could result in criminal and civil enforcement by federal and state agencies, as well as by private litigants.

Claims Processing. Medicare and Medicaid require that extensive and accurate financial and supporting information be reported on a periodic basis and in a specified format. These requirements are numerous, technical and complex and may not be fully understood or properly implemented by provider billing or reporting personnel. With respect to certain types of classifications of information, the federal False Claims Act and other similar laws may be violated merely by reason of inaccurate or incomplete reports. As a consequence, ordinary course errors or omissions may result in liability. In addition, the CMS Recovery Audit Contractor (RAC) Program is aimed to reduce improper payments within the CMS programs. New billing systems or new medical procedures for which there are not clear guidance from CMS may all result in liability under the federal False Claims Act. The penalties for violation include criminal and civil liability and may include, for serious or repeated violations, exclusion from participation in the Medicare program.

Other Legislative and Regulatory Actions. The Hospital and its operations are subject to regulation, certification and accreditation by various federal, state and local government agencies and by certain nongovernmental agencies such as, in the case of the Hospital, 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 any future changes in such laws, regulations and standards.

Regulation of Provider Relationships. The Federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the "Anti-Kickback Law") make it a criminal offense to offer, pay, solicit or receive remuneration in order to induce business for which reimbursement is provided under Medicare or Medicaid. In addition to criminal penalties, including fines of up to $25,000 and five years imprisonment, violations of the Anti-Kickback Law can lead to civil monetary penalties and exclusion from the Medicare and Medicaid programs. The scope of prohibited payments in the Anti-Kickback Law is broad and includes a large number of economic arrangements involving hospitals, physicians and other health care providers, including joint ventures, space and equipment rentals, purchases of physician practices and management and personal services contracts. HHS has published regulations which describe certain arrangements that will not be deemed to constitute violations of the Anti-Kickback Law (the "Safe Harbors"). The Safe Harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many hospitals, physicians and other health care providers consider to be legitimate business arrangements not prohibited by the statute. Because the Safe Harbors do not purport to describe comprehensively all lawful or unlawful economic arrangements or other relationships between health care providers and referral sources, hospitals and other health care providers having these arrangements or relationships may or may not be required to alter them in order to ensure compliance with the Anti-Kickback Law.

Current Federal law proscribing physician self-referral (known as the "Stark Law") prohibits a physician who has a financial relationship with a provider of "designated health services" including clinical laboratory services, physical 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, from referring Medicare or Medicaid patients to that provider for such designated health services, with limited exceptions.

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Regulations implementing certain of the Stark Law provisions were adopted August 14, 1995 and became effective September 13, 1995. On January 9, 1998, CMS published proposed regulations to amend the previous Stark laws regarding advisory opinions, the inclusion of other designated health services, and other matters. "Phase I" final rules on certain provisions and exceptions were published on January 4, 2001 and are currently in effect. "Phase II" final rules addressing additional provisions and exceptions were issued on March 26, 2004 and are currently in effect. On August 27, 2007, CMS published the final "Phase III" physician self-referral rule, which became effective December 4, 2007. The final Phase III rule added no new exceptions, but rather refined certain areas of the regulation. Certain provisions of the final Phase III rule (impacting academic medical centers and compensation arrangements between nonprofit entities and physicians) were delayed by one year in a subsequent publication on May 15, 2007. CMS proposed a new exception for certain incentive payment and shared savings programs as part of the calendar year 2009 Medicare Physician Fee Schedule. In addition, on August 19, 2008, CMS published the final rule regarding federal fiscal year 2009 revisions to the Medicare hospital inpatient PPS, which final rule included Stark Law related changes that have the potential to alter legal analysis of a number of arrangements under the existing rule, including changes related to unit-of-service (i.e., "per click") payments and rules related to percentage-based compensation and indirect compensation relationships. The changes were partially effective as of October 1, 2008; the remainder of the changes took effect October 1, 2009.

The regulations are complex and affect most relationships between physicians and other health care providers. HHS has stated that it will enforce the Stark Law provisions as if these regulations also apply to all conduct proscribed by the Stark Law provisions. In general, the exceptions to the regulations closely resemble the Safe Harbors applicable to the Anti-Kickback Law. However, unlike the Anti-Kickback Law that describes and generally prohibits certain conduct, and then provides safe harbors for particular arrangements, the Stark Law provisions absolutely prohibit specific referral arrangements and claims for payment from Medicare and Medicaid unless a particular exception applies and each element of the exception complies fully with the law. Sanctions for prohibited referrals under the Stark Law include the denial of Medicare payment for designated health services, imposition of civil money penalties, and possible exclusion from the Medicare program.

Fraud and abuse provisions under Pennsylvania law also contain referral and anti-kickback prohibitions relating to the furnishing of an item or service or referral of a Medicaid recipient for which payment may be made under the Medicaid program. Violations of these Medicaid fraud and abuse control provisions constitute felonies and convictions may result in exclusion from the Medicaid program.

The Hospital has relationships with physicians and other referral sources which are intended to comply with all laws and regulations. Because of errors and the complexity and lack of clarity of these laws, there can be no assurance that enforcement authorities will not assert that the Hospital, or certain transactions into which it has entered, has violated or is violating the Anti-Kickback Law or the Stark Law, or that if any such assertion were made, that the Hospital would prevail, or whether any sanction imposed would have a material adverse effect on the operations of the Hospital. To the Hospital's knowledge, there are no current, pending or threatened claims or allegations that the Hospital has violated the Anti-Kickback Law or the Stark Law regulating provider relationships.

Health care providers are also subject to potential penalties under federal and state laws relating to false claims in the event claims for payment from Medicare or Medicaid are incorrect or not in accordance with regulations. Health care providers frequently enter into settlements with federal and state authorities to resolve such disputes rather than risk liability under the false claims laws, which could be substantial. Laws and regulations governing the Medicare and Medical Assistance programs are complex and subject to interpretation. The Hospital believes it has implemented controls and training to identify and address any non-compliance. Compliance with such laws and regulations can be subject to government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medical Assistance programs. The Hospital, as well as a number of other health care organizations, has received notification that certain government agencies are reviewing billings for certain types of services rendered. It is not possible to predict the impact, if any, these claims would have upon the Hospital.

HIPAA Regulations. The Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") required the Secretary of HHS to establish national standards for electronic exchange of health information and national identifiers for healthcare providers, health plans, and health care clearinghouses. These provisions also address the security and privacy of protected health information.

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Adoption of these standards is intended to improve the efficiency and effectiveness of the nation's health care system by encouraging the widespread use of electronic data interchange in healthcare.

The HIPAA enforcement rule was published February 16, 2006 and became effective March 16, 2006. This allows an administrative law judge to determine the number of violations based upon the substantive provisions of the rules that were violated. Also, when a final penalty is assessed, HHS will notify the public. Past enforcement has generally been as the result of complaints filed by affected individuals. However, ARRA included sweeping new mandates related to patient privacy. The legislation increased civil and criminal penalties for violations and allows state attorneys general to take enforcement action when a citizen believes their medical privacy has been violated by a health care organization in that state. The legislation also expanded the scope of the regulations to apply HIPAA requirements and penalties to business associates of covered entities, and expanded the scope of a covered entity's obligation to account for disclosures of protected health information. In addition, covered entities are required to notify individuals, HHS, and depending upon the number of affected individuals, media outlets in the case of any breach of unsecured protected health information.

If HHS determines that a healthcare entity is not in compliance with HIPAA after the effective date of a set of standards, that entity faces potentially severe civil monetary penalties (up to $1,500,000 in the aggregate per calendar year under ARRA), as well as criminal penalties for a willful unauthorized disclosure of protected health information. The Hospital has taken and continues to take steps to address HIPAA requirements and believes that it has implemented controls and training to identify any non-compliance with HIPAA standards which have become effective, including electronic transactions, privacy and security.

The HITECH Act. Provisions in the Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"), enacted as part of the economic stimulus legislation, increase the maximum civil monetary penalties for violations of HIPAA and grant enforcement authority of HIPAA to state Attorneys General. The HITECH Act also (i) extends the reach of HIPAA beyond "covered entities," (ii) imposes a breach notification requirement on HIPAA covered entities, (iii) limits certain uses and disclosures of individually identifiable health information, and (iv) restricts covered entities' marketing communications.

The HITECH Act also established programs under Medicare and Medicaid to provide incentive payments for the "meaningful use" of certified EHR technology. The Medicare and Medicaid EHR incentive programs provide incentive payments to eligible professionals and eligible hospitals for demonstrating meaningful use of certified EHR technology. Health care providers demonstrate their meaningful use of EHR technology by meeting objectives specified by CMS for using health information technology and by reporting on specified clinical quality measures. Beginning in 2015, hospitals and physicians who have not satisfied the performance and reporting criteria for demonstrating meaningful use will have their Medicare payments significantly reduced.

Security Breaches and Unauthorized Releases of Personal Information. State and local authorities are increasingly focused on the importance of protecting the confidentiality of individuals' personal information, including patient health information. Many states have enacted laws requiring businesses to notify individuals of security breaches that result in the unauthorized release of personal information. In some states, notification requirements may be triggered even where information has not been used or disclosed, but rather has been inappropriately accessed. State consumer protection laws may also provide the basis for legal action for privacy and security breaches and frequently, unlike HIPAA, authorize a private right of action. In particular, the public nature of security breaches exposes health organizations to increased risk of individual or class action lawsuits from patients or other affected persons, in addition to government enforcement. Failure to comply with restrictions on patient privacy or to maintain robust information security safeguards, including taking steps to ensure that contractors who have access to sensitive patient information maintain the confidentiality of such information, could consequently damage a health care provider's reputation and materially adversely affect business operations.

Property Tax Assessments. In recent years, a number of local taxing authorities in Pennsylvania have sought to subject the facilities of nonprofit hospitals and nursing facilities to local real estate taxes, primarily by challenging their status as "purely public charities" as described in the Pennsylvania Constitution, notwithstanding the fact that Pennsylvania nonprofit hospital facilities historically have been viewed as exempt from such taxes. In response to the uncertainty resulting from divergent court decisions, the Pennsylvania legislature enacted The Institutions of Purely Public Charity Act, 10 P.S. §§ 371-385 ("Act 55"), on November 26, 1997 which, among other things, sets forth specific criteria to be met by an entity in order for such entity to be deemed an "institution of

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purely public charity". Notwithstanding passage of Act 55, the Supreme Court of Pennsylvania recently held that a property owner seeking an exemption from real property taxation as a "purely public charity" must first meet the criteria set forth in Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985) (the "HUP Test"), used to determine whether an institution qualifies as a purely public charity under the Pennsylvania Constitution, before undertaking analysis under Act 55. This decision will likely result in challenges to existing tax-exempt status by taxing jurisdictions. While the Hospital believes that it meets the criteria in both the HUP Test and Act 55, there are no assurances that the Hospital’s status will not be challenged, or that it will meet such criteria in the future. There can be no assurance that future changes in the laws and regulations of federal, state or local governments will not adversely affect the operations and financial condition of the Hospital to pay income or property taxes. In the past, the Hospital has entered into agreements to make payments in lieu of taxes with respect to certain of its facilities and may in the future enter into such agreements.

Certain Matters Relating to Enforceability of Obligations; Bankruptcy. The Loan Agreement is an obligation of the Hospital secured by a pledge of the Gross Revenues of the Hospital and by the Mortgage. The practical realization of value upon any default will depend upon the exercise of various remedies specified in the Bond Indenture and the Loan Agreement. These and other remedies may, in many respects, require judicial actions which are often subject to uncertainty, expense, discretion and delay. The various legal opinions to be delivered concurrently with the delivery of the 2013A Bonds will contain customary qualifications as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, rulings and decisions affecting remedies and by bankruptcy, reorganization, fraudulent conveyances, or other laws affecting the enforcement of creditors' rights generally.

There exists statutory authority in Pennsylvania for a court to dissolve a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation is insolvent. Moreover, pursuant to the common law and statutory power to enforce charitable trusts and to see that charitable funds are applied to their intended uses, the Attorney General of the Commonwealth may commence legal proceedings to dissolve a nonprofit corporation acting contrary to its charitable purposes or to restrain actions inconsistent with the charitable use of such funds or which render such nonprofit corporation unable to discharge its charitable functions. In certain states, such actions may arise on a court's own motion or pursuant to a petition of the attorney general or such other persons who have interests different than those of the general public.

The rights and remedies of the owners of the 2013A Bonds are subject to various provisions of the United States Bankruptcy Code (the "Bankruptcy Code"). If the Hospital was to file a petition for relief under the Bankruptcy Code, the filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Hospital and its property, and as an automatic stay of any act or proceeding to enforce a lien upon or to otherwise exercise control over its property. The ability of the Trustee to enforce any rights or interests it may have against the Hospital could be delayed during the pendency of the rehabilitation proceeding or subject to a restructuring in accordance with a confirmed plan of reorganization. Moreover, the foregoing discussion presumes that a petition is filed against the Hospital for a reorganization under Chapter 11 of the Bankruptcy Code. If the reorganization efforts under Chapter 11 fail and the case is converted to, or if the initial petition is filed seeking, a liquidation under Chapter 7 of the Bankruptcy Code, the Hospital may be discharged from all of its obligations and the owners of the 2013A Bonds may be limited to recovering, if anything, a pro rata share of the bankruptcy estate.

Malpractice Costs. Increases in premiums paid by the Hospital and members of its medical staff for professional malpractice insurance may have a material adverse effect on the future operations and financial condition of the Hospital.

Medical Care Availability and Reduction of Error Act. In March 2002, the Commonwealth 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.

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

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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 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 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 unfunded liabilities of the CAT Fund, which are estimated to be approximately $1.23 billion as of December 31, 2010, were transferred into the Mcare Fund and will be paid through the imposition of annual assessments on health care providers in the Commonwealth until such time as all liabilities are satisfied. 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 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 Hospital.

Tax-Exempt Status of the Hospital. Loss of tax-exempt status by the Hospital could result in loss of tax exemption of the 2013A Bonds and of other tax-exempt debt issued for the benefit of the Hospital, and defaults in covenants regarding the 2013A Bonds and other related tax-exempt debt would likely be triggered. Loss of tax- exempt status by the Hospital would have material adverse consequences on the financial condition of the Hospital. Management of the Hospital is not aware of any transactions or activities currently ongoing that are likely to result in the revocation of its tax-exempt status.

The maintenance by the Hospital of its status as an organization described in Section 501(c)(3) of the Code is contingent upon compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including their operation for charitable and educational purposes and their avoidance of transactions that may cause their assets to inure to the benefit of private individuals. The IRS has announced that it intends to closely scrutinize transactions between not-for-profit corporations and for-profit entities, and in particular has issued audit guidelines for tax-exempt hospitals. Although specific activities of hospitals, such as medical office building leases and compensation arrangements and other contracts with physicians, have been the subject of interpretations by the IRS in the form of Private Letter Rulings, many activities have not been addressed in any official opinion, interpretation or policy of the IRS. Because the Hospital conducts diverse operations involving private parties, there can be no assurances that certain of their transactions would not be challenged by the IRS.

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

The Taxpayers Bill of Rights 2, referred to for purposes of this Official Statement as the "Intermediate Sanctions Law", allows the IRS to impose "intermediate sanctions" against certain individuals in circumstances involving the violation by tax-exempt organizations of the prohibition against private inurement. Prior to the enactment of the Intermediate Sanctions Law, the only sanction available to the IRS was revocation of an organization's tax-exempt status. Intermediate sanctions may be imposed in situations in which a "disqualified person" (such as an "insider") (i) engages in a transaction with a tax-exempt organization on other than a fair market value basis, (ii) receives unreasonable compensation from a tax-exempt organization or (iii) receives payment in an arrangement that violates the prohibition against private inurement. These transactions are referred to as "excess benefit transactions." A disqualified person who benefits from an excess benefit transaction will be subject to an excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in the excess benefit transaction knowing it to be improper are subject to an excise tax equal to 10% of the amount of the excess benefit, subject to a maximum penalty of $20,000. A second penalty, in the amount of 200% of the excess benefit, may be imposed on the disqualified person (but not upon the organizational manager) if the excess benefit is not corrected within a specified period of time.

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In certain cases, the IRS has imposed substantial monetary penalties and future charity care or public benefit obligations on tax-exempt hospitals in lieu of revoking their tax-exempt status, as well as requiring that certain transactions be altered, terminated or avoided in the future and/or requiring governance or management changes. These penalties and obligations are typically imposed on the tax-exempt hospital pursuant to a "closing agreement" with respect to the hospital's alleged violation of Section 501(c)(3) exemption requirements.

The ACA also contains new requirements for tax-exempt hospitals. Under the ACA, each tax-exempt hospital facility is required to (i) conduct a community health needs assessment at least every three years and adopt an implementation strategy to meet the identified community needs, (ii) adopt, implement and widely publicize a written financial assistance policy and a policy to provide emergency medical treatment without discrimination, (iii) limit charges to individuals who qualify for financial assistance under such tax-exempt hospital's financial assistance policy to no more than the amounts generally billed to individuals who have insurance covering such care and refrain from using "gross charges" when billing such individuals, and (iv) refrain from taking extraordinary collection actions without first making reasonable efforts to determine whether the individual is eligible for assistance under such tax-exempt hospital's financial assistance policy. In addition, the Treasury Department is required to review information about each tax-exempt hospital's community benefit activities at least once every three years, as well as to submit an annual report to Congress with information regarding the levels of charity care, bad debt expenses, unreimbursed costs of government programs, and costs incurred by tax-exempt hospitals for community benefit activities. The periodic reviews and reports to Congress regarding the community benefits provided by 501(c)(3) hospitals may increase the likelihood that Congress will require such hospitals to provide a minimum level of charity care in order to retain tax-exempt status and may increase IRS scrutiny of particular 501(c)(3) hospital organizations.

In recent years, the IRS and state, county and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt hospitals with respect to their exempt activities and the generation of unrelated business taxable income. The Hospital participates in activities that may generate unrelated business taxable income. Management of the Hospital believes it has properly accounted for and reported unrelated business taxable income; nevertheless, an investigation or audit could lead to a challenge which could result in taxes, interest and penalties with respect to unreported unrelated business taxable income and in some cases could ultimately affect the tax-exempt status of the Hospital as well as the exclusion from gross income for federal income tax purposes of the interest payable on the 2013A Bonds and other tax-exempt debt of the Hospital. In addition, legislation, if any, which may be adopted at the federal, state and local levels with respect to unrelated business income cannot be predicted. Any legislation could have the effect of subjecting a portion of the income of the Hospital to federal or state income taxes.

In 1990, the Employee Plans and Exempt Organizations Division of the IRS expanded the Coordinated Examination Program (referred to as "CEP") of the IRS to tax-exempt healthcare organizations. CEP audits are conducted by teams of revenue agents. The CEP audit teams consider a wide range of possible issues, including the community benefit standard, private inurement and private benefit, partnerships and joint ventures, retirement plans and employee benefits, employment taxes, tax-exempt bond financing, political contributions and unrelated business income. Management of the Hospital believes that it has properly complied with the tax laws. Nevertheless, because of the complexity of the tax laws and the presence of issues about which reasonable persons can differ, a CEP audit could result in additional taxes, interest and penalties. A CEP audit could ultimately affect the tax- exempt status of the Hospital as well as the exclusion from gross income for federal income tax purposes of the interest payable with respect to the 2013A Bonds and other tax-exempt debt of the Hospital.

It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of not-for-profit corporations. There can be no assurance that future changes in the laws and regulations of federal, state or local governments will not materially adversely affect the future operations and financial condition of the Hospital by requiring it to pay income or local property taxes.

Tax-Exempt Status of the 2013A Bonds. The Code imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the 2013A Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds, limitations on the investment earnings of bond proceeds prior to expenditure, a requirement that certain investment earnings on bond proceeds be paid periodically to the United States, and a requirement that the issuers file an information report with the IRS. The Hospital has agreed that it will comply with such requirements. Failure to comply with the

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requirements stated in the Code and related regulations, rulings and policies may result in the treatment of the interest on the 2013A Bonds as taxable. Such adverse treatment may be retroactive to the date of issuance. See also "TAX EXEMPTION AND OTHER TAX MATTERS."

Indigent Care. Tax-exempt hospitals and other providers often treat large numbers of indigent patients who are unable to pay for their medical care. These hospitals and other providers may be susceptible to economic and political changes which could increase the number of indigents or their responsibility for caring for this population. General economic conditions which affect the number of employed individuals who have health insurance coverage will similarly affect the ability of patients to pay for their care. Similarly, changes in governmental policy, which may result in coverage exclusions under local, state and federal health care programs (including Medicare and Medicaid), may increase the frequency and severity of indigent treatment in such hospitals. It is also possible that future legislation could require that tax-exempt hospitals and other providers maintain minimum levels of indigent care as a condition to federal income tax exemption or local property tax exemption. In addition, health care reform could result in increased coverage for medically indigent patients, but with associated reimbursement insufficient to cover the costs of providing such services. See "BONDHOLDERS' RISKS – Federal Health Care Reform." In sum, indigent care commitments of the Hospital could have a material adverse effect on the financial condition of the Hospital.

Bond Examinations. IRS officials have recently indicated that more resources will be invested in audits of tax-exempt bonds in the charitable organization sector with specific review of private use. In addition, the IRS has sent several hundred post-issuance compliance questionnaires to nonprofit corporations that have borrowed on a tax- exempt basis regarding their post-issuance compliance with various requirements for maintaining the federal tax exemption of interest on bonds issued for their benefit. The questionnaire included questions relating to the nonprofit borrower's (i) record retention, which the IRS has particularly emphasized, (ii) qualified use of bond- financed property, (iii) arbitrage yield restriction and rebate requirements, (iv) debt management policies and (v) voluntary compliance and education.

The IRS has also added a new schedule to IRS Form 990. This new schedule requests detailed information related to all outstanding bond issues of nonprofit hospitals, including information regarding operating, management and research contracts as well as private use compliance. These specific reporting obligations apply for tax years beginning on or after January 1, 2009. See "BONDHOLDERS' RISKS – Nonprofit Health Care Environment – Revision of IRS Form 990 for Tax-Exempt Organizations" above.

Although management of the Hospital believes that its expenditure and investment of bond proceeds, use of property financed with tax-exempt debt and record retention practices have complied with all applicable laws and regulations, there can be no assurance that the issuance of surveys will not lead to an IRS review that could adversely affect the market value for and marketability of the 2013A Bonds or of other outstanding tax-exempt indebtedness of the Hospital. Additionally, the 2013A Bonds or other tax-exempt obligations issued for the benefit of the Hospital may be, from time to time, subject to examinations by the IRS. Management of the Hospital believes that the 2013A Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax-exempt status of the 2013A Bonds, as described under the caption "TAX EXEMPTION AND OTHER TAX MATTERS." Management of the Hospital has not sought to obtain a private letter ruling from the IRS with respect to the 2013A Bonds, however, and opinions of counsel are not binding on the IRS or the courts. There can be no assurance that any IRS examination of the 2013A Bonds will not adversely affect the market value for and marketability of the 2013A Bonds.

Other Risks

Bond Ratings. There is no assurance that the current ratings assigned to the 2013A 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 2013A Bonds.

Secondary Market. There can be no assurance that there will be a secondary market for purchase or sale of the 2013A Bonds, and from time to time there may be no market for them depending upon prevailing market conditions, including evaluation of the Hospital's capabilities, the financial condition or market position of firms who may make the secondary market, and the financial condition and results of operations of the Hospital.

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Staffing Shortages. In recent years, the healthcare industry has suffered from a scarcity of nursing and other qualified health care technicians and personnel. This trend could force the Hospital to pay higher salaries to nursing and other qualified health care technicians and personnel as competition for such employees intensifies and, in an extreme situation, could lead to difficulty in keeping the facilities licensed to provide nursing care and thus eligible for reimbursement under Medicare and Medicaid.

Professional Liability Claims and Liability Insurance. 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 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, reduction 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 in 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. 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 Hospital'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 Hospital.

Litigation may also arise from the corporate and business activities of the Hospital, employee-related matters, medical staff and provider network matters and denials of medical staff and provider network membership and privileges. As with professional liability, many of these risks are covered by insurance, but some are not. For example, some antitrust claims, business disputes and workers' compensation claims are not covered by insurance or other sources and, in whole or in part, may be a liability of the Hospital if determined or settled adversely.

Although the Hospital currently maintains malpractice and general liability insurance which management of the Hospital considers adequate, the Hospital is unable to predict the availability, cost or adequacy of such insurance in the future.

Hospital Pricing. Inflation in hospital costs may evoke action by legislatures, payors or consumers. It is possible that legislative action at the state or national level may be taken with regard to the pricing of health care services. Major purchasers of hospital services could also take action to restrain hospital charges or charge increases.

As a result of increased public scrutiny, it is also possible that the pricing strategies of hospitals may be perceived negatively by consumers and hospitals may be forced to reduce fees for their services. Decreased utilization could result and hospitals' revenues may be negatively impacted.

Integrated Delivery Systems. Health facilities and health care systems often own, control or have affiliations with physician groups and independent practice associations. Generally, the sponsoring health facility or health system is the primary capital and funding source for such alliances and may have an ongoing financial commitment to provide growth capital and support operating deficits. As separate operating units, integrated physician practices and medical foundations sometimes operate at a loss and require subsidy from the related hospital or health system.

These types of alliances are likely to become increasingly important to the success of hospitals in the future as a result of changes to the health care delivery and reimbursement systems that are intended to restrain the rate of increases of health care costs, encourage coordinated care, promote collective provider accountability and improve clinical outcomes. The ACA authorizes several alternative payment programs for Medicare that promote, reward or necessitate integration among hospitals, physicians and other providers.

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Whether these programs will achieve their objectives and be expanded or mandated as conditions of Medicare participation cannot be predicted. However, Congress and CMS have clearly emphasized continuing the trend away from the fee-for-service reimbursement model, which began in the 1980s with the introduction of the prospective payment system for inpatient care, and toward an episode-based payment model that rewards use of evidence-based protocols, quality and satisfaction in patient outcomes, efficiency in using resources, and the ability to measure and report clinical performance. This shift is likely to favor integrated delivery systems, which may be better able than stand-alone providers to realize efficiencies, coordinate services across the continuum of patient care, track performance and monitor and control patient outcomes. Changes to the reimbursement methods and payment requirements of Medicare, which is the dominant purchaser of medical services, are likely to prompt equivalent changes in the commercial sector, because commercial payors frequently follow Medicare's lead in adopting payment policies.

While payment trends may stimulate the growth of integrated delivery systems, these systems carry with them the potential for legal or regulatory risks. Many of the risks discussed in "BONDHOLDERS' RISKS— Regulation of Provider Relationships" herein, may be heightened in an integrated delivery system. The foregoing laws were not designed to accommodate coordinated action among hospitals, physicians and other health care providers to set standards, reduce costs and share savings, among other things. Although CMS and the agencies that enforce these laws are expected to institute new regulatory exceptions, safe harbors or waivers that will enable providers to participate in payment reform programs, there can be no assurance that such regulations will be forthcoming or that any regulations or guidance issued will sufficiently clarify the scope of permissible activity. State law prohibitions, or state law requirements, such as insurance laws regarding licensure and minimum financial reserve holdings of risk-bearing organizations, may also introduce complexity, risk and additional costs in organizing and operating integrated delivery systems. Tax-exempt hospitals also face the risk in affiliating with for- profit entities that the IRS will determine that compensation practices or business arrangements result in private benefit or private use or generate unrelated business income for the hospitals.

In addition, integrated delivery systems present business challenges and risks. Inability to attract or retain participating physicians may negatively affect managed care, contracting and utilization. The technological and administrative infrastructure necessary both to develop and operate integrated delivery systems and to implement new payment arrangements in response to changes in Medicare and other payor reimbursement is costly. Hospitals may not achieve savings sufficient to offset the substantial costs of creating and maintaining this infrastructure.

Physician Medical Staff. 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 or revoked often file legal actions against hospitals and medical staffs. 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 adequately oversee the conduct of its medical staff may result in hospital liability to third parties.

Physician Supply. Sufficient community-based physician supply is important to hospitals and other health care facilities. CMS annually reviews overall physician reimbursement formulas for Medicare and Medicaid. Changes to physician compensation under these programs could lead to physicians ceasing to accept Medicare and/or Medicaid patients. Regional differences in reimbursement by commercial and governmental payors, along with variations in the costs of living, may cause physicians to avoid locating their practices in communities with low reimbursement or high living costs. Hospitals and health systems may be required to invest additional resources in recruiting and retaining physicians, or may be compelled to affiliate with, and provide support to, physicians in order to continue serving the growing population base and maintain market share.

Employer Status. Hospitals are major employers with mixed technical and nontechnical workforces. Labor costs, including salary, benefits and other liabilities associated with a workforce, have significant impacts on hospital operations and financial condition. Developments affecting hospitals as major employers include: (i) imposing higher minimum or living wages; (ii) enhancing occupational health and safety standards; and (iii) penalizing employers of undocumented immigrants. Legislation or regulation on any of the above or related topics

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could have a material adverse impact on the Hospital and, in turn, its ability to make payments with respect to the 2013A Bonds.

Labor Relations and Collective Bargaining. Hospitals are large employers with a wide diversity of employees. Increasingly, employees of hospitals are becoming unionized, and many hospitals have collective bargaining agreements with one or more labor organizations. Employees subject to collective bargaining agreements may include essential nursing and technical personnel, as well as food service, maintenance and other trade personnel. Renegotiation of such agreements upon expiration may result in significant cost increases to hospitals. Employee strikes or other adverse labor actions may have an adverse impact on operations, revenue and hospital reputation.

Currently, the Hospital has a collective bargaining agreement with the Service Employee International Unit Healthcare Pennsylvania, CTW, CLC, which covers 426 maintenance and service employees, (nutritional services, housekeeping, maintenance, medical records, unit secretaries, nursing assistants, EKG technicians). The current contract is a three-year agreement that expires on January 31, 2013. See APPENDIX A — "EMPLOYEES" for a discussion of the current status of the Hospital's negotiations with respect to such agreement.

Health Care Worker Classification. Health care providers, like all businesses, are required to withhold income taxes from amounts paid to employees. If the employer fails to withhold the tax, the employer becomes liable for payment of the tax imposed on the employee. On the other hand, businesses are not required to withhold federal taxes from amounts paid to a worker classified as an independent contractor. The IRS has established criteria for determining whether a worker is an employee or an independent contractor for tax purposes.

Class Actions. Nonprofit hospitals and health systems have long been subject to a wide variety of litigation risks, including liability for care outcomes, employer liability, property and premises liability, and peer review litigation with physicians, among others. In recent years, consumer class action litigation has emerged as a potentially significant source of litigation liability for nonprofit hospitals and health systems. These class action suits have most recently focused on hospital billing and collections practices, and they may be used for a variety of currently unanticipated causes of action. Since the subject matter of class action suits may involve uninsured risks, and since such actions often involve large classes of plaintiffs, they may have material adverse consequences on nonprofit hospitals and health systems in the future.

Wage and Hour Class Actions and Litigation. Federal law and many states, impose standards related to worker classification, eligibility and payment for overtime, liability for providing rest periods and similar requirements. Large employers with complex workforces, such as hospitals, are susceptible to actual and alleged violations of these standards. In recent years there has been a proliferation of lawsuits over these "wage and hour" issues, often in the form of large class actions. For large employers, such as hospitals and health systems, such class actions can involve multi-million dollar claims, judgments and settlements. A major class action decided or settled adversely to the Hospital could have a material adverse impact on its financial conditions and results of operations.

Information Systems. The ability to adequately price and bill health care services and to accurately report financial results depends on the integrity of the data stored within information systems, as well as the operability of such systems. Information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards. There can be no assurance that efforts to upgrade and expand information systems capabilities, protect and enhance these systems, and develop new systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues will not arise in the future.

Electronic media are also increasingly being used in clinical operations, including the conversion from paper to electronic medical records, computerization of order entry functions and the implementation of clinical decision-support software. The reliance on information technology for these purposes imposes new expectations on physicians and other workforce members to be adept in using and managing electronic systems. It also introduces risks related to patient safety, and to the privacy, accessibility and preservation of health information. See "BONDHOLDERS' RISKS – HIPAA Regulations" above. Technology malfunctions or failure to understand and use information systems properly could result in the dissemination of or reliance on inaccurate information, as well as in disputes with patients, physicians and other health care professionals. Health information systems may also be

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subject to different or higher standards or greater regulation than other information technology or the paper-based systems previously used by health care providers, which may increase the cost, complexity and risks of operations. All of these risks may have adverse consequences on hospitals and health care providers.

INDEPENDENT AUDITORS

The consolidated financial statements of Washington Health Care Services, Inc. and Affiliates as of June 30, 2012 and 2011 and for the years then ended appearing in APPENDIX B to this Official Statement, have been audited by Washington Health Care Services, Inc.'s independent auditors, as stated in their report appearing therein.

FINANCIAL STATEMENTS

The Hospital represents, as of the date hereof, that there has been no material adverse change in its financial condition since November 30, 2012, as set forth in APPENDIX A of this Official Statement. The November 30, 2012 and 2011 information appearing in Appendix A was prepared by management of the Hospital.

There can be no assurance that the financial results achieved in the future will be similar to historical results. Such future results will vary from historical results, and actual variations may be material. The historical operating results of the Hospital contained in this Official Statement cannot be taken as a representation that the Hospital will be able to generate sufficient revenues in the future to make principal and interest payments.

LIMITED OBLIGATIONS

The 2013A Bonds are limited obligations of the Authority and are secured by and payable solely from the Trust Estate, which includes payments required to be made by the Hospital under the Loan Agreement (except certain fees and indemnification payments required to be made to the Authority), certain funds held by the Trustee under the Bond Indenture and the investments and investment earnings of those moneys. Neither the general credit of the Authority nor the full faith, credit or taxing power of the County, the Commonwealth or any political subdivision of the Commonwealth has been or will be pledged to the payment of the principal of or interest on the 2013A Bonds. The issuance of the 2013A Bonds will not directly, indirectly or contingently obligate the County, the Commonwealth or any other political subdivision or instrumentality thereof to levy or to pledge any form of taxation whatsoever therefor, or to make any appropriation for their payment. The Authority has no taxing power. Except as stated above, the Authority is not liable for its obligations nor are its members, officers or employees liable for any obligation of the Authority.

ABSENCE OF MATERIAL LITIGATION

There is no controversy or litigation of any nature now pending or, to the knowledge of the Hospital or the Authority, threatened, that seeks to restrain or enjoin the issuance, sale, execution or delivery of the 2013A Bonds, or in any way contests or affects the validity of the 2013A Bonds, any proceedings of the Authority taken with respect to the issuance or sale thereof, any security or the pledge or application of any moneys provided for the payment of the 2013A Bonds or the existence or powers of the Authority.

Upon issuance of the 2013A Bonds, the Hospital will certify as to the absence of any litigation which could have a material adverse effect on its financial condition.

THE TRUSTEE

The Authority has appointed The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States, to serve as Trustee. The Trustee is to carry out those duties assignable to it under the Bond Indenture. Except for the contents of this section, the Trustee has not reviewed or participated in the preparation of this Official Statement and assumes no responsibility for the nature, contents, accuracy or completeness of the information set forth in this Official Statement, for the recitals contained in the Bond Indenture, or the 2013A Bonds, or for the validity, sufficiency, or legal effect of any of such documents.

Furthermore, the Trustee has no oversight responsibility, and is not accountable, for the use or application of the proceeds of such 2013A Bonds by the Authority or the Hospital. The Trustee has not evaluated the risks,

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benefits, or propriety of any investment in the 2013A Bonds and makes no representation, and has reached no conclusions, regarding the value or condition of any assets or revenues pledged or assigned as security for the 2013A Bonds, or the investment quality of the 2013A Bonds, about all of which the Trustee expresses no opinion and expressly disclaims the expertise to evaluate.

The obligations and duties of the Trustee are described in the Bond Indenture and the Trustee has undertaken only those obligations and duties which are expressly set out in the Bond Indenture.

APPROVAL OF LEGALITY

The 2013A Bonds are offered when, as and if issued by the Authority and accepted by the Underwriter, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of the legality of the 2013A Bonds by Buchanan Ingersoll & Rooney PC, Pittsburgh, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by its counsel Robert N. Clarke, Esquire, Washington, Pennsylvania; for the Underwriter by Cohen & Grigsby, P.C., Pittsburgh, Pennsylvania; and for the Hospital by its counsel, Goldfarb, Posner, Beck, DeHaven & Drewitz, Washington, Pennsylvania.

TAX EXEMPTION AND OTHER TAX MATTERS

Bond Counsel is expected to issue its opinion on the date of closing to the effect that, under existing laws, regulations and judicial decisions, interest on and accruals of original issue discount with respect to the 2013A Bonds are excluded from gross income for federal income tax purposes pursuant to the Code. Furthermore, interest on and accruals of original issue discount with respect to the 2013A Bonds are not items of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations (as defined for federal income tax purposes), such interest and accruals are taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. The opinion set forth in this paragraph is subject to the condition that the Authority and the Hospital comply with all the requirements of the Code that must be satisfied subsequent to the issuance of the 2013A Bonds in order that interest thereon be and remain excluded from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on the 2013A Bonds to be included in gross income retroactively to the date of issuance of the 2013A Bonds. The Authority and the Hospital have covenanted to comply with all such requirements.

Ownership of the 2013A Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain S corporations with "excessive net passive income," individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the 2013A Bonds. Bond Counsel expresses no opinion as to any such collateral federal income tax consequences. Purchasers of 2013A Bonds should consult their own tax advisors as to such collateral federal income tax consequences.

Bond Counsel is expected to issue an opinion on the date of closing to the effect that, under the laws of the Commonwealth, as presently enacted and construed, the 2013A Bonds are exempt from personal property taxes in the Commonwealth and interest on the 2013A Bonds is exempt from Pennsylvania personal income tax and from Pennsylvania corporate net income tax.

Certain of the 2013A Bonds may be sold with an original issue discount (each 2013A Bond sold at an original issue discount is referred to individually in the following discussion as an "OID Bond"). The difference between the initial public offering price at which the OID Bonds were sold and the principal amount thereof constitutes original issue discount ("OID"). OID is apportioned among the original purchasers of the OID Bonds and subsequent holders thereof during their periods of ownership on a daily basis. Section 1288 of the Code is applicable to the OID Bonds and requires holders of the OID Bonds to accrue OID tax-exempt interest income on the basis of an economic constant interest rate method over the life of the OID Bonds, taking into account the semiannual compounding of accrued interest. Under this provision, for the purpose of determining gain or loss upon the disposition (including sale, redemption or payment at maturity) of any OID Bond, a holder of such OID Bond is entitled to increase his or her adjusted basis with respect to the OID Bond by the amount of OID which shall have accrued under the constant interest method as tax-exempt interest income during the period such OID Bond was held

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by the holder. Owners of OID Bonds should consult their tax advisors as to the determination for federal income tax purposes of interest accrued or accredited upon purchase, sale or redemption such OID Bonds.

Certain of the 2013A Bonds may be sold with an original issue premium (each 2013A Bond sold at an original issue premium is referred to individually in the following discussion as an "OIP Bond"). The original issue premium on an OIP Bond will be equal to the excess of a holder's tax basis in the OIP Bond over the amount payable at maturity, or in the case of an OIP Bond subject to redemption, the amount payable on the redemption date. Under current law, the original issue premium for an OIP Bond must be amortized on an annual basis by the holder thereof. The amount of original issue premium amortized each year will not be deductible for federal income tax purposes. Further, Section 1016 of the Code requires that the amount of annual amortization for the OIP Bond be deducted from the holder's tax basis in such OIP Bond. This reduction in a holder's tax basis will affect the amount of capital gain or loss to be recognized by the holder when the OIP Bond is sold or redeemed. Holders of OIP Bonds should consult their tax advisors with respect to the determination and treatment of amortizable original issue premium for federal income tax purposes, and with respect to the state and local tax consequences of owning such OIP Bonds.

UNDERWRITING

PNC Capital Markets LLC, as Underwriter, has agreed to purchase the 2013A Bonds at an aggregate purchase price of $15,231,269.50 (representing the principal amount of the 2013A Bonds plus a net original issue premium of $766,902.00 and less an underwriting discount of $105,632.50). The purchase contract among the Authority, the Hospital and the Underwriter provides that the Underwriter will purchase all the 2013A Bonds. Under the purchase contract, the Hospital has agreed to indemnify the Underwriter and the Authority against losses, claims, damages and liabilities arising out of any incorrect statements or information in the Official Statement pertaining to the Hospital. The initial public offering prices set forth on the inside front cover page may be changed by the Underwriter, and the Underwriter may offer and sell the 2013A Bonds to certain dealers (including dealers depositing 2013A Bonds into investment trusts) and others at prices lower than the offering prices set forth on the inside front cover page hereof.

RATINGS

Fitch Ratings has assigned its municipal bond rating of "BBB+" to the 2013A Bonds. Moody's Investors Service, Inc. has assigned its municipal bond rating of "Baa2" to the 2013A Bonds. Such ratings reflect only the views of such organizations, and any explanation of the significance of such rating may only be obtained from the rating agency furnishing the same. A credit rating is not a recommendation to buy, sell or hold securities. The Hospital has furnished such rating agencies with certain information and materials relating to the 2013A Bonds and the Hospital that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies, and assumptions by the ratings agencies. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating agency if, in the judgment of such rating agency, circumstances so warrant. Neither the Authority, the Hospital nor the Underwriter has undertaken any responsibility to bring to the attention of the holders of the 2013A Bonds any proposed revision or withdrawal or to oppose any such revision or withdrawal. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the 2013A Bonds.

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CONTINUING DISCLOSURE

The Hospital has undertaken all responsibilities for any continuing disclosure to holders of the 2013A Bonds as described below, and the Authority will have no liability to the Holders or any other person with respect to such disclosures. The Hospital has covenanted for the benefit of holders and Beneficial Owners of the 2013A Bonds to provide certain financial information and operating data relating to the Hospital by not later than one hundred eighty (180) days after the end of each fiscal year (which fiscal year currently ends on June 30), commencing with the report for the fiscal year ending June 30, 2013 (the "Annual Report"). These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the "Rule").

The Annual Report shall contain or include by reference the following:

(a) A copy of the audited consolidated financial statements and supplementary information of Washington Health Care Services, Inc. and Affiliates for the fiscal year ended the preceding June 30, prepared in accordance with generally accepted accounting principles (provided that the Hospital's financial statements are included in the Details of Consolidation attached as Supplementary Information to the audited consolidated financial statements of Washington Health Care Services, Inc. and Affiliates); and

(b) Unless contained in the financial statements provided in the paragraph above, an update to the following information contained in APPENDIX A to this Official Statement:

(i) Information and data generally consistent with the information and data set forth in APPENDIX A to this Official Statement under the captions "UTILIZATION" and "FINANCIAL PERFORMANCE."

The Annual Report will be filed by the Hospital with the Municipal Securities Rulemaking Board (the "MSRB") through the MSRB's Electronic Municipal Market Access ("EMMA") (or any successor electronic filing system established in accordance with the Rule for the submission of information required to be filed under the Rule).

As required by the Rule, the Hospital shall give notice to EMMA of the occurrence of any of the following events with respect to the 2013A Bonds:

(i) principal and interest payment delinquencies; (ii) nonpayment related defaults, if material; (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 or determinations with respect to the tax status of the 2013A Bonds, or other material events affecting the tax status of the 2013A Bonds; (vii) modifications to rights of Bondholders, if material; (viii) bond calls, if material, and tender offers; (ix) defeasances; (x) release, substitution or sale of property securing repayment of the 2013A Bonds, if material; (xi) rating changes; (xii) bankruptcy, insolvency, receivership, or similar event of an obligated person (as defined in the Rule); (xiii) the consummation of a merger, consolidation or acquisition involving an obligated person (as defined in the Rule) or the sale of all or substantially all the assets of an obligated person, 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) the appointment of a successor or additional trustee, or the change in the name of the trustee, if material.

In addition, the Hospital has undertaken to provide to EMMA quarterly unaudited financial and utilization information of the Hospital for each quarter of each fiscal year (beginning with the quarter ending March 31, 2013) not later than 60 days after the end of each of the first, second, third and fourth quarters of each fiscal year (currently the fiscal quarters ending September 30, December 31, March 31, and June 30) substantially in the form presented in the tables under the headings "UTILIZATION" and "FINANCIAL PERFORMANCE" in APPENDIX A to this Official Statement.

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CONCLUDING STATEMENT

All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered to be reliable, are not guaranteed by the Underwriter. So far as any statement herein includes matters of opinion, or estimates of future expenses and income, whether or not expressly so stated, they are intended merely as such and not as representations of fact.

The information contained herein should not be construed as representing all conditions affecting the Authority, the Hospital or the 2013A Bonds. The statements in APPENDIX C relating to the Bond Indenture, the Loan Agreement and the Mortgage are in summarized form, and in all respects are subject to and qualified in their entirety by express reference to the provisions of such documents in their complete form.

The agreements of the Authority are set forth in such documents, and the information assembled herein is not to be construed as a contract with registered owners of the 2013A Bonds. Information with respect to the Hospital set forth in this Official Statement has been supplied by the Hospital and the Authority has relied upon the Hospital with respect to the accuracy and sufficiency of such information.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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The contents hereof, including the cover page and the appendices hereto, are all part of this Official Statement and have been approved by the Authority and the Hospital.

WASHINGTON COUNTY HOSPITAL AUTHORITY

By: /s/ John A. Holets, M.D. Vice Chairman

THE WASHINGTON HOSPITAL

By: /s/ Gary B. Weinstein President and Chief Executive Officer

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APPENDIX A

Information Concerning

THE WASHINGTON HOSPITAL

Washington, Pennsylvania

The information contained herein as Appendix A to this Official Statement has been obtained from The Washington Hospital and other sources deemed to be reliable.

TABLE OF CONTENTS

INTRODUCTION ...... 1 CORPORATE ORGANIZATION ...... 1 HISTORY - FACILITY DESCRIPTION ...... 2 SERVICES ...... 4 EDUCATION ...... 7 JOINT VENTURES ...... 8 AFFILIATIONS ...... 9 BED COMPLEMENT ...... 9 EMPLOYEES ...... 9 LICENSES, ACCREDITATIONS AND MEMBERSHIPS ...... 10 GOVERNANCE ...... 10 MANAGEMENT ...... 11 MEDICAL STAFF ...... 14 DEMOGRAPHIC AND SOCIOECONOMIC TRENDS ...... 17 UTILIZATION ...... 20 FINANCIAL PERFORMANCE ...... 20 MANAGEMENT’S DISCUSSION ...... 24 INSURANCE ...... 27 LITIGATION ...... 27

Capitalized terms used, but not defined, in this Appendix A are defined the forepart of this Official Statement and in Appendix C to this Official Statement.

INTRODUCTION

The Washington Hospital (the "Hospital") is a 260-bed, non-profit, acute-care general hospital located in the City of Washington in central Washington County, Pennsylvania. The Hospital is located 36 miles southwest of Pittsburgh, Pennsylvania near the intersection of Interstates 70 and 79. The Hospital’s primary and secondary service area includes all of Washington County ("Washington County") (except for the Monongahela River Valley to the east) and parts of Greene County to the south. The Hospital is both the largest health care provider in Washington County and the dominant health care provider in its primary service area based on market share.

CORPORATE ORGANIZATION

The Hospital was founded in 1897. Reorganization of the Hospital in 1985 resulted in the creation of additional corporate entities. A non-profit, tax-exempt corporation, Washington Health Care Services, Inc. was created to serve as the parent (the "Parent"). The Washington Hospital Foundation, Inc. (the "Foundation"), non-profit, tax- exempt corporation, was formed in 1989 to conduct fund raising activities and to manage endowment funds. The Washington Physician Services Organization ("WPSO"), a for-profit (NOTE: WPSO is federally taxable but non- profit in Pennsylvania) corporation, was formed in 1996 to further the health services of the local community by operating medical practices. The Hospital, the Foundation and WPSO are wholly owned subsidiaries of the Parent. Health Futures, Inc. ("Health Futures") and Phoenix-Washington, Inc. ("Phoenix-Washington") are wholly owned subsidiaries of WPSO. A corporate organization chart follows:

Washington Health Care Services, Inc. Non-Profit - Tax-Exempt

The Washington Hospital The Washington Physician Foundation, Inc. The Washington Hospital Non-Profit - Tax-Exempt Services Organization Non-Profit - Tax-Exempt Non-Profit - Taxable

Health Phoenix- Obligor Not an Obligor Futures Washington

The Hospital will be the only corporation obligated to make payments on the 2013A Bonds and the other outstanding parity debt. Brief descriptions of the Parent and its subsidiary organizations which are not obligated on the 2013A Bonds follow.

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Washington Health Care Services, Inc. The Parent, incorporated in 1985, is a Pennsylvania non-profit corporation described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). The Parent is the parent of the Hospital, the Foundation, and WPSO (collectively referred to herein as the "Affiliates").

The Parent’s board of directors is comprised of the Chairman of the Board of Trustees of the Hospital, the President of the Hospital, the Chairman of the Board of Trustees of the Foundation and the Chairman of the Board of Directors of WPSO.

The Parent’s powers include ratifying the selection of the members of the Board of Trustees for the Affiliates, approving any amendment, repeal or suspension of the articles of incorporation or the bylaws of the Affiliates, and nullifying any ultra vires acts.

The Washington Hospital Foundation, Inc. The Foundation, incorporated in 1989, is a Pennsylvania non-profit corporation described under Section 501(c)(3) of the Code that primarily engages in fundraising activities for the benefit of the Hospital. The Foundation raises funds to make grants for health care services, programs, and outreach efforts for residents of the communities served by the Hospital.

The Washington Physician Services Organization WPSO, incorporated in 1996 as a federally taxable, Pennsylvania non-profit corporation, operates 20 physician medical practices, consisting of seven family practices with ten physicians, two pediatric practices with six physicians, two internal medicine practices with three physicians, and nine specialty practices which include one cardiology practice with seven physicians in multiple locations, one obstetrics/gynecology practice with seven physicians in multiple locations, a podiatry and wound care practice with three physicians, and a general surgery practice with two surgeons. Other specialties include urology, orthopedics, behavioral health, infectious disease and occupational medicine. Thirteen of the practices/locations are in the vicinity of Washington, Pennsylvania, five are in the northern part of the service area (Peters Township, McDonald and Houston), one in Greene County (Waynesburg) and one is in California, Pennsylvania. In total, WPSO employs forty-three physicians, eighteen nurse practitioners and/or physician assistants. Health Futures and Phoenix-Washington are wholly-owned subsidiaries of WPSO. Health Futures subleases space to an urgent care center (the "Urgent Care Center") operated by a joint venture of the Hospital and the University of Pittsburgh Medical Center ("UPMC"). Phoenix-Washington operates a chemical dependency treatment center known as Greenbriar Treatment Center.

Additional information regarding the Hospital is set forth herein. See also "Services" below for a description of joint ventures involving the Hospital.

HISTORY - FACILITY DESCRIPTION

Early Years - The Hospital, including its School of Nursing, was incorporated in 1897. A house converted to care for 20 patients was opened in 1898. The first class of the School of Nursing graduated in 1900. A second hospital was also opened in Washington in 1906 and was called the City Hospital. Both hospitals operated until 1920 when they merged to form the Hospital. In 1927, the Hospital moved to its current seven-acre location along Wilson Avenue on the northern edge of the City of Washington.

1940’s – 1960’s - During 1941-42, a wing was added and a new nurses’ residence was completed. In 1956, a $3.5 million building program was completed that resulted in the addition of the C-wing. This wing brought the Hospital’s bed complement to 312 beds and 48 bassinets. During 1965, another major expansion program added 153 beds, a new pediatric department, expanded laboratory and x-ray departments, a teen-age unit, a neuropsychiatric unit, an intensive care unit, an expanded premature nursery, and an enlarged outpatient department. The School of Nursing also was expanded at this time to provide space for additional students with new classrooms and extensive remodeling.

1970’s - In February 1970, the Hospital purchased a 92-bed nursing home and converted it into a skilled nursing facility. In March 1971, the addition of another wing provided 20 new psychiatric beds, a 12-bed cardiac intensive care unit, a respiratory therapy department, and family practice residency offices. A construction program

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completed in 1978 included the expansion of the x-ray department, a four-story, 329-space parking garage, a new physical therapy department, an addition to the dietary department, a newly renovated and enlarged emergency and outpatient department, and a new and enlarged emergency electrical generating system. A closed circuit television system was installed in 1979 to provide education for patients and staff.

1980’s - In 1981, a hospital-wide computer system was installed and recognized as an innovative medical information system. In 1982, a computer center was constructed to house the Hospital’s own IBM mainframe computer system. An occupational medicine center opened in 1984 and provided services to over 200 employers with more than 9,000 annual office visits by ill or injured workers. The Hospital converted its skilled nursing facility into a chemical dependency rehabilitation center in 1985. In 1986, the Hospital opened its 24,000 square foot Neighbor Health Center, an ambulatory care center located at 95 Leonard Avenue in Washington, Pennsylvania to provide convenient outpatient services, including outpatient surgery.

In 1987, the Hospital began construction of a four-story addition to the main hospital to house a cancer center, surgical and critical care units, social service and admitting departments, and conference/education areas. The wing opened in 1989. The next phase of this project involved the relocation and expansion of several of the high technology diagnostic departments of the Hospital, such as nuclear medicine, EKG, respiratory care, ultrasound and radiology. It also included the addition of three new services: magnetic resonance imaging, cardiac catheterization and mobile lithotripsy. A 200-car parking garage was built for patient and public use.

1990’s - In 1991, the Hospital opened the Occupational Rehabilitation Center in Meadow Lands to complement its Occupational Medicine Center by providing work hardening, hand therapy, and physical medicine services for injured employees. Also in 1991, the Hospital opened its first cardiac catheterization laboratory. A new center was opened in leased space at the Waterdam Plaza in 1992 to house the Pediatric Physical Medicine Center, which was later renamed the Children’s Therapy Center.

In 1993, the first open-heart surgery was performed at the Hospital. In 1994, a new building was opened on the Hospital campus to house the computer system.

Four new floors, added to the existing E-wing of the Hospital, were opened in 1995. These new floors housed inpatient units for obstetrics and women’s health care, oncology and cardiology, including the Bernard H. Berman, M.D. Memorial Cardiac Catheterization Laboratory containing two new digital cardiac catheterization laboratories.

In 1996, the Hospital expanded the availability and convenience of primary care with the construction of new Family Practice Centers in Avella, Canonsburg, and Cecil. The Hospital also expanded its post-acute services acquiring the Visiting Nurse Association of Washington County, merging with Hospice Care, Inc., and opening the 17-bed Transitional Care Unit on a former medical-surgical unit.

During 1997, the Hospital opened the Greene County Medical Plaza in Waynesburg to provide laboratory and imaging outpatient diagnostic services, along with medical office space for obstetrics and gynecology and family practice. The Hospital also expanded its rehabilitation department in 1997 to include an innovative new rehabilitation service called "Main Street". This unit simulates situations of everyday life such as grocery shopping, using an automated teller machine, getting in and out of a car, and housekeeping activities to assist stroke and orthopedic surgery patients in regaining everyday skills. The Hospital also relocated the Children’s Therapy Center to a new larger location in Waterdam Plaza to meet growing community need for these unique children’s rehabilitation services.

In 1998, the Hospital expanded primary care services in the Bentleyville, Washington County area with the construction of a medical office building. This was in partnership with Centerville Clinics, which operates a family practice center in the area. The Hospital sold the building to Centerville Clinic in November 2009. In 1998 the Hospital also opened a new Diabetic Education Center and expanded the Neighbor Health Center to include a Women’s Health Center. In addition, a new conformal linear accelerator was installed for radiation treatment of cancer.

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2000’s – In July 2000, an Express Care Center was opened in the Hospital’s Emergency Department. The Express Care Center is designed to provide care for minor emergencies to enable the main Emergency Department to operate more efficiently.

The 70,000 square foot Wilfred R. Cameron Wellness Center of The Washington Hospital was dedicated in September 2000. In 2001, the Hospital opened a day spa in the Wellness Center to provide additional wellness services to the community. The first year of operation of the Wellness Center was a resounding success with 3,200 local residents becoming members. Currently there are over 4,400 members. Three medical office buildings, known as Manifold Plaza, are located adjacent to the Wellness Center.

In September 2000, the Hospital opened Strabane Woods of Washington, an 81-bed assisted living facility, in partnership with the UPMC Senior Living. In September of 2002, also in partnership with UPMC Senior Living, Strabane Trails Village, a new 127-unit independent living facility, opened adjacent to Strabane Woods.

In early 2002, supported by a gift of more than $1 million from the Richard H. Donnell Foundation and another $2.2 million from several thousand community donors, the Hospital dedicated the Donnell House as the region’s only residential hospice. The Donnell House fills a great need in the community for residential hospice services.

In March 2007, the Hospital opened the Wound and Skin Healing Center, a comprehensive outpatient facility that provides medical treatment for chronic non-healing wounds and specialized care for the ostomy patient.

In September 2007, Health Futures began operations of the Urgent Care Center that offers a large scope of services for treatment of acute illness and injury. The Urgent Care Center is staffed by physicians and nurse practitioners and offers on-site services including x-ray, EKG, lab services and minor surgery. A 50/50 joint venture between the Urgent Care Center and UPMC was formed December 1, 2011.

SERVICES

The Hospital provides a full range of inpatient, outpatient, and emergency medical/surgical services at its main location at 155 Wilson Avenue in Washington and at 17 satellite locations throughout Washington and Greene Counties. In addition to medical/surgical care, the Hospital has special inpatient units for cardiac care, critical care, behavioral health, obstetrics and gynecology, oncology, and pediatrics. Ancillary services include diagnostic services such as cardiac catheterization and other cardiac diagnostics; EEG; endoscopy; imaging including CT scanning, magnetic resonance imaging and mammography; nuclear medicine; radiology; ultrasound; laboratory; pulmonary; a sleep lab; rehabilitation services including physical therapy, occupational therapy, speech therapy, children’s therapy services, and cardiac and pulmonary rehabilitation. Other ancillary services include ambulatory care; hospice care; lithotripsy; medical fitness; occupational medicine; ostomal therapy and wound care; outpatient surgery; radiation therapy and respiratory therapy. The Hospital’s Emergency Department is open 24 hours a day, seven days a week, and features an Express Care Center in addition to its regular acute care emergency medical service.

The medical staff represents over 30 specialties including allergy, anesthesiology, cardiology, cardiovascular surgery, dentistry and oral surgery, dermatology, emergency medicine, endocrinology, family practice, gastroenterology, general surgery, hematology/oncology, infectious disease, internal medicine, nephrology, neurology, neurosurgery, obstetrics and gynecology, occupational medicine, ophthalmology, orthopedics, otolaryngology, pain management, pathology, pediatrics, physical medicine and rehabilitation, plastic surgery, psychiatry, pulmonary medicine, radiology, radiation oncology, rheumatology, and urology.

Cardiac Care The Hospital offers a cardiovascular center of excellence that features a complete line of cardiac services including diagnostics, angioplasty, stenting, electrophysiology, open-heart surgery, and cardiac rehabilitation. In the Bernard H. Berman, M.D. Memorial Cardiac Catheterization Laboratory three digital cardiac catheterization labs are available for diagnostic and therapeutic catheterization procedures. The centerpiece of the cardiovascular services is open-heart surgery, including coronary bypass grafts, valves, and other procedures. The Hospital also offers a

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cardiac rehabilitation program to assist patients with recovery and rehabilitation. As a cardiovascular center of excellence, the Hospital is dedicated to providing the highest level of care in the most efficient manner possible.

Cancer Care Through a joint venture (see "JOINT VENTURES – UPMC and The Washington Hospital Cancer Center" herein), the Hospital operates an accredited community Cancer Center and offers a full complement of oncology services. Outpatient medical oncology services such as chemotherapy, transfusion therapy, and enterostomal nursing services are available in the Ambulatory Care Department. Radiation therapy is provided in a state-of-the art center featuring a dual energy linear accelerator, with multi-leaf collimator, simulator, and 3D treatment planning system. In October 2002, the Radiation Therapy Department began offering radiation therapy treatments with Intensity Modulated Radiation Therapy (IMRT), the most advanced technology available for radiation treatment of cancer. The Radiation Therapy Department also offers prostate brachytherapy for the treatment of early stage prostate cancer. In 1995, an inpatient oncology unit with 24 patient rooms and family/education amenities was opened in the main hospital facility. The Hospital’s continuum of oncology care is completed with a community cancer education program featuring lectures, screenings and support groups to enhance public awareness of cancer.

Women’s Health Care The Hospital cares for the health of women with an Obstetrics and Women’s Health Unit featuring 17 private rooms, a labor and delivery suite that includes five labor, delivery, recovery rooms, and a 16 bassinet well-baby nursery. The Hospital also offers pre-natal and post-natal education and care to underinsured and uninsured mothers. Mammography and ultrasound for the early detection of breast tumors also is available at four sites throughout Washington and Greene Counties. In 1998, a Women’s Health Center opened in the Neighbor Health Center at 95 Leonard Avenue in the City of Washington, featuring mammography, ultrasound, needle-core biopsy, and bone density screening in one convenient location. A full range of childbirth education and screenings designed specifically for women make up the annual community education schedule of Women’s Health Care programs.

Primary Care In 1971, the Hospital was one of the first hospitals in Pennsylvania to charter a family practice residency program. Since then, more than 250 family physicians have graduated from the residency program. The program manages and staffs four family practice centers where faculty family practice physicians and residents provide primary care medical services to residents of Washington County. The centers are located in Washington, Canonsburg, and Cecil.

The Hospital’s medical staff currently includes 54 family practice, 18 internal medicine and nine pediatric physicians, nearly all of whom are Board Certified. See "Medical Staff by Specialty" herein.

WPSO operates the medical practices of a number of primary care physicians on the medical staff of the Hospital, including family practitioners, internists, and pediatricians. WPSO encompasses 43 physicians in 20 practices.

Outpatient Diagnostic Services The Hospital maintains convenient locations for area residents to obtain outpatient procedures such as lab tests, general radiology, ultrasound, mammography, cardiac diagnostics, outpatient surgery, and lithotripsy. These sites include the Burgettstown Diagnostic Center in Burgettstown, Greene County Medical Plaza in Waynesburg, Neighbor Health Center in Washington, Waterdam Medical Plaza in Peters Township, and the Hospital’s main location at 155 Wilson Avenue in Washington. There are also several laboratory draw sites, such as on North Franklin Street in Washington and adjacent to the Wilfred R. Cameron Wellness Center in Washington, Pennsylvania.

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Hospice Care Based in Washington, Pennsylvania, Hospice Care of The Washington Hospital offers physical, emotional, social, and spiritual support to terminally ill patients and their families in Washington and Greene counties. The most comprehensive hospice program in the Washington County region, Hospice Care offers home-based, inpatient and residential hospice services. The home-based program supports patients and their families in the home; the inpatient hospice provides care for hospital inpatients; and Donnell House, the residential hospice, provides 24 hour nursing care in a home-like setting.

Rehabilitation Services The Hospital offers inpatient rehabilitation services at its main location in Washington including physical, occupational, and speech therapy. The centerpiece of these services is "Main Street", a rehabilitation facility in the Hospital that features a grocery store, automated bank teller machine, automobile, putting green, and full apartment to simulate everyday living situations that rehabilitation patients are likely to encounter.

In 2000, the Hospital opened the Wilfred R. Cameron Wellness Center in Washington and relocated its outpatient physical, occupational, and speech therapy services there, in addition to cardiac rehabilitation and the occupational rehabilitation program. Patients undergoing rehabilitation at the Wilfred R. Cameron Wellness Center benefit from the center’s facilities, such as a full range of exercise equipment, lap pool, therapy pool, walking track, and other amenities.

The Children’s Therapy Center, located in the Waterdam Plaza in Peters Township, is a unique regional resource for children’s rehabilitation services. Featuring physical, occupational and speech/language therapy, the Children's Therapy Center professionals diagnose and treat a wide range of physical and cognitive disorders and trauma. In 2011, the Children’s Therapy Center expanded to a second location in Washington.

Diabetes Education and Management Program It was found several years ago that the incidence of diabetes was more likely in southwestern Pennsylvania than anywhere else nationally. The Hospital recognized that unmanaged diabetes leads to more serious and costly health care problems such as heart and kidney disease. The Diabetes Education and Management Program was established to provide patients with education and skills to better manage diabetes. The program is located at the Neighbor Health Center.

Behavioral Health Unit The Hospital currently operates a 30-bed behavioral health unit on the third floor of the Hospital. The Behavioral Health Department provides inpatient treatment to individuals with significant or extreme potential for dangerous, serious or severe impairment of functional status, major or severe addictive co-morbidity. Adult and geriatric patients constitute the primary short-term treatment population.

Acute Rehabilitation Unit The Hospital operates a 16-bed distinct-part Acute Rehabilitation Unit. This unit opened in July 2004, after the Behavioral Health Unit downsized and created capacity for these beds. The unit admits patients who require intensive rehabilitative services for one or more conditions. The unit furnishes, through the use of qualified personnel, close medical supervision, rehabilitation nursing, physical therapy, speech therapy, and occupational therapy.

Pediatric Unit The Hospital has a designated Pediatric Unit that is part of a 27-bed Medical/Surgical unit. Four designated beds on the Unit are utilized for pediatric patients. The Hospital has eight pediatricians on staff; however, surgeons as well as general practitioners may admit pediatric patients. Ages range from a few days old to 17 years of age. The most common diagnoses are pneumonia, fever, asthma, and appendicitis. The pediatric census averages approximately 2 patients per day with a length of stay of 2-3 days. Nursing personnel have completed pediatric competencies and all nurses are Pediatric Advance Life Support certified.

Wilfred R. Cameron Wellness Center of The Washington Hospital The Wilfred R. Cameron Wellness Center of The Washington Hospital (the "Wellness Center") opened on October 1, 2000 and is a 70,000 square foot facility in South Strabane Township that offers comprehensive fitness and

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wellness services to local residents. Individuals can work out on the latest exercise equipment, swim, walk or jog, take aerobics classes, play basketball, or any of a myriad of activities. Other services include a day spa and child care center. In addition to these services, the Wellness Center houses the Hospital’s outpatient rehabilitation services, including cardiac rehabilitation, pulmonary rehabilitation, physical therapy, a hand clinic, and speech therapy.

Strabane Woods of Washington Strabane Woods of Washington opened on September 18, 2000, and is an 81-unit assisted living residence developed by the Hospital in partnership with UPMC Senior Living. It offers a worry-free lifestyle for seniors who want to live as independently as possible but require extra assistance with daily activities, such as taking medication and bathing. Among the amenities residents receive are three chef-prepared meals daily, weekly maid service, scheduled private transportation to area shopping and appointments, and a full calendar of social and recreational activities. As of November 30, 2012, 81 units were occupied.

Strabane Trails Village Strabane Trails Village opened on September 7, 2002, and is a 126-unit independent living facility located on the same campus as Strabane Woods of Washington. Strabane Trails Village was also developed by the Hospital in partnership with UPMC Senior Living. The facility provides an independent living retirement residence for seniors who want to live as independently as possible but require minimal assistance with daily activities. Among the amenities residents receive are three chef-prepared meals daily, weekly maid service, scheduled private transportation to area shopping and appointments, and a full calendar of social and recreational activities. As of November 30, 2012, 123 units were occupied.

Teen Outreach Program The Teen Outreach Program of The Washington Hospital was started in 1989 to provide sex education classes to local schools with the goal of reducing the number of unintended pregnancies among teens. Since then, the program has expanded to provide services for pregnant and parenting teens, mentoring to young fathers, GED preparation classes, intervention services to at-risk children and their parents, a peer education program, and school programs presented to middle and high school students.

EDUCATION

The Washington Hospital Family Practice Residency Program As mentioned above, the Hospital operates a Family Practice Residency Program which was one of the first such chartered programs in Pennsylvania. Currently, the three-year program has a total of 21 residents.

The Washington Hospital School of Nursing The Washington Hospital School of Nursing was founded in 1897. Affiliated with Waynesburg College, it offers a 28-month accredited program of study leading to a diploma in nursing. Current enrollment in the nursing school is 82.

The Washington Hospital School of Radiologic Technology The Washington Hospital School of Radiologic Technology is a 24-month accredited program leading to certification as a radiologic technologist. Total enrollment is limited to a maximum of 30 students (15 senior and 15 junior students). The Hospital accepts 15 students per year. Current enrollment is 24 students.

Professional and Community Education The Hospital provides a program of education for nursing and other health care professionals, as well as a regular series of lectures, screenings, and other activities to enhance the health care education of the community.

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JOINT VENTURES

The Hospital participates in the following joint ventures:

The Washington Physician Hospital Organization In 1994 the Washington Physician Hospital Organization ("WPHO") was incorporated and became fully operational in June of 1995. WPHO is a joint venture between the Hospital (50%) and over 181 members of the Hospital’s medical staff (50%). The goal of WPHO is to reduce health care costs, improve health care quality, and enhance access to health care services.

Washington Senior Care Corporation In 1999, the Washington Senior Care Corporation, a 501(c)(3) corporation, was created as a joint venture between the Hospital (50%) and UPMC Senior Living (50%) to oversee the development and ongoing management of the Strabane Woods of Washington Assisted Living Residence and Strabane Trails Village.

Chartwell Pennsylvania Limited Liability Company On July 1, 2001, the Chartwell Pennsylvania Limited Liability Company, a durable medical equipment home infusion company, was formed with the Hospital (2%) and six other healthcare organizations (98%) as members, to service patients whose needs require home infusion therapy.

Tri-State Surgery Center, LLC The Hospital operated an ambulatory surgical center at its Neighbor Health Center from 1986 to January 30, 2004. On February 2, 2004, the Hospital ceased to operate the ambulatory surgical center and leased the premises and its equipment to Tri-State Surgery Center, LLC ("Tri-State").

Tri-State is a Pennsylvania limited liability company formed on January 22, 2003 for the purpose of operating a free-standing ambulatory surgical center, as a joint venture between the Hospital and physicians who perform outpatient surgical procedures at the surgery center. The joint venture is owned 50% each by the Hospital and the physicians.

UPMC and The Washington Hospital Cancer Center In August 2006, UPMC and the Hospital entered into a joint venture agreement, each owning 50% of the new venture. The name of the new venture is "UPMC and The Washington Hospital Cancer Center." The new venture began operations on December 4, 2006. It includes the services of radiation therapy and PET/CT imaging.

The new partnership, located at the Hospital’s main campus, is part of a comprehensive cancer program at the Hospital that includes state-of-the-art radiation therapy, improved diagnostic capabilities, and other support services to help patients facing/diagnosed with cancer. Services include screening and early detection, clinical diagnosis, access to the latest treatments, IMRT, PET/CT, and symptom management and supportive care.

UPMC and The Washington Hospital Urgent Care Center In December 2011, the Hospital entered into a joint venture with UPMC to operate the Urgent Care Center started by Health Futures, a subsidiary of the Hospital in 2007. The Hospital and UPMC each own 50% of the joint venture. The Urgent Care Center provides evaluation and management services along with x-ray, EKG, lab and limited occupational medicine services.

The Washington Hospital and St. Clair Physician Services In March 2012, the Hospital entered into a non-profit joint venture with St. Clair Hospital, a local community hospital located in the southern part of Allegheny County, which borders the northern part of Washington County, to purchase an established neurology practice Southwestern Pa. Neurology Associates (SWPN) that services both hospitals. SWPN had a physician retiring and another leaving the area which jeopardized the practice’s ability to service the patients in both hospitals’ service area. Washington and St. Clair formed a 50/50 joint venture to keep the practice viable and began recruiting for replacement physicians. New physicians are now in place.

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AFFILIATIONS

The Hospital developed an affiliation with the UPMC Health System in 1996. Other than the joint ventures for the cancer center, senior living projects and urgent care center, the affiliation is consultative in nature, and there is no involvement in the governance of either party by the other. The Hospital also has developed affiliations with several other health care providers in Washington and Greene counties to facilitate the delivery of rural health care.

BED COMPLEMENT

As of November 30, 2012, the Hospital’s licensed capacity was 260 beds, which is illustrated by service line in the following chart. The Hospital also has 16 bassinets.

Service Licensed Beds Medical/Surgical 167 Critical Care 26 Obstetrics 17 Pediatrics 4 Acute Rehabilitation 16 Behavioral Health 30 Acute Care Total 260

EMPLOYEES

As of November 30, 2012, the employee complement of the Hospital consisted of full-time, part-time, and casual employees. These employees are classified as follows:

Number of Employees Administrative and Management 114 Professionals 799 Technical 292 Clerical 284 Maintenance and Service 345 Total 1,834

Nursing Staff As of November 30, 2012, the Hospital employed approximately 434 Full-Time Equivalents (FTEs) on its direct care nursing staff including registered nurses, licensed practical nurses, and nursing assistants. Of the total direct care nursing complement, approximately 333.4 FTEs (77%) were registered nurses.

Benefits The Hospital provides group health insurance, group life insurance and a defined contribution pension plan (the "Pension Plan").

Employees are eligible to participate in the Pension Plan with their own deferral at their date of hire. Participants are 100% vested in the discretionary employer contribution after three years of service. The Hospital’s funding policy is to contribute amounts to the Pension Plan annually as approved by the Hospital’s Board of Trustees. In recent years, 2% and 3% of base pay has been contributed for each eligible employee.

Collective Bargaining The Washington Hospital has a collective bargaining agreement with the Service Employee International Unit Healthcare Pennsylvania, CTW, CLC, which covers 426 maintenance and service employees, (nutritional services, housekeeping, maintenance, medical records, unit secretaries, nursing assistants, EKG technicians). The current contract is a three-year agreement that expires at midnight on January 31, 2013. Discussions with the union have been ongoing and progress has been made. Nevertheless, the members of the union voted on January 28, 2013 to

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give notice to the Hospital that a strike may be called on or about February 12, 2013 if an agreement is not reached. The Hospital continues to believe that an agreement will be reached, although it is prepared to implement measures to enable the Hospital to continue its operations if a strike is called. Negotiations between the Hospital and the union are scheduled to be held each day until January 31, 2013, and management currently believes that a resolution can be reached. No labor strikes have occurred at the Hospital since 1989.

LICENSES, ACCREDITATIONS AND MEMBERSHIPS

The Washington Hospital is licensed by: . The Commonwealth of Pennsylvania . Medicare . Medicaid . Champus

The Washington Hospital is accredited by: . Joint Commission on Accreditation of Healthcare Organizations (2010 through 2013) . American College of Radiologists . American Medical Association for Residency Programs . American College of Surgeons for the Cancer Program . National League of Nursing and State Board of Examiners of the Commonwealth of Pennsylvania for a School of Nursing . The Nuclear Regulatory Commission . National Accrediting Agency for Clinical Laboratory Sciences . College of American Pathologists . Pennsylvania Medical Society Under the Auspices of the Accreditation Council of Continuing Education . The Food and Drug Administration . Accreditation Association of Ambulatory Health Care (AAAHC) for Occupational Medicine . Pennsylvania Department of Health Laboratories . The American Association of Blood Banks

The Washington Hospital is a member of: . American Hospital Association . Association of American Medical Colleges . Association of Community Cancer Centers . The Hospital and Health System Association of Pennsylvania . Hospital Council of Western Pennsylvania . University of Pittsburgh Consortium Ethics Program

GOVERNANCE

Board of Trustees The Hospital is governed by an 18- member Board of Trustees (the "Board"). Members of the Board are elected to serve staggered terms. The President of the Hospital is an ex officio voting member of the Board.

Regular Board meetings are held no fewer than four times per year. The executive committee meets on a monthly basis. Board members are selected by a nominating committee which consists of three Hospital Board members, one Health Futures board member, and one Foundation board member. The selection of Board members is ratified by the Parent. The term of office for each Board member is four years. A person can only serve as a member of the Board for three terms without a one-year interruption. There are seven Standing Committees of the Board including Executive, Nominating, Finance, Joint Conference, Personnel Policy and Education, Long Range Planning and Facilities, and Executive Compensation. Unless otherwise provided in the Hospital's bylaws (or the Bylaws of the Parent), each member of a Committee is appointed by the Board Chairman and serves for a one-year term or until a successor is appointed and approved.

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Member Title Occupation Term Expires Ralph B. Andy Chairman Owner – Pennatronics 12/2016 – 3rd Term Vice Thomas Northrop Owner – Observer Publishing Company 12/2015 – 2nd Term Chairman Secretary- Daniel Miller CPA - Markovitz Dugan & Associates 12/2014 – 2nd Term Treasurer President/ President/CEO Gary B. Weinstein By Position CEO The Washington Hospital John A. Campbell Trustee Owner – Campbell Insurance Associates 12/2013 - 3rd Term President Darlene J. Bigler Trustee 12/2016 – 1st Term Community Action Southwest Howard F. Goldberg, MD Trustee Otolaryngologist 12/2013 – 1st Term Arthur Gabriel, II Trustee Real Estate Management 12/2014 – 1st Term Vice President Robert Griffin Trustee 12/2016– 3rd Term Redevelopment Authority of Washington County Shirley Hardy Trustee Community Volunteer 12/2013 – 3rd Term Executive Director William McGowen Trustee 12/2014 – 2nd Term Redevelopment Authority of Washington County Partner John McIlvaine, III Trustee 12/2013 – 1st Term The Webb Law Firm Senior Vice President - Investments Grant Minor Trustee 12/2015 – 2nd Term UBS Financial Services 12/2013 - 3 Years as Hospitalist Program William Pendergast, MD Trustee Past President of The Washington Hospital Medical Staff Partner - Investments Gerald Prado Trustee 12/2013 - 2nd Term Main Street Capital Holdings President Brian Smith Trustee 12/2014 – 1st Term Washington Financial Cynthia G. West, MD Trustee Nephrologist 12/2013 – 1st Term Executive Vice President Robert H. Young Trustee 12/2015 – 1st Term WesBanco, Inc.

Conflicts of Interest The Board has adopted a code of conduct that governs transactions between members of the Board and the Hospital. Management believes that transactions and relationships are on terms that are consistent with arm’s length, fair market value arrangements between unaffiliated parties. Management does not believe the objectivity of the Board is compromised in any way due to the relationships discussed above.

MANAGEMENT

The responsibility for the operations of the Hospital has been delegated by the Board to the President. Selected biographical information is listed for the President and principal members of the administrative staff.

President and Chief Executive Officer Gary B. Weinstein assumed the position of President and CEO in June 2010. Mr. Weinstein provides leadership, direction and administration across the entire Washington Hospital health care system. Working with the Hospital’s Board, he charts the course the Hospital system is to take in response to the health care needs of the community.

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Mr. Weinstein received his bachelor of arts degree in Political Science from Bucknell University and his master’s degree in Public Administration from the Wharton Graduate Division of the University of Pennsylvania. Mr. Weinstein began his Washington Hospital career in 1981 as the hospital planner. From 1992-2010, he served as Executive Vice President and Chief Operating Officer, during which time he assisted the President with various projects and responsibilities. He was responsible for physician recruiting, employed physicians, and managed care contracting. He also was responsible for both clinical and non-clinical departments, including imaging, lab, rehabilitation, radiation therapy, diabetes education/management, maintenance, and the Wilfred R. Cameron Wellness Center.

Mr. Weinstein is a member of the American College of Healthcare Executives, chairman of the board of directors of the Hospital Council of Western Pennsylvania, and board member of Washington County Health Partners, Inc. and Action Resources, Inc.

Executive Vice President Brook Ward oversees all operations for the Hospital system, including patient care services, ancillary services, facility maintenance, facility planning, information systems, human resources and regulatory affairs, as well as the hospital's educational programs, service excellence initiatives and the Wilfred R. Cameron Wellness Center.

Mr. Ward came to the Hospital from his most recent position as Vice President, Clinical and Ambulatory Services, at the Bronson Healthcare Group (Bronson Methodist Hospital) in Kalamazoo, Michigan. He began his healthcare career as a radiologic technologist, and then became a business analyst, diagnostic manager, director of radiology and executive director of clinical and ambulatory services.

Mr. Ward has extensive experience with improving quality of care, process and operations improvement, physician relations, patient satisfaction/service excellence, and organizational growth. He is a Fellow of the American College of Healthcare Executives and is a Fellow of The Advisory Board Company. In 2010, 2011, and 2012 Mr. Ward was an Examiner for the Malcolm Baldrige Award Program in the National Institute of Standards and Technology within the Department of Commerce.

Vice President, Finance/CFO Alisa R. Rucker assumed the position of Vice President of Finance and Chief Financial Officer in July 2012. In addition to overseeing the finance, purchasing, business office and patient access functions, she serves as one of the Hospital’s compliance officers. Prior to assuming the Vice President, Finance/CFO position, she served as the Hospital’s Controller for 15 years with responsibility for both finance and business office activities. Mrs. Rucker earned a Bachelor of Arts degree in Accounting from Washington and Jefferson College in 1989. Upon graduation, she was employed by Ernst & Young LLP before coming to the Hospital. She is a Certified Public Accountant (CPA), a member of Healthcare Financial Management Association (HFMA) and serves on the following boards: Greenbriar Treatment Center, Consolidated Supply Chain Services, LLP and PACE Risk Retention Group.

Vice President, Human Resources Barbara McCullough is responsible for the formulation and organization-wide application of Human Resources policies, procedures, and employee/labor relations, as well as employee benefits, workers compensation, recruiting, and HRIS. She also has administrative responsibilities for several support departments in the Hospital. Mrs. McCullough received her Professional Human Resources designation in 1991 and has over 30 years of professional Human Resources experience in health care, heavy manufacturing, and the computer industry. She is a member of the American Society for Healthcare Human Resources Administration, Society of Hospital Human Resources Professionals, Society for Human Resource Management, the Pittsburgh Human Resources Association and Hospital Council of Western Pennsylvania. She also serves on the board of Home and Community Services and the Pathways of Southwestern PA Foundation board.

Vice President, Patient Care Services Karen A. Bray leads the patient care team at the Hospital. Mrs. Bray provides leadership in developing hospital- wide patient care programs and collaborates with members of the Medical Staff to identify patient care needs. She ensures that systems and processes are designed to optimize patient safety and enhance patient, staff and physician satisfaction.

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Mrs. Bray previously served as Vice President of Patient Care Services at Grove City Medical Center and Ohio Valley General Hospital. She is chairman of the board for the Allegheny Children's Initiative and a board member for Partners for Quality.

Vice President, Regulatory Affairs and Quality Colleen C. Allison joined the Hospital in 1976 as Assistant Director of Medical Records, assuming the Director’s position in 1979. She received her bachelor of science in Health Record Administration from Rosary Hill College in 1976, and a master’s degree in Information Systems from the University of Pittsburgh in 1982. In December 1989, she assumed the position of Assistant Vice President and in December 1992, the position of Vice President. Mrs. Allison functions as the Hospital’s principal contact person regarding regulatory requirements for the State Department of Health and the Joint Commission. She coordinates all survey preparations and chairs the Accreditation / Licensure Steering Committee.

Mrs. Allison is also one of two compliance officers for the Hospital, as well as the Hospital’s Patient Safety Officer. She is the primary liaison with the Hospital’s insurers and legal counsel in the areas of general liability and medical malpractice.

She is a Fellow of the American College of Healthcare Executives and a member of the Hospital Council of Western Pennsylvania’s Regional Committees on Risk Management, Patient Safety and Quality of Patient Care and Corporate Compliance. Mrs. Allison is actively involved in both professional and community activities, including past Chairman of the Board of Directors of the United Way of Washington County, a mentor for the University of Pittsburgh Katz Graduate School of Business—Entrepreneurial Fellows Program, and board member for Hospital Association of Pa.’s (HAP) Pennsylvania Health Care Quality Alliance.

Vice President, Information and Ancillary Services Rodney D. Louk has administrative responsibility for the departments of Information Systems, Communications, Medical Records, Rehabilitation Services, Children’s Therapy Center, and Facility Maintenance and Operations for the Hospital system. This includes planning, implementing, and supporting the Hospital's technology and facility infrastructure and clinical services.

With more than 30 years' experience in the health care industry, Mr. Louk has been the organization’s CIO for the past 20 years. Prior to his position as Vice President, he was the organization’s Director of Information Systems and Supervisor of Computer Operations. Prior to joining the Hospital, he was Assistant Vice President of Technology for Heritage Bank in Ohio. Mr. Louk received his Bachelor of Science degree in Biology/Chemistry from West Virginia University.

Mr. Louk is a member of Pennsylvania e-Health Initiative, HL7 Standards Committee, HIMSS, DPMA (Data Processing Management Association), Hospital Council CIO Forum of Western Pennsylvania, and the Western Pennsylvania health information exchange ClinicalConnect Board of Directors.

Vice President, Medical Affairs Paul T. Cullen, M.D. oversees physician practice across the Hospital system to ensure and promote high quality medical care. He serves as the primary liaison between the Medical Staff, Hospital Administration and the Board. Dr. Cullen also oversees the credentialing and privilege processes of the Medical Staff, as well as continuing medical education programs.

Prior to his appointment as Vice President, Medical Affairs, Dr. Cullen served as Director of The Washington Hospital Family Medicine Residency, where he continues to teach.

Executive Director, The Washington Hospital Foundation Richard J. Mahoney has served as the chief fundraising officer of the Hospital since 1989. As Executive Director since 1993, he is the main liaison for the Foundation's Board of Trustees, whose principal goal is to provide present and future charitable resources for the Hospital. He is responsible for the planning and implementation of the comprehensive fund-raising strategies and activities of the Foundation. Under Mr. Mahoney’s leadership, the Hospital’s number of annual donors has increased from less than 1,000 in 1988 to more than 5,100 in 2011.

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Prior to 1989 Mr. Mahoney served three years as Vice President, Institutional Advancement at Carlow College, in Pittsburgh, Pennsylvania. He was Assistant Development Director at Duquesne University in Pittsburgh from March 1983 to August 1986. Mr. Mahoney received his Bachelor of Arts degree in Comprehensive Social Studies from Western New Mexico University in 1968 and his master’s degree from West Virginia University in Physical Education in 1972. He has done additional graduate work in Education Administration through Dayton University. He is a member of the Association for Healthcare Philanthropy, the Association of Fundraising Professionals ("AFP"), and the Pittsburgh Planned Giving Council. In 1990 Mr. Mahoney achieved the status of CFRE, Certified Fund Raising Executive. He was named Fund Raiser of the year for 1997 by the Western Pennsylvania Chapter of National Society of Fund Raising Executives (currently known as the AFP). Mr. Mahoney was named Executive Director of the Foundation in January 1993. He currently serves on the following boards and in the following positions: co-chair of the Development Committee of Hospital Council of Western PA; Finance committee of Arden Mills Homeowners Association; past president of the Mt. Lebanon High School athletic booster club; past president of the Pennsylvania Educational Network for Eating Disorders; Pittsburgh Planned Giving Council– Planned Giving Day Committee.

MEDICAL STAFF

The Medical Staff is composed of physicians and oral surgeons who are professionally competent and who have met rigorous qualifications and standards. These include: current Pennsylvania state licensure; appropriate Board Certification (or attainment of same within five years of eligibility); maintenance of satisfactory professional liability coverage; maintenance of a geographically patient-convenient office; freedom from a history of criminal conviction or disciplinary action by any licensure board or government agency; and freedom from a history of the suspension or revocation of clinical privileges. The Medical Staff members have documented, and will continue to demonstrate, ethical conduct and a willingness and capacity to work harmoniously with patients and other hospital personnel. The Medical Staff members are appointed by the Board; their work is continuously monitored; and they are considered for reappointment after extensive re-evaluation every two years.

There are several categories of membership, as follows:

Active – The Active category consists of members who have served for one year on the Associate Staff and who are involved in at least 24 patient contacts per appointment term. As of November 30, 2012, there were 265 Active Staff members.

Associate – The Associate category consists of members who are in the process of becoming eligible for appointment to the Active staff and who meet all other qualifications of Active Staff appointment. Upon completing one year on the Associate Staff, individuals who meet all the Active Staff qualifications shall be automatically transferred to the Active Staff. As of November 30, 2012, there were 29 Associate Staff members.

Courtesy – The Courtesy Staff consists of members involved in fewer than 24 patient contacts per appointment term; holds an active medical staff appointment at another accredited hospital and provides quality data and evidence of current clinical competence and overall qualifications as may be requested. As of November 30, 2012, there were 46 Courtesy Staff members.

Coverage Staff – The Coverage Staff consists of practitioners of demonstrated competence qualified for staff appointment who are members of a coverage group which provides periodic coverage for a practitioner who is an Active Staff member in good standing; has an Active Staff appointment at another hospital; and at reappointment time provides evidence of clinical performance at their primary hospital as may be requested. As of November 30, 2012, there were 4 Coverage Staff members.

Procedure Specific – The Procedure Specific category consists of physicians and oral surgeons who are provided access to the Hospital for the purpose of performing a specific procedure, such as spinal procedures. As of November 30, 2012, there is one Procedure Specific member.

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Allied Health Practitioners (Licensed Independent Practitioners) – The Allied Health Practitioners category consists of dentists, podiatrists and psychologists. As of November 30, 2012, there were 14 Allied Health Practitioner members.

Affiliate Staff – The Affiliate Staff consists of members who desire to be associated with, but who do not intend to establish a practice at the Hospital. The primary purpose of the Affiliate Staff is to promote professional and educational opportunities and to permit these individuals to access Hospital services for their patients by referral of patients to Active Staff members for admission and care. As of November 30, 2012, there were 7 Affiliate Staff members.

Honorary – The Honorary category consists of practitioners who were previously on the Active Staff and who are recognized for outstanding or noteworthy contributions to the medical sciences, or have a record of previous long-standing service to the Hospital and have retired from the active practice of medicine. As of November 30, 2012, there were 48 Honorary Staff members.

Medical Staff Number of % of Total As of November 30, 2012 Physicians Physicians Active and Associate 294 71.0% Courtesy and Coverage 50 12.1% Procedure Specific 1 0.2% Total Admitting Staff 345 83.3% Allied Health Practitioners 14 3.4% Affiliate/Honorary 55 13.3% Total Medical Staff 414 100.0%

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Admitting Medical Staff by Specialty

The following table identifies the distribution of the Admitting Medical Staff by Specialty, excluding those with temporary privileges, as of November 30, 2012.

Number Percentage Specialty Number in Board Board Average Specialty Certified Certified Age Division of Hospital Services Emergency Medicine 20 21 91 49 Hospitalist 17 14 82 38 Occupational Medicine 1 1 100 36 Pathology 7 7 100 54 Physical Medicine & Rehabilitation 12 12 100 48 Radiation Oncology 8 8 100 63 Radiology 14 13 93 45 Division of Medicine Allergy 7 7 100 53 Cardiology 14 14 100 50 Critical Care Medicine 6 4 67 42 Dermatology 3 3 100 42 Endocrinology 3 3 100 54 Gastroenterology 9 8 89 54 Hematology/Oncology 6 6 100 53 Infectious Disease 2 2 100 49 Internal Medicine 18 16 89 54 Nephrology 17 17 100 46 Neurology 13 13 100 44 Psychiatry 4 4 100 50 Pulmonary Medicine 8 8 100 53 Rheumatology 1 1 100 50 Division of Family Practice Education and Training 15 14 93 43 Clinical Practice 39 38 97 47 Division of Ob/Gyn 8 8 100 52 Division of Pediatrics 9 9 100 46 Division of Surgery Anesthesiology 13 12 92 46 Cardiovascular Surgery 10 10 100 52 Dentistry & Oral Surgery 6 3 50 56 General Surgery 6 5 83 51 Neurosurgery 8 7 88 53 Ophthalmology 5 5 100 53 Orthopedic 20 19 95 49 Otorhinolaryngology 3 3 100 43 Pain Management 6 5 83 40 Plastic Surgery 1 1 100 45 Urology 6 5 83 57 Total / Average 345 326 93.7 48.7 Source: Hospital records

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DEMOGRAPHIC AND SOCIOECONOMIC TRENDS

Washington County was created on March 28, 1781 by an act of the Pennsylvania Assembly, becoming the first county in the United States to be named in honor of General George Washington. The town of Basset, later renamed Washington, served as the site of the first County Courthouse, a log structure built in 1787. Today’s courthouse was built in 1900 and is a registered national landmark. The National Pike (Route 40), America’s first federally built transportation system, runs through Washington County. Other significant historical sites include Washington and Jefferson College, the LeMoyne House, the Century Inn, and Meadowcroft Village, among others.

Population According to Washington County Census 2010 results, the population of the area was approximately 207,820 people. From 2000 to 2010, the Washington County population growth percentage was 2.4% (or from 202,897 people to 207,820 people).

The majority of the population can be found in the urban and suburban areas of Washington County: the City of Washington and the surrounding areas, the Monongahela River Valley, the Canonsburg/Houston and the Peters/Cecil Township area. The largest municipality is Peters Township with a population of 21,213. Other major municipalities are: Cecil Township, Canonsburg Borough, Chartiers Township, North Strabane Township, and South Strabane Township.

While the U.S. Census Bureau estimated that Washington County experienced an overall increase in population from 2000 to 2010, the Hospital’s primary and secondary service area population also experienced a population increase. The primary service area population increased by 1.49%, from 133,379 to 135,391, and the secondary service area population increased by 6.68%, from 57,039 to 61,124.

Employment Washington County has enjoyed an increase in employment within government, wholesale/retail trade, and service industries. What has given manufacturing its latest boost in Washington County is the oil and gas industry. The introduction of the Marcellus shale industry has had a positive impact on employment in the region.

Unemployment The following table shows unemployment rates for the Commonwealth of Pennsylvania and Washington County.

2011 2012 % Change Pennsylvania 7.5% 7.5% 0.0% Washington County 6.6% 6.7% 0.1% Source: Pennsylvania Department of Labor and Industry as of September 2012.

Business and Industry Major national and international businesses have moved in, hiring mostly from the local labor market. Washington County, Pennsylvania, has emerged as one of the fastest growing regions in the country as measured by job creation, largely because of billions of dollars the oil and natural gas industries pumped in.

Washington County sits in the lucrative window of the Marcellus shale, a huge repository of natural gas trapped in rock deep below Pennsylvania, West Virginia and New York. While much of the shale play to the east holds trillions of cubic feet of natural dry gas, Washington County is the heart of its wet gas reservoir that produces more profitable natural gas liquids such as ethane, butane and propane.

Since energy companies descended on southwestern Pennsylvania the economy of the region has been transformed. In 2011 Washington County enjoyed a 4.3% increase in employment growth, the third-highest in the country, according to the U.S. Bureau of Labor Statistics. In 2011, more than 750 of the 1,650 new jobs were created in the natural resources and mining industries and the average weekly wage rose 8.8%.

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Total home sales also climbed in January 2012 by 23 units, while sales volume of existing homes grew by $2.67 million compared to January 2011.

Washington County has had a significant influx of employees of larger energy companies who have migrated from Texas and Louisiana for extended periods of time – some permanently. More than 50 companies related to the energy industry have set up regional offices or headquarters in Washington County – a large concentration of them at the Southpointe business park just outside Canonsburg.

Companies such as Range Resources, Exxon Mobile, EQT, Chesapeake Energy Corp., and Consol Energy have all expanded or relocated major offices in Washington County.

Transportation Washington County has 2,821 miles of highway. Interstates 70 and 79 which intersect just outside the City of Washington, account for 64 of those miles, providing vital links to the Pennsylvania Turnpike, the cities of Erie, Pittsburgh and Morgantown, and points to the west. Route 22, traversing the northwestern sector of Washington County, also acts as an important connection with the Pittsburgh International Airport, the city of Pittsburgh, and cities in West Virginia and Ohio.

The Mon/Fayette Expressway, joining I-70 with Route 40, exposes the Monongahela Valley to I-70 and all of its vital connections. When completed, the expressway will be 65 miles long and will connect Pittsburgh, Morgantown and West Virginia.

Major Employers The following table identifies the top ten private employers in Washington County.

Employer Type of Business Employees The Washington Hospital Healthcare 1,754 CONSOL Energy, Inc. Mining 1,669 Meadows Racetrack & Casino Gaming 1,429 Monongahela Valley Hospital Healthcare 1,113 California University of Pennsylvania Higher Education 961 Canonsburg General Hospital Healthcare 510 Caterpillar Manufacturer of 500 Construction and Mining Equipment Alex Paris Contracting Construction 400 Washington & Jefferson College Higher Education 367 Black Box Corporation Technical Network Services 336 Source: Center for Workforce Information and Analysis & Employers 12/2011

Competition The Hospital competes within its total service area with Canonsburg General Hospital (a member of West Penn Allegheny Health System), St. Clair Hospital, Monongahela Valley Hospital, and Southwest Regional Medical Center (formerly Greene County Memorial Hospital). Tertiary hospitals in the City of Pittsburgh provide limited competition for certain services.

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The following table identifies the Hospital’s primary competitors, their location and their affiliation, if any.

Provider Location Affiliation Canonsburg General Hospital Canonsburg, PA West Penn Allegheny Health System Southwest Regional Medical Center Waynesburg, PA Independent Monongahela Valley Hospital Monongahela, PA Independent St. Clair Memorial Hospital Mt. Lebanon, PA Independent

The following table shows selected operating statistics for the Hospital and its primary competitors.

Discharges by Hospital – Acute Care Only

Distance Total Discharges from Staffed Provider Hospital Beds FY 2009 FY 2010 FY 2011 The Washington Hospital 260 15,801 16,112 15,687 Canonsburg General Hospital 7 miles 104 4,047 3,815 3,465 Monongahela Valley Hospital 18 miles 200 8,808 8,848 8,589 St. Clair Memorial Hospital 18 miles 315 15,669 16,008 16,678 Southwest Regional Hospital 20 miles 77 3,065 3,125 3,309 Source: PA Department of Health, Bureau of Health Statistics & Research June 30, 2011

Market Share of Inpatient Admissions by Provider within the Hospital’s Primary Service Area

Hospital FY 2009 FY 2010 FY 2011 FY 2012 (9mns) The Washington Hospital 54.60% 55.30% 55.57% 58.71% Pittsburgh Tertiary Hospitals 5.74% 5.90% 6.31% 6.59% UPMC Presbyterian/Shadyside Allegheny General Hospital 4.29% 3.90% 3.93% 4.45% Canonsburg General Hospital 13.70% 12.80% 11.36% 12.04% St. Clair Memorial Hospital 6.72% 6.70% 7.06% 7.94% Monongahela Valley Hospital 1.96% 1.90% 2.03% 1.88% Southwest Regional Hospital 0.20% 0.24% 0.61% 0.70% Other 12.79% 13.26% 13.13% 7.69% Total 100.00% 100.00% 100.00% 100.00% Source: Health Care Market Analysis System / Pennsylvania Health Care Cost Containment Council

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UTILIZATION

The following table identifies the Hospital’s selected inpatient and outpatient utilization statistics for the fiscal years ended June 30, 2010, 2011, and 2012 as well as for the five-month periods ended November 30, 2011 and November 30, 2012.

5 Months Ended Fiscal Year Ended June 30, November 30, 2010 2011 2012 2011 2012 Patient Admissions 16,103 15,687 14,795 6,328 5,678 Patient Days 66,218 63,997 57,912 24,866 22,288 Average Length of Stay 4.11 4.08 3.91 3.93 3.93 Observation Cases 2,813 3,517 3,244 1,247 1,401 Occupancy 68% 66% 60% 63% 56% Licensed Beds 260 260 260 260 260 Full Time Equivalents 1,767 1,724 1,711 1,718 1,650 FTEs per Adjusted Day 5.3 5.1 5.0 5.0 4.9 Births/Deliveries 1,112 1,008 1,018 450 439 Open Heart Surgeries 215 196 150 73 49 Cardiac Catheterizations 5,614 5,415 5,029 2,149 1,962 Outpatient Visits 668,851 664,197 671,716 284,416 276,578 Endoscopies 5,404 3,740 3,624 1,475 1,430 Lab Procedures 863,278 842,485 851,230 351,776 350,603 X-ray Procedures – Outpatient 126,125 125,523 130,810 54,248 54,951 Emergency Room Visits 43,595 47,618 48,593 20,228 20,139 Medicare Case Mix Index 1.55 1.58 1.56 1.55 1.60 Source: Hospital records

FINANCIAL PERFORMANCE

Below is a summary statement of operations and selected balance sheet information for the Hospital for each of the fiscal years in the three-year period ended June 30, 2012, and for the five-month periods ended November 30, 2011 and November 30, 2012. The summary information for the fiscal years ended June 30, 2010, 2011 and 2012 was derived from the audited consolidated financial statements prepared for Washington Health Care Services, Inc. and affiliates. The following summaries should be read in conjunction with the audited consolidated financial statements, related notes and supplementary information for fiscal years ended June 30, 2011 and 2012 provided in Appendix B to the Official Statement. The summary information for the five-month periods ended November 30, 2011 and November 30, 2012 was derived from unaudited financial statements prepared by the management of the Hospital. The unaudited statements include all adjustments, consisting of normal recurring accruals, which management considers necessary for a fair presentation of the results of operations for those periods. Operating results for the five-month period ended November 30, 2012 are not necessarily indicative of the results that may be expected for the entire fiscal year.

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The Hospital will be the only corporation obligated to make payments on the 2013A Bonds and the other outstanding parity debt. In accordance with the accounting literature, the Hospital recognizes its interest in the Foundation's assets; however, the Foundation assets are not available to make payments on the 2013A Bonds or the other outstanding parity debt. During fiscal year June 30, 2012, the Hospital accounted for approximately 87% of the total unrestricted revenues, gains, and other revenue of Washington Health Care Services, Inc. and affiliates. As of fiscal year ended June 30, 2012, the Hospital (excluding the Hospital's interests in the Foundation assets) accounted for approximately 92% of the total assets of Washington Health Care Services, Inc. and affiliates.

The Washington Hospital Summary Statement of Operations (Unaudited)

Fiscal Year Ended Five-Month Period Ended June 30, November 30, 2010 2011 2012 2011 2012 Unrestricted revenues, gains, and other revenue: Net patient service revenue $225,680,289 $229,144,974 $227,007,437 $91,671,607 $91,932,536 Provision for bad debts(1) 9,642,153 10,521,479 11,698,632 4,166,665 4,888,890 Net patient service revenue after bad debt 216,038,136 218,623,495 215,308,805 87,504,942 87,043,646

Other operating revenue 12,130,432 14,889,198 20,519,090 7,584,173 6,345,517 Earnings in equity investments 2,604,479 2,220,795 922,916 385,538 318,634 Net assets released from restrictions used for operations 1,007,623 788,208 886,625 185,142 254,896 Total unrestricted revenues, gains, and other revenues 231,780,670 236,521,696 237,637,436 95,659,795 93,962,693 Operating Expenses: Other expenses 206,745,896 203,766,217 212,150,868 86,362,170 85,770,129 Interest expense 2,758,158 2,417,731 2,180,485 908,622 926,511 Depreciation and amortization 15,427,402 15,198,479 14,863,167 6,031,443 6,320,832 Total Expenses 224,931,456 221,382,427 229,194,520 93,302,235 93,017,472 Gain from operations 6,849,214 15,139,269 8,442,916 2,357,560 945,221 Non-operating gains (losses), net 4,311,698 10,469,326 (2,421,506) (5,252,624) 3,271,269 Excess (deficiency) of revenues over expenses $11,160,912 $25,608,595 $6,021,410 $(2,895,064) $4,216,490

(1) The Hospital adopted on July 1, 2012 Accounting Standard Update (ASU) 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities, which requires the reclassification of the provision for bad debts from an operating expense to a deduction from patient service revenue. All prior periods were reclassified to conform with the new guidance.

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The Washington Hospital Summary Balance Sheets (Unaudited)

Fiscal Year Ended Five-Month Period Ended June 30, November 30, 2010 2011 2012 2011 2012 Assets: Cash and short-term investments $ 18,412,033 $ 19,394,287 $ 24,514,639 $ 16,251,227 $ 10,004,956 Patient and other accounts receivable, net 19,994,234 31,207,166 22,758,604 23,422,877 28,580,452 Other current assets 9,194,046 7,649,175 8,370,030 7,480,954 6,450,463 Total current assets 47,600,313 58,250,628 55,643,273 47,155,058 45,035,871 Trusteed assets 5,082,841 5,590,827 5,022,505 4,836,804 4,553,690 Funded depreciation assets 64,810,535 74,248,748 83,420,066 79,886,894 86,781,560 Funds held by The Washington Hospital Foundation 13,364,247 14,467,982 14,631,391 14,500,772 15,749,167 Property and equipment, net 142,467,055 132,336,478 130,616,373 130,541,575 129,164,518 Other long-term assets 14,130,921 16,336,957 14,787,433 18,022,815 14,235,800 Total Assets 287,455,912 301,231,620 304,121,041 294,943,918 295,520,606 Liabilities and net assets: Other current liabilities 38,870,930 40,391,324 50,201,097 40,757,013 45,606,809 Variable rate debt classified as current obligations(1) 15,105,000 14,205,000 13,265,000 13,265,000 0 Long-term obligations 82,396,982 78,220,307 75,431,442 73,681,225 83,533,170 Accrued pension costs 40,977,680 26,317,921 52,143,616 26,721,966 51,581,037 Other long-term liabilities 6,714,334 6,057,502 10,184,830 9,417,665 10,135,666 Total liabilities 184,064,926 165,192,054 201,225,985 163,842,869 190,856,682 Net assets, unrestricted 92,462,153 124,795,118 91,669,542 119,783,348 92,375,252 Net assets, temporarily restricted 2,412,668 1,899,128 1,753,338 2,224,938 2,425,005 Net assets, permanently restricted 8,516,165 9,345,320 9,472,176 9,092,763 9,863,667 Total liabilities and net assets $287,455,912 $301,231,620 $304,121,041 $294,943,918 $295,520,606

(1) Balance of $12,325,000 classified as long-term debt effective July 1, 2012 in accordance with the amended Reimbursement Agreement relating to the letter of credit securing the 2008A Bonds.

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Sources of Revenue Payments to the Hospital are made on behalf of certain patients by third-party payors including federal and state governments under the Medicare and Medicaid programs, commercial indemnity insurance providers, and managed care providers.

The percentage distribution of the Hospital’s total gross patient service revenue by source of payment for each fiscal year in the three-year period ended June 30, 2012, and for the five-month period ended November 30, 2012 is set forth in the following table.

Percentage of Total Gross Revenues by Payor Categories

Fiscal Year Ended June 30, Five Months Ended 2010 2011 2012 11/30/2012 Medicare 19% 20% 18% 19% Medicaid 1% 1% 1% 1% BC & Commercial Indemnity 4% 4% 4% 2% Managed Care – Medicare 30% 30% 30% 30% Managed Care - Medicaid 11% 11% 12% 11% Blue Cross Managed 19% 18% 19% 20% Managed Care – Other 11% 11% 11% 11% Self-Pay 3% 3% 3% 4% Other 2% 2% 2% 2% 100% 100% 100% 100% Source: Hospital records

Reimbursement from Third Parties The Hospital maintains contracts with all major insurers and managed care companies in the service area including Highmark Blue Cross Blue Shield ("Highmark") and UPMC Health Plan as well as the federal and state insurers, Medicare and Medicaid. Highmark is the dominant non-governmental insurer in western Pennsylvania. The major health service products offered by Highmark include traditional Blue Cross indemnity coverage, Keystone HMO, Select Blue Point of Service, and Security Blue Medicare Choice HMO. Highmark’s inpatient reimbursement relationships with the Hospital are diagnosis-related group (DRG)-based. Outpatient reimbursement is based on pre- established fee schedules. Other managed care companies reimburse the Hospital for inpatient charges primarily on a per case basis, while most outpatient services are reimbursed according to negotiated fee schedules.

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MANAGEMENT’S DISCUSSION

Fiscal Year 2010 In fiscal year 2010 the Hospital’s gain from operations was $6.8 million, yielding a 2.9% operating margin compared to a budget of $0.4 million (0.2% margin). Improved inpatient and outpatient volumes were the major contributor to the operating results. Despite the improved volumes, operating expenses were held under budget. Fiscal year 2010 was a positive year for investments. These positive returns account for the majority of the non- operating gains. Total income for fiscal year 2010 was $11.2 million (4.8% total margin) versus a budget of $2.4 million (1.0% total margin). The positive performance during fiscal year 2010 further strengthened the Hospital’s Balance Sheet, increasing days cash on hand and improving financial ratios and debt covenants.

Fiscal Year 2011 The Hospital’s gain from operations in fiscal year 2011 was $15.1 million, a 6.4% operating margin compared to a budget of $2.4 million (1.0% margin). During fiscal year 2011, the Commonwealth of Pennsylvania implemented a three-year Medicaid tax assessment program. Under this program, the tax assessment improved the Federal subsidization of the Medicaid program which in turn improved Medicaid payments to hospitals. This program accounted for approximately $8.9 million of the operating results for the year. Due to the timing of the program development, it was not included in the budget for fiscal year 2011. Revenues were on budget for the year while expenses were held under budget resulting in very favorable operating results for the year. Non-operating revenues were very positive due to strong investment returns. The total income for fiscal year 2011 was $25.6 million (10.8% total margin) compared to a budget of $5.3 million (2.2% total margin).

Fiscal Year 2012 The Hospital’s operating gain for fiscal year 2012 was $8.4 million (3.5% operating margin) compared to a budget of $8.6 million (3.5%) operating margin. These operating results include the Medicaid program payments described above (approximately $9 million). There was an additional assessment of $4.8 million in malpractice expense in fiscal year 2012. The Hospital has participated in a risk retention group for malpractice coverage since August 2004. Premiums are held low until development of cases warrants an assessment. The Hospital experienced its first significant assessment in fiscal year 2012. Non-operating results for fiscal year 2012 were not as strong as fiscal years 2010 and 2011 due to weaker investment performance. Total income for the fiscal year was $6.0 million (2.5% total margin) versus a budget of $11.4 million (4.6% total margin). Despite under-performing the budget, the Hospital maintained a strong cash position and debt covenants.

The Hospital has invested significant resources over the past 5 years to upgrade the clinical computer system in order to prepare for information exchange and physician order entry. All efforts are being made to meet the meaningful use standards published by Medicare. During fiscal year 2012, the Hospital attested to Stage 1 Meaningful Use and received $3.2 million from the Medicare program. The Hospital is actively working on meeting the Stage 2 requirements during fiscal year 2014.

Fiscal Year 2013 – Interim period For the five months ended November 30, 2012, the Hospital’s operating gain was $945,000 (1.0% operating margin) compared to a budget of $2 million (2.1% operating margin). Inpatient volumes have lagged budget by 11%; outpatient volumes are 1% under budget for the five-month period. Despite the large variance in volume, the Hospital has successfully managed operating expenses to keep the operating result variance to a minimum. Total margin is $4.2 million (4.5% total margin) compared to a budget of $3.3 million (3.3%). This positive variance is due to favorable returns on the investment portfolio. The Hospital’s cash position and debt covenants continue to be strong.

Investment Policy The Hospital retains an investment advisor to assist the Finance Committee of the Board of Trustees ("Finance Committee") and Hospital management in managing Hospital investments. The investment advisor provides advice and recommendations on investment policies, investment allocations, manager selection and manager performance. The Finance Committee approves all changes to investment policies, allocation percentages and manager selections. The Finance Committee meets at least quarterly with the investment advisor to review investment performance, benchmarks, allocations and other relevant data.

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The target allocation and actual June 30, 2012 allocation of investments are as follows:

Target Range June 30, 2012 EQUITIES Large Cap 15% - 25% 24% Mid Cap 5% - 10% 5% Small Cap 5% - 10% 5% International 10% - 20% 12% TOTAL EQUITIES 40% - 60% 46% ALTERNATIVES 0% - 15% 7% FIXED INCOME Short Bond 30% - 50% 29% Core Fixed Income 10% - 30% 19% TOTAL FIXED INCOME 40% - 60% 47%

Long-Term Debt The following table details the outstanding long-term debt of the Hospital as of June 30, 2010, 2011 and 2012 and November 30, 2012. The amounts as of and for fiscal years ended 2010, 2011 and 2012 were derived from the audited financial statements included in Appendix B of this Official Statement. Values as of and for the five months ended November 30, 2012 were derived from the unaudited financial statements of the Hospital. The amounts are shown in 000’s and include any premium or discount. June 30, November Credit 30, Enhancement/ LOC Stated 2010 2011 2012 2012 Letter of Credit Expiration Date Fixed Rate Debt 1998(1) $19,670 $18,859 $18,001 $17,083 Ambac n/a 2001A 16,626 14,843 13,305 11,363 Ambac n/a Variable Rate Debt 2001B(2) 8,560 8,335 8,100 7,855 PNC Bank July 15, 2014 2007A(2) 15,000 14,695 14,375 14,045 PNC Bank January 15, 2015 2007B(3) 25,000 24,485 23,950 23,395 PNC Bank January 15, 2015 2008A(3) 15,898 15,039 14,145 13,207 PNC Bank July 15, 2014 Other Debt 1,873 797 1,825 1,750 n/a n/a Subtotal LT Debt 102,627 97,053 93,701 88,698 Less: Current portion - 5,125 - 4,628 - 5,005 - 5,165 Total Long-Term Debt $97,502 $92,425 $88,696 $83,533 (1) The outstanding principal amount of the 1998 Bonds are expected to be refunded by the 2013A Bonds. (2) The interest rate mode for the 2001B Bonds and 2007A Bonds is currently the one-year Term Rate. The Hospital may convert the interest rate mode pursuant to the term of the Bond Indenture. (3) The interest rate mode for the 2007B Bonds and 2008A Bonds is currently the Weekly Rate. The Hospital may convert the interest rate mode pursuant to the terms of the Bond Indenture. The Hospital entered into interest rate swap agreements related to the 2007B Bonds and 2008A Bonds, which are more fully described in Appendix B.

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Historical Liquidity The following table sets forth the historical days cash on hand as of June 30, 2010, 2011 and 2012 and as of November 30, 2012 for the Hospital. The amounts are shown in 000’s.

June 30, November 30, 2010 2011 2012 2012 Cash and short-term investments $18,412 $19,394 $24,514 $10,005 Funded depreciation assets 64,810 74,249 83,420 86,782

Unrestricted Cash and Investments $83,222 $93,643 $107,934 $96,787 Cash Expenses per day (1) $552 $565 $586 $565 Days Cash on Hand Ratio (2) 151 166 184 171

(1) Total Hospital expenses less depreciation, amortization and expenses of certain consolidated entities divided by the number of days in applicable period.

(2) Equals Unrestricted Cash and Investments divided by Cash Expenses per day rounded to the nearest day.

Historical Long-Term Capitalization The following table sets forth the historical capitalization and long-term debt-to-capitalization ratio as of June 30, 2010, 2011 and 2012 and as of November 30, 2012 for the Hospital. The amounts are shown in 000’s and include any premium or discount.

June 30, November 30, 2010 2011 2012 2012 Total Long-Term Debt(1) $102,627 $97,053 $93,701 $88,698 Unrestricted Net Assets $92,462 $124,795 $91,670 $92,375 Total Capitalization $195,089 $221,848 $185,371 $181,073 Percent of Total Long-Term Debt 52.6% 43.8% 50.6% 49.0% to Total Capitalization (1) Includes variable rate debt classified as current obligations and current maturities of long-term debt.

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Historical Debt Service Coverage Ratio The following table sets forth the historical revenues available for debt service and maximum annual debt service payments for fiscal years 2010, 2011 and 2012 and as of November 30, 2012. The amounts are shown in 000’s and are calculated on a 12-month rolling basis as required by the Bond Indenture.

June 30, November 30, 2010 2011 2012 2012

Revenues Available for Debt Service (1) $28,129 $37,181 $28,881 $27,186 Maximum Annual Debt Service (2) $7,215 $7,215 $7,057 $7,034 Debt Service Coverage Ratio 3.90 5.15 4.09 3.86

(1) Revenues available for debt service = net income excluding swap transactions and gain(loss) on trading securities + amortization + depreciation + interest expense +/- realized gain (loss) on sale of investments.

(2) As required by the Bond Indenture, maximum annual debt service is calculated on July 1 of each year using interest rates in effect on the date of calculation.

INSURANCE

The Hospital maintains a comprehensive insurance program providing coverage in the areas of professional liability, commercial general liability, automobile liability, directors and officers, employer’s liability, non-owned aircraft, helipad insurance, pollution liability, worker’s compensation, excess worker’s compensation, fiduciary liability, property insurance, crime, kidnap and ransom, and excess insurance via an umbrella policy. Independent insurance representatives review the insurance program annually.

The Hospital maintains professional liability insurance in the amounts required by Pennsylvania law through Pace Risk Retention Group, Inc. an insurance group that provides both primary and excess coverage to the Hospital. In addition, the Hospital is covered by the Pennsylvania Medical Care Availability and Reduction of Error Fund (Mcare) as required by Pennsylvania law.

LITIGATION

To the Hospital’s knowledge, as of the date of this Official Statement, there is no malpractice or other litigation pending or threatened against the Hospital wherein an unfavorable decision would adversely affect the ability of the Hospital to carry out its obligations under the Bond Indenture or Loan Agreement, or would have a material adverse impact on the financial position or operations of the Hospital.

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APPENDIX B

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION OF WASHINGTON HEALTH CARE SERVICES, INC. AND AFFILIATES FOR THE FISCAL YEARS ENDED JUNE 30, 2012 AND 2011 WITH REPORT OF INDEPENDENT AUDITORS

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C ONSOLIDATED F INANCIAL S TATEMENTS AND S UPPLEMENTARY I NFORMATION

Washington Health Care Services, Inc. and Affiliates Years Ended June 30, 2012 and 2011 With Report of Independent Auditors

Ernst & Young LLP

Washington Health Care Services, Inc. and Affiliates

Consolidated Financial Statements and Supplementary Information

Years Ended June 30, 2012 and 2011

Contents

Report of Independent Auditors...... 1

Consolidated Financial Statements

Consolidated Balance Sheets ...... 2 Consolidated Statements of Operations and Changes in Unrestricted Net Assets ...... 4 Consolidated Statements of Changes in Net Assets ...... 5 Consolidated Statements of Cash Flows ...... 6 Notes to Consolidated Financial Statements ...... 7

Supplementary Information

Report of Independent Auditors on Supplementary Information ...... 45

Details of Consolidation – Balance Sheets ...... 46 Details of Consolidation – Statements of Operations ...... 50

Ernst & Young LLP 2100 One PPG Place Pittsburgh, PA 15222

Tel: +1 412 644 7800 Fax: +1 412 644 0477 www.ey.com

Report of Independent Auditors

The Board of Trustees Washington Health Care Services, Inc. Washington, Pennsylvania

We have audited the accompanying consolidated balance sheets of Washington Health Care Services, Inc. (the Parent) and affiliates as of June 30, 2012 and 2011, and the related consolidated statements of operations and changes in unrestricted net assets, changes in net assets, and cash flows for the years then ended. These financial statements are the responsibility of the Parent’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Parent’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Parent’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Washington Health Care Services, Inc. and affiliates at June 30, 2012 and 2011, and the consolidated results of their operations, changes in net assets, and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. ey October 15, 2012, except for Note 15, as to which the date is January 16, 2013

1

A member firm of Ernst & Young Global Limited Washington Health Care Services, Inc. and Affiliates

Consolidated Balance Sheets

June 30 2012 2011 Assets Current assets: Cash and cash equivalents $ 26,425,263 $ 20,295,368 Short-term investments 287,465 286,337 Patient and other accounts receivable, less allowance for doubtful accounts of approximately $7,957,000 in 2012 and $7,266,000 in 2011 25,697,287 34,273,499 Inventories 1,477,421 1,267,087 Prepaid insurance and other assets 2,153,060 2,633,005 Current portion of assets whose use is limited 5,343,889 4,321,322 Total current assets 61,384,385 63,076,618

Assets whose use is limited 102,633,008 93,750,472

Property, plant, and equipment: Land and land improvements 8,375,709 8,159,564 Buildings 153,581,208 147,872,585 Equipment 119,300,947 115,679,454 Construction-in-progress 108,969 829,071 281,366,833 272,540,674 Less allowance for depreciation and amortization 146,549,043 135,674,186 134,817,790 136,866,488

Other long-term assets: Pledges receivable 49,825 360,629 Deferred bond issuance costs, net 892,701 1,006,584 Investments in affiliates and related notes receivable 13,290,217 12,183,696 Goodwill, net 925,928 925,928 Other long-term assets 284,425 370,870 15,443,096 14,847,707 Total assets $ 314,278,279 $ 308,541,285

2

June 30 2012 2011 Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ 15,819,333 $ 8,786,942 Accrued salaries, wages, and related benefits 14,455,937 13,815,845 Employer insurance reserves 3,424,390 4,353,058 Due to third-party payors 14,662,936 11,517,418 Accrued interest payable 878,430 965,560 Current portion of long-term obligations 5,025,021 4,645,784 Variable rate debt classified as current obligations 13,265,000 14,205,000 Total current liabilities 67,531,047 58,289,607

Long-term obligations 76,071,559 78,879,407 Postretirement benefit obligations 2,486,511 1,810,876 Accrued pension costs 52,143,616 26,317,921 Other long-term liabilities 7,698,319 4,246,626 Total liabilities 205,931,052 169,544,437

Net assets: Unrestricted 97,121,713 127,752,400 Temporarily restricted 1,753,338 1,899,128 Permanently restricted 9,472,176 9,345,320 108,347,227 138,996,848

Total liabilities and net assets $ 314,278,279 $ 308,541,285

See accompanying notes.

3 Washington Health Care Services, Inc. and Affiliates

Consolidated Statements of Operations and Changes in Unrestricted Net Assets

Year Ended June 30 2012 2011 Unrestricted revenues, gains, and other revenue Net patient service revenue $ 262,196,971 $ 263,008,963 Other operating revenue 20,337,248 14,399,872 Earnings in equity investments 922,916 1,919,068 Net assets released from restrictions used for operations 886,625 788,208 Total unrestricted revenues, gains, and other revenue 284,343,760 280,116,111

Expenses Administrative services 42,369,193 35,820,310 Employee benefits 28,947,691 28,251,894 General services 14,308,850 13,965,666 Nursing services 32,148,799 32,543,369 Ancillary services 73,483,377 73,592,830 Outpatient services 53,844,020 49,873,165 Other services 2,581,600 2,627,083 Medical Assistance modernization tax 3,720,000 3,282,098 Interest expense 2,233,279 2,468,220 Depreciation and amortization 15,695,328 15,836,993 Provision for bad debts 11,944,487 10,682,865 Total expenses 281,276,624 268,944,493

Gain from operations 3,067,136 11,171,618 Nonoperating (losses) gains, net (2,328,845) 10,519,439 Excess of revenues over expenses 738,291 21,691,057

Other changes in unrestricted net assets Net unrealized (depreciation) appreciation on other-than-trading investments (88,551) 528,097 Net assets released from restrictions used for purchase of property and equipment 1,135,721 2,612,373 Pension and postretirement benefit liability adjustments (32,416,148) 10,567,325 (Decrease) increase in unrestricted net assets $ (30,630,687) $ 35,398,852

See accompanying notes.

4 Washington Health Care Services, Inc. and Affiliates

Consolidated Statements of Changes in Net Assets

Temporarily Permanently Unrestricted Restricted Restricted Total

Balance at June 30, 2010 $ 92,353,548 $ 2,412,668 $ 8,516,165 $ 103,282,381 Excess of revenues over expenses 21,691,057 – – 21,691,057 Restricted contributions, net of allowance for doubtful accounts – 3,082,503 – 3,082,503 Net appreciation (depreciation) on other-than-trading investments, including change in value of charitable remainder trust 528,097 (19,462) 829,155 1,337,790 Net assets released from restrictions for operations – (964,208) – (964,208) Net assets released from restrictions used for purchase of property and equipment 2,612,373 (2,612,373) – – Pension liability adjustments 10,567,325 – – 10,567,325 Increase (decrease) in net assets 35,398,852 (513,540) 829,155 35,714,467 Balance at June 30, 2011 127,752,400 1,899,128 9,345,320 138,996,848 Excess of revenues over expenses 738,291 – – 738,291 Restricted contributions, net of allowance for doubtful accounts – 1,876,540 – 1,876,540 Net depreciation on other-than-trading investments, including change in value of charitable remainder trust (88,551) 16 126,856 38,321 Net assets released from restrictions for operations – (886,625) – (886,625) Net assets released from restrictions used for purchase of property and equipment 1,135,721 (1,135,721) – – Pension liability adjustments (32,416,148) – – (32,416,148) Decrease in net assets (30,630,687) (145,790) 126,856 (30,649,621) Balance at June 30, 2012 $ 97,121,713 $ 1,753,338 $ 9,472,176 $ 108,347,227

See accompanying notes.

5 Washington Health Care Services, Inc. and Affiliates

Consolidated Statements of Cash Flows

Year Ended June 30 2012 2011 Operating activities and nonoperating gains (Decrease) increase in net assets $ (30,649,621) $ 35,714,467 Adjustments to reconcile increase (decrease) in net assets to net cash provided by operating activities and nonoperating gains: Depreciation and amortization 15,695,328 15,836,993 Net loss on interest rate swap arrangements 3,451,693 (718,302) Provision for bad debts 11,944,487 10,682,865 Undistributed earnings in equity investments (1,694,745) (2,487,793) Net depreciation (appreciation) on other-than-trading investments, including change in value of charitable remainder trust 566,387 (1,337,790) Unrealized loss (gain) on trading investments 1,252,143 (7,143,509) Gain on sales of property, plant and equipment – (529,091) Restricted contributions (1,876,540) (1,493,067) Changes in operating assets and liabilities: Accounts receivable, net (3,368,275) (24,262,466) Due to third-party payors 3,145,518 2,627,403 Accrued pension costs, including change in net assets 25,825,695 (14,659,759) Other current assets 580,415 781,003 Other liabilities 7,332,320 1,007,437 Net cash provided by operating activities and nonoperating gains 32,204,805 14,018,391

Investing activities Purchases of property, plant, and equipment (11,782,747) (9,374,319) Proceeds on sales of property, plant and equipment – 1,250,000 Proceeds from sales of investments 11,722,850 40,386,830 Purchases of investments (23,447,611) (42,743,319) Principal payments received on notes receivable 588,224 563,777 Other decreases 86,445 37,590 Net cash used in investing activities (22,832,839) (9,879,441)

Financing activities Restricted contributions 1,876,540 1,493,067 Payments on long-term and variable rate debt obligations (5,118,611) (4,896,517) Net cash used in financing activities (3,242,071) (3,403,450)

Increase in cash and cash equivalents 6,129,895 735,500 Cash and cash equivalents at beginning of year 20,295,368 19,559,868 Cash and cash equivalents at end of year $ 26,425,263 $ 20,295,368

Supplemental disclosure of noncash activity Assets acquired through capital leases $ 1,750,000 $ –

See accompanying notes.

6 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements

June 30, 2012

1. Organization and Operations

Washington Health Care Services, Inc. (the Parent) is the parent organization of The Washington Hospital (the Hospital), The Washington Hospital Foundation (the Foundation), and The Washington Physician Services Organization d/b/a Washington Physicians Group (WPG). The WPG has two wholly owned subsidiaries, Phoenix-Washington, Inc. and Health Futures, Inc. The Parent, the Hospital, and the Foundation are tax-exempt organizations as described in Section 501(c)(3) of the Internal Revenue Code and, thus, are exempt from federal income taxes on related income pursuant to Section 501(a). WPG, Health Futures, Inc., and Phoenix- Washington, Inc. are taxable corporations.

The Hospital provides inpatient, outpatient, hospice, and emergency care services for residents primarily in Washington, Pennsylvania, and surrounding communities. Health Futures, Inc. operated an urgent care center until December 31, 2011. WPG operates several physician practices for the purpose of furthering the health care of the local community and to support the Hospital. Phoenix-Washington, Inc., doing business as Greenbriar Treatment Center (GTC), operates a chemical dependency treatment center.

All intercompany balances and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Reclassifications

Certain prior-year amounts have been reclassified to conform to the current-year presentation, which had no impact on previously reported excess of revenues over expenses or net assets.

Restructuring

Effective January 1, 2012, the Hospital distributed, for no consideration, its 100% interest in GTC to the Parent who then contributed the 100% interest in GTC to WPG for no consideration. In addition, the Parent contributed Health Futures, Inc. to WPG for no consideration. Following the above transactions, the Parent continued to be the sole member of WPG and WPG owns 100% of the stock of both GTC and Health Futures, Inc. These transactions represented the transfer of businesses between entities under common control and were accordingly recorded on a carryover basis on the respective subsidiary financial statements with no gain or loss being recognized. These transactions had no effect on the consolidated financial statements of the Parent. The GTC transaction resulted in a change in reporting entity and accordingly the fiscal

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

2012 balance sheets and results of operations of the Hospital and WPG reflect the transfer of GTC as though the transfer occurred as of the beginning of fiscal 2012 with retrospective adjustment of the prior fiscal year comparative amounts for purposes of the accompanying details of consolidation – balance sheets and statements of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents and Short-Term Investments

Cash and cash equivalents consist of all highly liquid investments with maturities of three months or less when purchased. Short-term investments consist of highly liquid investments with maturities greater than three months and less than one year.

Investments

Investments are recorded at fair value. Realized gains and losses are determined using the average cost method. Investment income from funded depreciation and trusteed assets is included in nonoperating gains, and all other investment income is included in other operating revenue in the consolidated statements of operations and changes in unrestricted net assets.

All investments, with the exception of funds held by the Foundation, are accounted for as trading securities and all realized and unrealized gains and losses related to these investments are included in nonoperating gains, net for all periods reported. Funds held by the Foundation are accounted for as other-than-trading investments and unrealized gains and losses are included in net assets unless there are unrealized losses that are considered to be other-than-temporary.

Management reviews other-than-trading investments for impairment conditions that indicate that an other-than-temporary decline in market value has occurred. In conducting these reviews, numerous factors are considered which indicate that a decline was other-than-temporary and that a reduction of the carrying value is required. These factors include specific information pertaining to an individual company or a particular industry and general market conditions that reflect prospects for the economy as a whole. Based on this review, no other-than-temporary losses were recorded in fiscal years 2012 and 2011.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Fair Value Measurements

Fair value measurements are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Authoritative guidance provides an option to elect fair value as an alternative measurement for selected financial assets and liabilities not previously recorded at fair value. The Parent did not elect fair value accounting for any assets or liabilities that are not currently required to be measured at fair value.

The framework for measuring fair value is comprised of a three-level hierarchy based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Derivatives

The Hospital uses derivatives to modify the interest rates and manage risks associated with its outstanding debt. The Hospital records derivative financial instruments, such as interest rate swaps, as assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. The Hospital has entered into interest rate swap agreements to convert a

9 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued) portion of variable rate debt to a fixed interest rate. These agreements do not meet the criteria of a hedge and, accordingly, are recorded at fair value with changes in the fair value included in nonoperating gains (losses).

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost for assets purchased and at fair market value for donated assets. Major renewals and improvements are capitalized in the property accounts while maintenance and repairs are charged to operations. Depreciation, including amortization of assets recorded under capital leases, is computed on the straight-line method over the estimated useful lives of depreciable assets. The useful lives range from 20 to 40 years for buildings and 3 to 15 years for equipment. Interest cost related to construction projects, net of interest earned on borrowed funds for construction of related assets, is capitalized as a component of the cost of acquiring these assets.

Deferred Bond Issuance Costs

Deferred bond issuance costs are amortized over the lives of the bonds using the bonds outstanding method, which approximates the effective interest rate method. Accumulated amortization amounted to $1,728,365 and $1,614,482 at June 30, 2012 and 2011, respectively.

Equity Investments

Equity investments represent the Hospital’s ownership in related entities, which are primarily accounted for using the equity method of accounting.

Temporarily and Permanently Restricted Net Assets

Net assets are classified for reporting purposes into three net asset categories as temporarily restricted, permanently restricted, and unrestricted net assets according to the existence or absence of donor-imposed restrictions.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Temporarily restricted net assets are those whose use has been limited by donors to a specific time period or purpose, primarily for capital expenditures. Permanently restricted net assets have been restricted by donors to be maintained in perpetuity. Income from permanently restricted net assets, representing interest and dividend earnings, is unrestricted and included in nonoperating gains.

Net Patient Service Revenue and Accounts Receivable

Revenues from patient services are recognized in the period in which the services are provided.

Revenue is recorded based on agreements with third-party payors that provide for payments at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge, fee schedules, and discounted charges. 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.

Management performs an evaluation of the collectibility of revenues from patients based upon an assessment of historical and expected net collections and records an allowance for bad debts based on the probability of collection.

The majority of services are rendered to patients under Highmark Blue Cross/Blue Shield (Highmark), Medicare, and Medical Assistance (Medicaid) programs. Revenue from the Highmark, Medicare, and Medicaid programs accounted for approximately 25%, 42%, and 13%, and 24%, 43%, and 13%, respectively, of the Hospital’s net patient service revenue for the years ended June 30, 2012 and 2011. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. Net patient service revenue increased approximately $310,000 and $170,000 in 2012 and 2011, respectively, due to changes in estimates as a result of final settlements.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

The Parent believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs.

Significant concentrations of patient accounts receivable include Highmark (18%), Medicare (33%), and Medical Assistance (10%) at June 30, 2012, and Highmark (18%), Medicare (35%), and Medical Assistance (10%) at June 30, 2011, respectively.

Charity Care and Other Uncompensated Services

Patient services are rendered to all patients regardless of their ability to pay. It is recognized that some patients treated will not be able to pay for the services they receive, and it is with these patients in mind that a charity care policy has been established. This policy includes providing services to patients who meet certain eligibility guidelines as well as providing below-cost services to Medical Assistance patients. Charity care, calculated at cost using the Hospital’s overall cost to charge ratio, was $993,000 and $962,000 at June 30, 2012 and 2011, respectively. The difference between costs and payments received for Medical Assistance patients was approximately $5,341,000 and $3,075,000 at June 30, 2012 and 2011, respectively.

Excess of Revenues Over Expenses

The consolidated statements of operations and changes in unrestricted net assets includes excess of revenues over expenses. Changes in unrestricted net assets that are excluded from excess of revenues over expenses, consistent with industry practice, include unrealized appreciation/ depreciation on other-than-trading investments, contributions of long-lived assets (including assets acquired using contributions that by donor restriction were to be used for the purposes of acquiring such assets), and pension and postretirement liability adjustments.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Electronic Health Record Incentive Program

The Centers for Medicare & Medicaid Services (CMS) have implemented provisions of the American Recovery and Reinvestment Act of 2009 that provide incentive payments for the meaningful use of certified electronic health record (EHR) technology. CMS has defined meaningful use as meeting certain objectives and clinical quality measures based on current and updated technology capabilities over predetermined reporting periods as established by CMS. The Medicare EHR incentive program provides annual incentive payments to eligible professionals, eligible hospitals, and critical access hospitals, as defined, that are meaningful users of certified EHR technology. The Medicaid EHR incentive program provides annual incentive payments to eligible professionals and hospitals for efforts to adopt, implement, and meaningfully use certified EHR technology.

The Hospital utilizes a gain contingency model to recognize EHR incentive revenues. The Hospital records EHR incentive revenue when Hospital has met the meaningful use objectives for the required reporting period. The EHR reporting period for hospitals is based on the federal fiscal year, which runs from October 1 through September 30. The Hospital met the meaningful use objectives for the federal fiscal year ended September 30, 2011. In fiscal year 2012, the Hospital recorded EHR incentive revenue of $4,366,821, comprised of $3,143,560 of Medicare revenues and $1,223,261 of Medicaid revenues. EHR incentive revenues are included in other operating revenues in the accompanying consolidated statements of operations and changes in net assets. EHR incentive receivables from Medicare and Medicaid, which are included in other current assets, were $490,100 at June 30, 2012.

Donor-Restricted Gifts

Unconditional promises to give cash and other assets are reported as pledges receivable at fair value at the date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value at the date the gift is received. Gifts are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statements of operations and changes in unrestricted net assets as net assets released from restrictions. Donor- restricted contributions whose restrictions are met within the same year as received are reported as unrestricted contributions.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Employer Insurance Reserves

Employer insurance reserves include provisions for workers’ compensation and health insurance coverage for employees.

Prior to January 15, 1999, liabilities for workers’ compensation expenses were self-insured up to a maximum limit of $300,000 per occurrence. The Hospital had a supplemental catastrophic policy with an independent insurer to cover expenses incurred over this limit. Effective January 15, 1999, the Hospital terminated the self-insurance program and purchased claims- made insurance coverage. For claim years between January 15, 1999 and January 15, 2011, premium adjustments can be assessed if claim experience exceeds a certain threshold for each claim year. The Hospital paid retrospective payments of approximately $1,553,000 and $967,000 for the years ended June 30, 2012 and 2011, respectively. Management monitors claim activity and records estimates for premium adjustments in accordance with the policy requirements.

Coverage for health insurance is provided under an arrangement that is administered through a third-party administrator. The underlying expenses for health insurance are self-insured up to a maximum per case of $300,000. The Parent has a supplemental catastrophic policy with an independent insurer to cover expenses over this limit. Management records reserves for incurred but not reported claims.

New Accounting Pronouncements

In August 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2010-23 related to the measurement basis used in the disclosure of charity care. The standard requires that cost be used as the measurement basis for charity care disclosure, and the disclosure should include the direct and indirect costs of providing charity care. The standard also requires disclosure of the method used to identify or determine such costs. The standard became effective for fiscal years beginning after December 15, 2010, and should be applied retrospectively. The Parent adopted the provisions of this standard on July 1, 2011 and retrospectively applied the provisions to all periods presented.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

In August 2010, the FASB issued ASU 2010-24 on the accounting by healthcare entities for medical malpractice and similar liabilities and their related anticipated insurance recoveries. The standard clarifies that a healthcare entity should not net insurance recoveries against a related claim liability. Additionally, the amount of the claim liability should be determined without consideration of insurance recoveries. The standard became effective for interim and annual periods beginning after December 15, 2010. The Parent adopted the provisions of this standard on July 1, 2011. The adoption had no impact on the financial statements as the Parent does not currently net any expected insurance recoveries for malpractice or other similar liabilities.

In May 2011, the FASB issued ASU 2011-04 to amend the requirement for measuring and disclosing information about fair value that results in common principles between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The amendments clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and change particular principles and requirements for measuring or disclosing information about fair value. Principles changed include measuring fair value of financial instruments that are managed within a portfolio, application of premiums and discounts in the fair value measurement, and additional disclosures about fair value measurements. The standard will become effective for the Parent for annual reporting periods beginning after December 15, 2011. The Parent is currently evaluating the new guidance and will adopt the provisions as required upon the effective date.

In July 2011, the FASB issued new guidance, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts. The guidance requires certain health care entities to present the bad debt expense associated with patient service revenue as a deduction from patient service revenue (net of contractual allowances and discounts) rather than an operating expense. The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption permitted. Adoption of this ASU will not affect the Parent’s earnings but may affect certain key financial measures such as operating margin.

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Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Medical Assistance Modernization

In December 2010, the Department of Public Welfare (DPW) received approval from the Centers for Medicare and Medicaid Services (CMS) for the Pennsylvania state plan amendments pursuant to Pennsylvania Act 49 of 2010 that, among other things, established a new inpatient hospital fee-for-service payment system (using APR-DRG), established enhanced hospital payments through the state’s Medical Assistance managed care program, and secured additional matching Medicaid funds through the establishment of the Quality Care Assessment. In February 2011, the DPW received the approvals necessary from CMS on the final technical language for the DPW contracts with managed care organizations. The Hospital and Healthcare Association of Pennsylvania issued hospital-specific impacts of the Medical Assistance payment modernization for fiscal year 2011. The Hospital recorded gains from operations of $8,891,000 and $8,699,000 in its consolidated statements of operations and changes in net assets for the years ended June 30, 2012 and 2011, respectively.

3. Assets Whose Use Is Limited

Assets whose use is limited include investments related to funded depreciation, trusteed funds, and funds held by the Foundation. Funded depreciation funds are designated assets set aside by the Board of Trustees (the Board) for future capital improvements over which the Board retains control and may at its discretion subsequently use for other purposes. Trusteed funds include assets held by trustees for the workers’ compensation self-insurance program and as required under indenture agreements related to the revenue bonds (see Note 6). Trusteed funds that are to be used to meet current liabilities have been reclassified to current portion of assets whose use is limited in the accompanying consolidated balance sheets.

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Notes to Consolidated Financial Statements (continued)

3. Assets Whose Use Is Limited (continued)

Assets whose use is limited are comprised of the following:

June 30 2012 2011 Funded depreciation: Cash and cash equivalents $ 1,600,750 $ 424,471 Fixed income securities: U.S. treasuries 972,753 1,097,280 U.S. government agencies 266,603 232,467 U.S. corporate obligations 7,974,096 7,072,332 Municipal obligations 70,425 40,848 U.S. government agencies asset-backed securities 4,924,555 5,066,033 Corporate asset-backed securities 606,243 554,937 Mutual funds invested in: Equities securities 18,340,847 18,027,409 Fixed income securities 23,133,020 22,200,164 Equity securities: U.S. 6,871,810 5,188,000 Foreign 1,231,998 1,239,483 Commingled equity funds 11,260,059 8,798,145 Commingled multi-asset funds 2,994,043 2,074,835 Alternative investments: Limited partnerships 2,990,045 2,027,554 Miscellaneous assets and accrued income 182,820 204,784 83,420,067 74,248,742 Trustee funds: Cash and cash equivalents 10,363,033 9,908,801 10,363,033 9,908,801 Foundation investments: Cash and cash equivalents 3,360 3,347 Charitable remainder trust 3,925,512 3,652,647 Mutual funds invested in: Equity securities 6,286,486 6,465,818 Fixed income securities 3,955,714 3,770,017 Equity securities: U.S. 22,725 22,422 14,193,797 13,914,251 Total assets whose use is limited 107,976,897 98,071,794 Less current portion 5,343,889 4,321,322 $ 102,633,008 $ 93,750,472

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Notes to Consolidated Financial Statements (continued)

3. Assets Whose Use Is Limited (continued)

Funds held by the Foundation include the Hospital’s interest in a charitable remainder trust, which is recorded by the Foundation as a permanently restricted net asset. Under the terms of the trust agreement, interest currently accrues to the benefit of another beneficiary. The Hospital will begin receiving the interest earnings from assets in the trust upon the death of the other beneficiary.

Total investment return from assets whose use is limited, cash and cash equivalents, and short- term investments is comprised of the following:

Year Ended June 30 2012 2011 Other operating revenue: Interest income $ 14,993 $ 23,256

Nonoperating gains (losses), net: Interest income and dividends 3,031,441 2,531,758 Net realized gain on sales of investments 66,571 110,522 Net realized and unrealized (losses) gains on trading investments (1,683,023) 7,056,786 1,414,989 9,699,066 Other changes in net assets: Net (depreciation) appreciation on other-than-trading investments 38,321 1,337,790 $ 1,468,303 $ 11,060,112

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Notes to Consolidated Financial Statements (continued)

4. Fair Value Measurement

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable are reasonable estimates of fair value due to the short-term nature of these financial instruments. Investments are recorded at their fair values. Other noncurrent assets and liabilities have carrying values that approximate fair values. At June 30, 2012 and 2011, the fair value of the Parent’s long-term debt and variable rate debt classified as current obligation, as estimated by discounted cash flow analyses using current borrowing rates for similar types of borrowing arrangements and adjusted for credit is as follows:

June 30 2012 2011 Carrying Fair Carrying Fair Amount Value Amount Value Hospital Revenue Bonds, Series of 1998 $ 18,001,055 $ 18,231,084 $ 18,858,739 $ 18,102,816 Hospital Revenue Bonds, Series A and B of 2001 21,405,388 20,220,916 23,178,332 22,113,600 Hospital Revenue Bonds, Series A and B of 2007 38,325,000 27,612,931 39,180,000 29,761,344 Hospital Revenue Bonds, Series A of 2008 14,145,000 14,750,568 15,039,000 13,667,155 Total debt $ 91,876,443 $ 80,815,499 $ 96,256,071 $ 83,644,915

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Notes to Consolidated Financial Statements (continued)

4. Fair Value Measurement (continued)

The following tables present the financial instruments carried at fair value on a recurring basis as of June 30, 2012 and 2011, based on the valuation hierarchy:

June 30, 2012 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 26,425,263 $ – $ – $ 26,425,263 Assets whose use is limited: Cash and cash equivalents 11,967,143 – – 11,967,143 Fixed income securities: U.S. treasuries – 972,753 – 972,753 U.S. government agencies – 266,603 – 266,603 U.S. corporate obligations – 7,974,096 – 7,974,096 Municipal obligations – 70,425 – 70,425 U.S. government agencies asset-backed securities – 4,924,555 – 4,924,555 Corporate asset-backed securities – 606,243 – 606,243 Mutual funds invested in: Equities securities 24,627,333 – – 24,627,333 Fixed income securities 27,088,734 – – 27,088,734 Equity securities: U.S. equity securities 6,894,535 – – 6,894,535 Foreign equity securities 1,231,998 – – 1,231,998 Commingled equity funds – 11,260,059 – 11,260,059 Commingled multi-asset funds – 2,994,043 – 2,994,043 Charitable remainder trust – 3,925,512 – 3,925,512 Total assets at fair value $ 98,235,006 $ 32,994,289 $ – $ 131,229,295

Liabilities Interest rate swaps $ – $ 7,698,319 $ – $ 7,698,319

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Notes to Consolidated Financial Statements (continued)

4. Fair Value Measurement (continued)

June 30, 2011 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 20,295,368 $ – $ – $ 20,295,368 Assets whose use is limited: Cash and cash equivalents 10,336,618 – – 10,336,618 Fixed income securities: U.S. treasuries – 1,097,280 – 1,097,280 U.S. government agencies – 232,467 – 232,467 U.S. corporate obligations – 7,072,332 – 7,072,332 Municipal obligations – 40,848 – 40,848 U.S. government agencies asset-backed securities – 5,066,033 – 5,066,033 Corporate asset-backed securities – 554,937 – 554,937 Mutual funds invested in: Equities securities 24,493,227 – – 24,493,227 Fixed income securities 25,970,181 – – 25,970,181 Equity securities: U.S. equity securities 5,210,423 – – 5,210,423 Foreign equity securities 1,239,483 – – 1,239,483 Commingled equity funds – 8,798,145 – 8,798,145 Commingled multi-asset funds – 2,074,835 – 2,074,835 Charitable remainder trust – 3,652,647 – 3,652,647 Total assets at fair value $ 87,545,300 $ 28,589,524 $ – $116,134,824

Liabilities Interest rate swaps $ – $ 4,246,626 $ – $ 4,246,626

During 2011, the fair value of U.S. government treasury securities were misclassified as Level 1. The prior period disclosure has been reclassified to reflect U.S. government treasury securities as Level 2. Total Level 1 securities as previously reported and as corrected were $88,642,580 and $87,545,300, respectively.

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Notes to Consolidated Financial Statements (continued)

4. Fair Value Measurement (continued)

Financial instruments at June 30, 2012 and 2011 are reflected in the consolidated balance sheets as follows:

June 30 2012 2011

Cash, cash equivalents, and assets whose use is limited measured at fair value $ 131,229,295 $ 116,134,824 Alternative investments accounted for under the equity method 2,990,045 2,027,554 Miscellaneous assets and accrued income 182,820 204,784 Total cash, cash equivalents, and assets whose use is limited $ 134,402,160 $ 118,367,162

See Note 6 for location of interest rate swap liabilities in the consolidated balance sheets.

The following is a description of the Parent’s valuation methodologies for assets and liabilities measured at fair value. Fair value for Level 1 is based upon quoted market prices. Fair value for Level 2 is determined as follows:

Investments classified as Level 2 are primarily determined using techniques that are consistent with the market approach. Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs, which include broker/dealer quotes, reported/comparable trades, and benchmark yields, are obtained from various sources, including market participants, dealers, and brokers.

The fair value of charitable trusts in which the Parent is a remainder beneficiary is based on the Parent’s beneficial interest in the investments held in the trust, which are measured at fair value.

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

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Notes to Consolidated Financial Statements (continued)

4. Fair Value Measurement (continued)

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

5. Investments in Affiliates and Related Long-Term Notes Receivable

Investments in affiliates and related notes receivable consist of the following:

June 30 2012 2011 Washington Senior Care Corp.: Strabane Woods Assisted Living Facility $ 2,596,457 $ 2,562,436 Strabane Trails Independent Living Center 3,836,797 3,950,973 The Washington Hospital Physician’s Hospital Organization, Inc. 345,615 311,623 Chartwell Pennsylvania LLC 141,295 141,295 Tri-State Surgery Center LLC 1,259,436 1,486,167 UPMC/TWH Cancer Center 596,321 842,623 PACE 3,128,819 2,598,819 MedCare Equipment Company, LLC 857,500 857,500 Harmony Medical Holdings, LP 379,894 – UPMC/TWH Urgent Care Center 333,891 – 108 S Central LLC 310,000 – St. Clair/Washington Physician Services 107,717 – Other 179,764 104,764 Total investments in affiliates and related notes receivable 14,073,506 12,856,200 Less current portion 783,289 672,504 Long-term portion $ 13,290,217 $ 12,183,696

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Notes to Consolidated Financial Statements (continued)

5. Investments in Affiliates and Related Long-Term Notes Receivable (continued)

The Hospital holds a 50% membership interest in Washington Senior Care Corp. (WSCC), a tax- exempt organization that owns an assisted living facility and an independent living center. This investment is accounted for using the equity method of accounting. The Hospital has a note receivable outstanding with Strabane Woods Assisted Living Facility totaling $2,205,926 and $2,302,464 at June 30, 2012 and 2011, respectively. This note bears interest at 4.82% with a final due date of July 1, 2028. The Hospital also has a note receivable outstanding with Strabane Trails Independent Living Center totaling $3,490,735 and $3,655,003 at June 30, 2012 and 2011, respectively. This note bears interest at 4.00% with a final due date of October 1, 2032. The equity method earnings from WSCC are recorded within nonoperating gains on the accompanying consolidated statements of operations and changes in unrestricted net assets.

The Hospital owns a 50% equity interest in The Washington Hospital Physician’s Hospital Organization, Inc. (WPHO). The purpose of the WPHO is to create a sustainable integrated health care delivery organization for Washington County residents that includes the Hospital and members of the medical staff of the Hospital. This investment is accounted for using the equity method of accounting. The earnings from WPHO are recorded within nonoperating gains on the consolidated statements of operations and changes in unrestricted net assets.

The Hospital has a 2% ownership interest in Chartwell Pennsylvania LLC (Chartwell), a home infusion provider, which is recorded at cost. Distributions received from Chartwell are recorded within nonoperating gains on the consolidated statements of operations and changes in unrestricted net assets.

Tri-State Surgery Center LLC (TSSC) is an ambulatory surgery center formed with certain surgeons that practice in the Hospital’s service area. The Hospital and the group of surgeons each own 50% of the partnership. The Hospital uses the equity method of accounting for TSSC with earnings included in earnings in equity investments on the consolidated statements of operations and changes in unrestricted net assets.

The Hospital has various service agreements with TSSC primarily related to providing ancillary services to TSSC. The Hospital also rents space to TSSC. Total amounts paid to the Hospital under these agreements aggregated approximately $980,000 and $954,000 for the years ended June 30, 2012 and 2011, respectively, and are included in other operating revenue.

24 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

5. Investments in Affiliates and Related Long-Term Notes Receivable (continued)

Additionally, in connection with the formation of TSSC, the Hospital financed the sale of moveable equipment to TSSC for $1,272,000. The note is being paid by TSSC in equal monthly installments of $13,497 over a ten-year period at a 5% fixed interest rate. The outstanding balance of the loan was $246,068 and $391,757 at June 30, 2012 and 2011, respectively.

In December 2006, the Hospital entered into an affiliation with UPMC Cancer Centers by contributing fixed assets with a net book value of $431,000. The Hospital and UPMC Cancer Centers each have 50% control of the exempt organization. The Hospital uses the equity method of accounting for this affiliation. The UPMC/TWH Cancer Center rents space from the Hospital. Amounts paid to the Hospital under this agreement totaled $552,525 and $463,424 for the years ended June 30, 2012 and 2011, respectively. The earnings from UPMC Cancer Centers are included within earnings in equity investments in the consolidated statements of operations and changes in unrestricted net assets.

Beginning August 1, 2004, the Hospital became a member of PACE, a risk retention group with five member hospitals located in Pennsylvania. PACE provides general liability and primary and excess malpractice coverage. The investment in PACE represents capital contributions made to PACE. There were no dividends received from PACE in 2012 and 2011.

In January 2011, WPG purchased a 5% ownership interest in MedCare Equipment Company, LLC (MedCare), a durable medical equipment company, which is recorded at cost. Distributions received from MedCare are recorded within nonoperating gains on the consolidated statements of operations and changes in unrestricted net assets.

In December 2011, the Hospital entered into an affiliation with UPMC Urgent Care Centers by contributing fixed assets with a net book value of $516,000. The Hospital and UPMC Urgent Care Centers each have 50% control of the exempt organization. The Hospital uses the equity method of accounting for this affiliation. The UPMC and The Washington Hospital Urgent Care Center rents space from WPG. Amounts paid to WPG under this agreement totaled $47,114 for the year ended June 30, 2012. The earnings from UPMC Urgent Care Center are included within earnings in equity investments in the consolidated statements of operations and changes in unrestricted net assets.

During fiscal year 2012, the Hospital invested in Harmony Medical Holdings, LLP (HMH). HMH is a partnership with area physicians that was created in order to purchase land and build a medical office building. The Hospital owns 22% of the partnership at June 30, 2012.

25 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

5. Investments in Affiliates and Related Long-Term Notes Receivable (continued)

In March 2012, the Hospital entered into a joint venture with another local hospital to purchase a specialty physician office. The Hospital has a 50% ownership interest in the entity. The Hospital uses the equity method of accounting for this joint venture with earnings included in earnings in equity investments on the consolidated statements of operations and changes in unrestricted net assets.

In February 2012, the Hospital invested in 108 South Central, LLC, a company whose sole purpose is to purchase land for future potential projects.

6. Long-Term Obligations and Interest Rate Swaps

Long-term obligations consist of the following:

June 30 2012 2011 Hospital Revenue Bonds, Series of 1998, net of bond discount of $198,945 in 2012 and $221,261 in 2011; interest rates range from 4.85% to 5.125%, with final principal payment due in 2029 $ 18,001,055 $ 18,858,739 Hospital Revenue Bonds, Series A of 2001, net of bond premium of $60,388 in 2012 and $88,332 in 2011; interest rates range from 5.125% to 5.5%, with final principal payment due in 2018 13,305,388 14,843,332 Hospital Revenue Bonds, Series B of 2001; interest rates are variable, with final principal payment due in 2032 8,100,000 8,335,000 Hospital Revenue Bonds, Series A of 2007; interest rate is variable, with final principal payment due in 2037 14,375,000 14,695,000 Hospital Revenue Bonds, Series B of 2007; interest rate is variable, with final principal payment due in 2037 23,950,000 24,485,000 Hospital Revenue Bonds, Series A of 2008, net of discount of $60,000 in 2012 and $66,000 in 2011; interest rate is variable, with final principal payment due in 2023 14,145,000 15,039,000 Other obligations 2,485,137 1,474,120 94,361,580 97,730,191 Less current portion 5,025,021 4,645,784 Less variable rate debt classified as current obligations 13,265,000 14,205,000 Total long-term obligations $ 76,071,559 $ 78,879,407

26 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

6. Long-Term Obligations and Interest Rate Swaps (continued)

The Hospital has entered into loan agreements with the Washington County Hospital Authority (Authority), which were executed in conjunction with the issuance of revenue bonds by the Authority. Payments are required to be made to the Authority in amounts sufficient to meet debt service requirements of the bonds plus related administrative expenses of the Authority. The loan agreement contains certain restrictive covenants, as defined, and limits the issuance of additional debt. The bonds are secured by gross receipts of the Hospital and letters of credit. In addition, bond insurance was purchased for the payment of the Series 1998 and 2001 A Bonds.

The Series 1998 Bonds were issued on April 1, 1998, under the loan arrangements described above. A portion of the Series 1998 Bond proceeds was used to defease Series B Bonds of 1990. The remaining proceeds of the Series 1998 Bonds were used to pay issuance costs, fund a debt service reserve fund, and fund various capital projects. Payment of the Series 1998 Bonds is insured by Ambac Assurance Corporation.

On May 15, 2001, the Hospital issued fixed rate demand revenue bonds (Series 2001 A Bonds) of $28,350,000 under the loan arrangements described above. A portion of the Series 2001 A Bond proceeds were used to pay off Series A Bonds of 1990. The remaining proceeds of the Series 2001 A Bonds were used to pay issuance costs and fund a debt service reserve fund. Payment of the Series 2001 A Bonds is insured by Ambac Assurance Corporation.

On May 15, 2001, the Hospital issued variable rate demand revenue bonds (Series 2001 B Bonds) of $9,995,000 under the loan arrangements described above. A portion of the Series 2001 B Bonds was used to establish a construction fund to be used to fund various capital projects. The remaining proceeds of the Series 2001 B Bonds were used to pay issuance costs. Remarketing of the Series 2001 B Bonds occurs annually and is secured by a letter of credit in the amount of $8,527,631, which expires on July 15, 2014. The rate on the Series 2001 B Bonds was 0.47% and 0.70% at June 30, 2012 and 2011, respectively, and changed to 0.45% effective July 1, 2012.

On March 28, 2007, the Hospital issued $40,000,000 in variable rate demand revenue bonds under the loan arrangements described above. All bond proceeds were used to construct an addition to the Hospital that includes an expanded emergency room, new operating rooms, and an increased critical care area. The bonds were issued in two series, Series 2007 A for $15,000,000 and Series 2007 B for $25,000,000. Series 2007 A Bonds are remarketed annually and are secured by a letter of credit in the amount of $14,969,894. Series 2007 B Bonds are remarketed weekly and are secured by a letter of credit in the amount of $24,713,079. The letters

27 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

6. Long-Term Obligations and Interest Rate Swaps (continued) of credit for both the 2007 A and the 2007 B bonds expired on July 15, 2012 and were renewed through July 15, 2015. The interest rate on the Series 2007 A Bonds was 0.47% and 0.74% at June 30, 2012 and 2011, respectively, and changed to 0.45% effective July 1, 2012. The interest rate on the Series 2007 B Bonds was 0.16% and 0.09% at June 30, 2012 and 2011, respectively.

On June 26, 2008, the Hospital issued $16,800,000 in variable rate demand revenue bonds (Series 2008 A) under the loan arrangements described above. All bond proceeds were used to pay off the Series 2004 Bonds. The bonds are remarketed weekly and are secured by a letter of credit in the amount of $15,245,704, which expires on July 15, 2014. The interest rate on the Series 2008 A Bonds was 0.17% and 0.10% at June 30, 2012 and 2011, respectively.

The Series 2008 A letter of credit agreement contains a subjective clause, which, if declared by the lender, could cause immediate repayment of the bonds. As a result, the principal amount of $13,265,000 and $14,205,000 covered by this agreement has been classified as a current obligation in the financial statements for June 30, 2012 and 2011, respectively. Management believes the acceleration of amounts due under this letter of credit agreement is unlikely.

The loan agreements with the Authority require the establishment of trusteed accounts into which rental payments required under the loan agreements are deposited. A debt service reserve fund with a minimum balance is also required to be maintained. Also, all proceeds used to fund construction are maintained in a separate account held by the trustee. Following is a summary of funds held in the trusteed accounts related to the revenue bonds:

June 30 2012 2011

Debt service funds $ 5,808,429 $ 5,345,581 Debt service reserve funds 4,514,149 4,519,249

The loan agreements with the Authority also contain certain restrictive covenants, including provisions relating to maintaining debt service coverage ratios, days cash on hand, and other matters. The Hospital is in compliance with all covenants as of June 30, 2012.

28 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

6. Long-Term Obligations and Interest Rate Swaps (continued)

In 2006, the Hospital entered into a software license agreement. The obligation consists of the license portion of the agreement relating to the replacement of the Hospital’s clinical computer system. Amounts payable under this agreement are $75,928 and $797,236 as of June 30, 2012 and 2011, respectively, and are included in other obligations. Net property, plant, and equipment include $755,970 and $1,259,949 as of June 30, 2012 and 2011, respectively, related to this agreement. The obligation is payable and the asset is amortized over a seven-year period.

In 2012, the Hospital entered into a capital lease to purchase a surgical robot. This is a single payment lease with the payment due in July 2013.

Future payments required for all long-term obligations, including variable rate debt classified as current obligations for the next five years are as follows:

2013 $ 5,025,021 2014 6,935,508 2015 5,427,027 2016 5,678,659 2017 5,955,412

Cash paid for interest on all long-term obligations, including variable rate debt classified as current obligations, aggregated $2,267,614 for 2012 and $2,557,342 for 2011.

The Hospital has entered into interest rate swap agreements as described below.

In 2007, the Hospital entered into an interest rate swap agreement with an original notional amount of $25,000,000. During the term of this agreement, the swap converts the 2007 variable rate bonds, which are based on 67% of LIBOR, to a fixed rate of 3.6325%. The notional value of the swap is reduced in amounts equal to the payments on the related 2007 Bonds and expires on July 1, 2037.

In 2008, the Hospital entered into an interest rate swap agreement with an original notional amount of $16,800,000. During the term of this agreement, the swap converts the Series 2008 A variable rate bonds, which are based on 67% of LIBOR, to a fixed rate of 3.295%. The notional value of the swap is reduced in amounts equal to the payments on the related 2008 A Bonds and expires on July 1, 2023.

29 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

6. Long-Term Obligations and Interest Rate Swaps (continued)

Although minimum credit ratings are required for counterparties, this does not eliminate the risk that a counterparty may fail to honor its obligations. Derivative contracts are subject to periodic “mark-to-market” valuations. A derivative contract may, at any time, have a positive or negative value to the Hospital. The Hospital’s derivative contracts do not require the Hospital to post collateral. If the Hospital were to choose to terminate a derivative contract or if a derivative contract were terminated pursuant to an event of default or a termination event as described in the derivative contract, the Hospital could be required to pay a termination payment to the counterparty, and such payment could adversely affect the Hospital’s financial condition.

The following tables summarize the values and losses recognized for the Hospital’s interest rate swap agreements:

Fair Market Value Included in Other Notional Amount Long-Term Liabilities Swap Expiration Hospital June 30 June 30 Type Date Pays 2012 2011 2012 2011

Fixed 7/1/2023 3.3% $ 14,205,000 $ 15,105,000 $ 1,824,400 $ 1,225,786 Fixed 7/1/2037 3.6 23,950,000 24,485,000 5,873,919 3,020,840 $ 38,155,000 $ 39,590,000 $ 7,698,319 $ 4,246,626

Location of Losses Recognized June 30 on Interest Rate Swaps 2012 2011

Nonoperating losses $ 4,730,068 $ 601,554

7. Medical Malpractice Insurance

Liabilities for medical malpractice are insured through various policies. Prior to 1997, the initial layer of coverage was provided under claims-made retrospective policies. Excess layers of coverage are provided by The Medical Care Availability and Reduction of Error (MCARE) Fund, a multiprovider, self-insurance trust fund arrangement (to the extent funds are available), and an additional claims-made policy. In connection with these insurance arrangements, there are outstanding letters of credit aggregating approximately $75,000. The letters of credit are collateralized by certificates of deposit, which are included in short-term investments.

30 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

7. Medical Malpractice Insurance (continued)

Beginning in 1997 and continuing through July 2004, the initial layer of coverage was provided under an occurrence-based, retrospective policy held by the University of Pittsburgh Captive Insurance Program (UHCP), a multiprovider insurance arrangement. The Parent has no ownership in the captive arrangement. Excess layers of coverage were provided by the MCARE Fund and an excess retrospective occurrence-based policy issued by UHCP. Also, tail coverage for the prior claims-made policies was purchased from UHCP. Retrospective premiums are assessed periodically by UHCP based upon an analysis of claims specifically related to the Hospital and at the discretion of the UHCP Board of Directors. No retrospective premiums were assessed in fiscal year 2012 or 2011. Management monitors claim data quarterly and records estimates of future retrospective premium assessments.

Subsequent to August 1, 2004, the Hospital is insured for premium and excess malpractice coverage through participation in two risk retention groups (PACE) with five other hospitals located in Pennsylvania. Premiums paid to PACE are based upon the Hospital’s loss experience up to a certain limit. The Hospital shares in the risk of losses with the other members of PACE in excess of this limit. The Hospital may also be assessed a retrospective premium up to 150% of the premium paid in any one year. Retrospective premiums of $5,770,000 and $1,000,000 were assessed in 2012 and 2011, respectively.

The Medical Care Availability and Reduction of Error (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), as the agency for the Commonwealth to facilitate the payment of medical malpractice claims exceeding the primary layer of professional liability insurance carried by the Hospital and other health care providers practicing in the Commonwealth. The MCARE Fund is funded on a “pay as you go basis” and assesses health care providers, based on a percentage of the rates established by the Joint Underwriting Association (also a Commonwealth agency) for basic coverage. The MCARE Fund is currently underfunded. According to the latest available audited financial statements for the Commonwealth, the MCARE Fund has assets of approximately $200 million and actuarially computed liability for outstanding claims for injuries caused by alleged negligence by certain health care providers of approximately $1.23 billion at June 30, 2011. The claims will be funded exclusively through statutory surcharge assessments in future years as claims are settled and paid.

31 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

7. Medical Malpractice Insurance (continued)

The MCARE Act of 2002 provides for a further reduction to the current MCARE coverage of $500,000 per occurrence to $250,000 per occurrence and the eventual phase-out of the MCARE Fund, subject to the approval of the Pennsylvania Insurance Commissioner. To date, the Pennsylvania Insurance Commissioner has deferred the change in coverage and eventual phase- out of the MCARE Fund to future years.

The Hospital’s annual premiums for participation in the MCARE Fund were approximately $376,000 in fiscal 2012 and $551,000 in fiscal 2011. No provision has been made for any future MCARE Fund assessments in the accompanying consolidated financial statements as the Hospital’s portion of the MCARE Fund unfunded liability cannot be reasonably estimated.

8. Employee Benefit Plans

The WPG has a defined contribution pension plan available to all employees. Contributions to the plan are made solely by the employer equal to a minimum of 3% of the employees’ compensation. All contributions are fully vested. The amount expensed for employer contributions was $782,000 and $761,000 in 2012 and 2011, respectively.

The Hospital has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation during the last five years of employment. The funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974 (ERISA), plus such additional amounts as may be determined to be appropriate from time to time.

The Hospital’s defined benefit plan was amended to freeze benefit accruals for all nonunion participants on July 1, 2009, and all union participants on February 1, 2010.

Effective July 1, 2010, the Hospital started a defined contribution pension plan for all hospital employees. The plan calls for a discretionary contribution for each eligible employee based on wages. This contribution will be paid as soon as practicable after year-end. The Hospital expensed $2,533,000 and $1,750,000 for employer contributions in the fiscal years ended June 30, 2012 and 2011, respectively.

32 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

In addition to the Hospital’s defined benefit pension plan, the Hospital sponsors retiree life insurance and sick time reimbursement programs for employees who retire. The life insurance benefit is provided to employees having ten years of service and is calculated as 20% of the rate of annual compensation immediately preceding the date of retirement. The minimum amount of life insurance provided is $1,000 and the maximum is $5,000. Prior to July 1, 2010, employees were also eligible to receive cash for accrued sick time at their date of retirement.

The June 30, 2012 and 2011 unrestricted net assets include unrecognized actuarial losses of $66,582,769 and $34,704,761, respectively. These amounts have not yet been recognized in net periodic pension expense. Unrecognized actuarial losses are amortized on a straight-line basis. All unrecognized losses are being amortized. The actuarial loss included in other changes in unrestricted net assets and expected to be recognized in net periodic pension costs during the fiscal year ending June 30, 2013 is $1,758,763.

Changes in plan assets and benefit obligations recognized in unrestricted net assets during 2012 and 2011 included:

June 30 2012 2011

Current-year actuarial loss (gain) $ 33,151,267 $ (9,428,666) Amortization of actuarial loss (735,119) (1,138,659) Total $ 32,416,148 $ (10,567,325)

The following components of net periodic pension expense for the defined benefit pension plan and net periodic postretirement benefit expense for the years ended June 30, 2012 and 2011, are based on a measurement date of June 30:

Net Periodic Expense Defined Benefit Postretirement Pension Plan Benefit Plan 2012 2011 2012 2011

Service cost $ – $ – $ 37,901 $ 42,906 Interest cost 7,207,924 7,055,987 99,597 94,793 Expected return on plan assets (6,973,334) (6,687,080) – – Recognized net actuarial loss 735,119 1,062,427 – – Net periodic expense $ 969,709 $ 1,431,334 $ 137,498 $ 137,699

33 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

The following table presents the accumulated benefit obligation and a reconciliation of the beginning and ending balances of the various plans’ projected benefit obligations and the fair value of plan assets, and funded status of the plans at June 30, 2012 and 2011:

Defined Benefit Pension Plan Postretirement Benefit Plan 2012 2011 2012 2011

Accumulated benefit obligations $ 167,746,030 $ 134,010,242 $ 2,486,511 $ 1,810,876

Changes in projected benefit obligations: Beginning projected benefit obligations $ 134,010,242 $ 133,336,797 $ 1,810,876 $ 1,749,406 Service cost – – 37,901 42,906 Interest cost 7,207,924 7,055,987 99,597 94,793 Benefits paid (5,013,516) (4,540,144) (59,725) (47,814) Actuarial loss (gain) 31,541,380 (1,842,398) 597,862 (28,415) Ending projected benefit obligations $ 167,746,030 $ 134,010,242 $ 2,486,511 $ 1,810,876

Changes in plan assets: Beginning fair value of plan assets $ 107,692,321 $ 92,359,117 $ – $ – Actual return on plan assets 5,901,587 14,273,348 – – Contributions by plan sponsor 7,022,022 5,600,000 59,725 47,814 Benefits paid (5,013,516) (4,540,144) (59,725) (47,814) Ending fair value of plan assets $ 115,602,414 $ 107,692,321 $ – $ –

Funded status of the plans $ (52,143,616) $ (26,317,921) $ (2,486,511) $ (1,810,876)

The Hospital expects to make a contribution of at least $5,600,000 to the defined benefit pension plan for the year ended June 30, 2012, during the fiscal year ending June 30, 2013. No plan assets are expected to be returned to the Hospital during the year ended June 30, 2012.

The following pension benefit payments are expected to be paid in the years ending June 30:

2013 $ 5,704,453 2014 6,234,597 2015 6,731,222 2016 7,213,010 2017 7,693,665 2018–2022 44,895,392

34 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

The assumptions used in determining the actuarial present value of the projected benefit obligations for the defined benefit pension plan and postretirement benefit plan as of June 30, 2012 and 2011, the measurement dates are as follows:

2012 2011

Discount rate – defined benefit pension plan 4.00% 5.50% Discount rate – postretirement benefit plan 4.20% 5.60% Rates of increase in future compensation levels n/a n/a Long-term rate of return (defined benefit pension plan only) 6.50% 6.50%

The assumptions used to determine the net periodic benefit cost as of June 30, 2012 and 2011, the measurement dates, are as follows:

2012 2011

Discount rate – defined benefit pension plan 5.50% 5.40% Discount rate – postretirement benefit plan 5.60% 5.50% Rates of increase in future compensation levels n/a n/a Long-term rate of return (defined benefit pension plan only) 6.50% 7.25%

To develop the expected long-term rate of return on assets assumption, the Hospital considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.

35 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

The Hospital’s pension plan weighted-average asset allocations by asset category are as follows:

June 30 Asset Category 2012 2011

Equity securities 31% 48% Fixed income securities 46 40 Cash equivalents and other 23 12

The plan assets are invested in separately managed portfolios using investment management firms. The plan’s objective is to maximize total return without assuming undue risk exposure. The plan maintains a well-diversified asset allocation that best meets these objectives. Plan assets are largely comprised of equity securities, which include companies with all market capitalization sizes. Debt securities include both short-term and intermediate securities.

Investments in derivative securities are not permitted for the sole purpose of speculating on the direction of market interest rates. Included in this prohibition are leveraging, shorting, swaps, futures, options, forwards, and similar strategies.

In each investment account, investment managers are responsible to monitor and react to economic indicators, such as gross domestic product, consumer price index, and the Federal Monetary Policy, which may affect the performance of their accounts. The performance of all managers and the aggregate asset allocation are formally reviewed on a quarterly basis, with a rebalancing of the asset allocation occurring at least once a year. The current asset allocation objective is to maintain 40% of plan assets in fixed income securities, and 60% in equity securities, with both classes generally allowing a 10% deviation from the target.

36 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

The following table presents the financial instruments in the Parent’s defined benefit pension plans as of June 30, 2012, measured at fair value on a recurring basis based on the valuation hierarchy:

Level 1 Level 2 Level 3 Total Assets Investments: Cash and cash equivalents $ 584,720 $ – $ – $ 584,720 Fixed income securities: U.S. treasuries – 14,744,438 – 14,744,438 U.S. government agencies – 3,296,230 – 3,296,230 U.S. corporate – 29,458,715 – 29,458,715 Foreign corporate – 353,050 – 353,050 Municipal – 2,163,528 – 2,163,528 Corporate asset-backed securities – 161,068 – 161,068 Mutual funds 3,049,062 – – 3,049,062 Common and preferred stocks: U.S. 8,359,875 – – 8,359,875 Commingled equity funds – 14,541,867 – 14,541,867 Foreign 1,528,630 – – 1,528,630 Mutual funds – U.S. 13,566,833 – – 13,566,833 Mutual funds – Foreign 11,820,527 – – 11,820,527 Commingled multi-asset funds – 4,953,814 – 4,953,814 Limited partnerships – – 7,020,057 7,020,057 Total assets at fair value $ 38,909,647 $ 69,672,710 $ 7,020,057 $ 115,602,414

Level 3 Rollforward

Other Investments

Fair value as of June 30, 2011 $ 3,041,332 Realized gains – Unrealized losses, net (21,275) Net acquisitions 4,000,000 Fair value as of June 30, 2012 $ 7,020,057

37 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

The following table presents the financial instruments in the Parent’s defined benefit pension plans as of June 30, 2011, measured at fair value on a recurring basis based on the valuation hierarchy:

Level 1 Level 2 Level 3 Total Assets Investments: Cash and cash equivalents $ 5,161,759 $ – $ – $ 5,161,759 Fixed income securities: U.S. treasuries – 12,950,149 – 12,950,149 U.S. government agencies – 1,853,407 – 1,853,407 U.S. corporate – 15,407,837 – 15,407,837 Municipal – 662,517 – 662,517 Mortgages – 206,680 – 206,680 Common collective trusts – 12,270,378 – 12,270,378 Common and preferred stocks: U.S. 7,975,504 – – 7,975,504 Common collective trusts – 14,146,426 – 14,146,426 Foreign 1,893,360 – – 1,893,360 Mutual funds – U.S. 13,705,094 – – 13,705,094 Mutual funds – Foreign 13,288,460 – – 13,288,460 Common collective trust – 5,129,418 – 5,129,418 Limited partnerships – – 3,041,332 3,041,332 Total assets at fair value $ 42,024,177 $ 62,626,812 $ 3,041,332 $ 107,692,321

During 2011, the fair value of U.S. government treasury securities were misclassified as Level 1. The prior period disclosure has been reclassified to reflect U.S. government treasury securities as Level 2. Total Level 1 securities as previously reported and as corrected were $54,974,326 and $42,024,177, respectively. Level 3 Rollforward

Other Investments

Fair value as of June 30, 2010 $ – Realized gains – Unrealized gains, net 41,332 Net acquisitions 3,000,000 Fair value as of June 30, 2011 $ 3,041,332

38 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

8. Employee Benefit Plans (continued)

Fair value methodologies for Level 1 and Level 2 are consistent with the inputs described in Note 4. Fair value for Level 3 represents the Parent’s ownership interest in the net asset value of the respective partnership as a practical expedient to measure fair value. Fixed income securities include debt obligations of the U.S. government and various agencies, U.S. corporations, and other fixed income instruments, such as mortgage-backed and asset- backed securities. The composition of these securities represents an expected return and risk profile that is commensurate with broadly defined fixed income indexes such as the Barclays Capital U.S. Aggregate Index. Additionally, investments include common collective trusts that invest in mortgage-backed and asset-backed securities as well as high-yield debt instruments. Equity securities include investments of publicly traded common stocks of both U.S. and international corporations, the majority of which represent actively traded and liquid securities that are traded on many of the world’s major exchanges and include large-, mid-, and small- capitalization securities. The composition of these securities represent an expected return and risk profile that is commensurate with broadly defined equity indexes such as the Russell 3000 Index and the Morgan Stanley Capital International (MSCI). 9. Endowment At June 30, 2012 the Foundation’s endowments consist of 10 individual funds established for a variety of purposes. The endowments include both donor-restricted endowment funds and funds designated by the Board of Directors to function as endowments. The Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Foundation to retain as a fund of perpetual duration. As of June 30, 2012 and 2011, there existed no deficiencies of this nature. The Foundation has adopted investment and spending policies for endowment assets that attempt to preserve the original value of the permanent endowments and provide a predictable stream of funding to programs supported by its endowments. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity. In order to achieve this goal, the Foundation relies on a strategy in which the current yield (interest and dividends) are made available for the intended programs.

39 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

9. Endowment (continued)

Changes in Endowment Net Assets

At June 30, 2012, the endowment net asset composition by type of fund consisted of the following:

Temporarily Permanently Unrestricted Restricted Restricted Total

Donor-restricted funds $ – $ 26,838 $ 5,546,664 $ 5,573,502 Board-restricted funds 2,332,918 – – 2,332,918 Total funds $ 2,332,918 $ 26,838 $ 5,546,664 $ 7,906,420

Changes in endowment net assets for the fiscal year ended June 30, 2012 consisted of the following:

Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 2,332,769 $ 15,257 $ 5,692,673 $ 8,040,699 Investment return: Investment income 64,329 407 135,980 200,716 Net realized and unrealized (depreciation) appreciation (50,305) 571 (106,211) (155,945) Total investment income 14,024 978 29,769 44,771

Contributions 121,114 11,012 – 132,126 Transfers from permanently restricted to temporarily restricted – 175,778 (175,778) – Appropriation of endowment assets released for expenditure (134,989) (176,187) – (311,176) Endowment net assets, end of year $ 2,332,918 $ 26,838 $ 5,546,664 $ 7,906,420

40 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

9. Endowment (continued)

At June 30, 2011, the endowment net asset composition by type of fund consisted of the following:

Temporarily Permanently Unrestricted Restricted Restricted Total

Donor-restricted funds $ – $ 15,257 $ 5,692,673 $ 5,707,930 Board-restricted funds 2,332,769 – – 2,332,769 Total funds $ 2,332,769 $ 15,257 $ 5,692,673 $ 8,040,699

Changes in endowment net assets for the fiscal year ended June 30, 2011 consisted of the following:

Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 1,800,111 $ – $ 4,774,638 $ 6,574,749 Investment return: Investment income 57,180 148 124,534 181,862 Net realized and unrealized appreciation 438,244 256 985,910 1,424,410 Total investment income 495,424 404 1,110,444 1,606,272

Contributions 127,755 15,000 – 142,755 Transfers from permanently restricted to temporarily restricted – 192,409 (192,409) – Appropriation of endowment assets released for expenditure (90,521) (192,556) – (283,077) Endowment net assets, end of year $ 2,332,769 $ 15,257 $ 5,692,673 $ 8,040,699

41 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

10. Operating Leases

Certain equipment and building space is leased under agreements accounted for as operating leases. Rental expense was $2,840,404 and $2,589,200 for the years ended June 30, 2012 and 2011, respectively. Minimum annual rentals for the next five years and after are as follows:

2013 $ 1,870,552 2014 1,689,116 2015 1,367,352 2016 959,137 2017 856,467 2018 and thereafter 1,278,660

11. Nonoperating Gains (Losses), Net

Nonoperating gains (losses), net, consist of the following:

Year Ended June 30 2012 2011

Investment income $ 1,414,989 $ 9,699,066 Equity earnings on investments accounted for under the equity method 697,643 592,836 Dividends received on investment carried at cost 288,591 300,000 Loss on interest rate swap arrangements (4,730,068) (601,554) Net gain on sale of assets – 529,091 $ (2,328,845) $ 10,519,439

42 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

12. Functional Expenses

The Parent and its affiliates primarily provide general health care services to residents within their geographic location. Expenses related to providing these services are as follows:

Year Ended June 30 2012 2011

Health care services $ 234,476,513 $ 229,458,821 Fund-raising 646,613 617,969 General and administrative 46,153,498 38,867,703 $ 281,276,624 $ 268,944,493

13. Commitments and Contingencies

The Hospital is a defendant in certain legal proceedings, which have resulted from the normal conduct of its operations. These matters are generally covered by insurance and it is the opinion of management that the ultimate liability, if any, associated with the outcome of these matters will not have a significant effect on the consolidated financial position or results of operations.

14. Subsequent Events

The Parent evaluated events and transactions occurring subsequent to June 30, 2012 through October 15, 2012, the date of issuance of the consolidated financial statements. During this period, there were no subsequent events requiring recognition in the consolidated financial statements. Additionally, there were no unrecognized subsequent events requiring disclosure.

43 Washington Health Care Services, Inc. and Affiliates

Notes to Consolidated Financial Statements (continued)

15. Correction of Error

In January 2013, the Hospital completed a physical inventory of its property, plant and equipment. The results of the property physical inventory identified certain fully depreciated equipment balances that related to equipment that had been taken out of service in prior years. The accompanying consolidated balance sheets and details of consolidation-balance sheet have been corrected. The error had no impact on the net property, plant and equipment balances, net assets, results of operations or cash flows. Property, plant and equipment balances as previously reported and as corrected are as follows:

June 30, 2012 June 30, 2011 As Previously As Previously Reported As Corrected Reported As Corrected Property, plant, and equipment: Land and land improvements $ 8,375,709 $ 8,375,709 $ 8,159,564 $ 8,159,564 Buildings 153,581,208 153,581,208 147,872,585 147,872,585 Equipment 191,752,685 119,300,947 188,131,192 115,679,454 Construction-in-progress 108,969 108,969 829,071 829,071 353,818,571 281,366,833 344,992,412 272,540,674 Less allowance for depreciation and amortization 219,000,781 146,549,043 208,125,924 135,674,186 $ 134,817,790 $ 134,817,790 $ 136,866,488 $ 136,866,488

44 Supplementary Information

Ernst & Young LLP 2100 One PPG Place Pittsburgh, PA 15222

Tel: +1 412 644 7800 Fax: +1 412 644 0477 www.ey.com

Report of Independent Auditors on Supplementary Information

The Board of Trustees Washington Health Care Services, Inc. Washington, Pennsylvania

We have audited the consolidated financial statements of Washington Health Care Services, Inc. and affiliates as of and for the years ended June 30, 2012 and 2011, and have issued our report thereon dated October 15, 2012 (except for Note 15, as to which the date is January 16, 2013), which contained an unqualified opinion on those financial statements. Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The details of consolidation – balance sheets and statements of operations – 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 additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. ey October 15, 2012, except for Note 15 to the consolidated financial statements, as to which the date is January 16, 2013

45

A member firm of Ernst & Young Global Limited Washington Health Care Services, Inc. and Affiliates

Details of Consolidation – Balance Sheet

June 30, 2012

The Washington The Washington Washington Health Care Washington Hospital Physicians Health Services, Inc. Hospital Foundation Group Futures, Inc. Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 48,461 $ 24,227,174 $ 850,882 $ 1,285,646 $ 13,100 $ – $ 26,425,263 Short-term investments – 287,465 – – – – 287,465 Patient and other accounts receivable, net – 22,758,604 – 4,572,589 8,002 (1,641,908) 25,697,287 Inventories – 1,477,421 – – – – 1,477,421 Prepaid insurance and other assets – 1,548,720 – 597,140 7,200 – 2,153,060 Current portion of assets whose use is limited – 5,343,889 – – – – 5,343,889 Total current assets 48,461 55,643,273 850,882 6,455,375 28,302 (1,641,908) 61,384,385

Assets whose use is limited – 88,442,571 14,190,437 – – – 102,633,008 Funds held by The Washington Hospital Foundation – 14,631,391 – – – (14,631,391) –

Property, plant, and equipment: Land and land improvements – 7,850,809 – 524,900 – – 8,375,709 Buildings – 150,035,210 – 3,545,998 – – 153,581,208 Equipment – 115,199,564 219,986 3,881,397 – – 119,300,947 Construction-in-progress – 108,969 – – – – 108,969 – 273,194,552 219,986 7,952,295 – – 281,366,833 Less allowance for depreciation and amortization – 142,578,179 200,323 3,770,541 – – 146,549,043 – 130,616,373 19,663 4,181,754 – – 134,817,790

Other long-term assets: Pledges receivable – – 49,825 – – – 49,825 Deferred bond issuance costs, net – 892,701 – – – – 892,701 Investments in affiliates and related notes receivable – 13,673,462 – 857,500 – (1,240,745) 13,290,217 Goodwill, net – – – 925,928 – – 925,928 Other long-term assets – 221,270 – 63,155 – – 284,425 Total other long-term assets – 14,787,433 49,825 1,846,583 – (1,240,745) 15,443,096 Total assets $ 48,461 $ 304,121,041 $ 15,110,807 $ 12,483,712 $ 28,302 $ (17,514,044) $ 314,278,279

46 The Washington The Washington Washington Health Care Washington Hospital Physicians Health Services, Inc. Hospital Foundation Group Futures, Inc. Eliminations Consolidated Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ – $ 14,737,245 $ 479,416 $ 1,236,366 $ 696,776 $ (1,330,470) $ 15,819,333 Accrued salaries, wages, and related benefits – 11,492,168 – 2,963,769 – – 14,455,937 Employer insurance reserves – 3,424,390 – – – – 3,424,390 Due to third-party payors – 14,662,936 – – – – 14,662,936 Accrued interest payable – 878,430 – – – – 878,430 Current portion of long-term obligations – 5,005,928 – 19,093 163,691 (163,691) 5,025,021 Variable rate debt classified as current obligations – 13,265,000 – – – – 13,265,000 Total current liabilities – 63,466,097 479,416 4,219,228 860,467 (1,494,161) 67,531,047

Long-term obligations – 75,431,442 – 640,117 – – 76,071,559 Postretirement benefit obligations – 2,486,511 – – – – 2,486,511 Accrued pension costs – 52,143,616 – – – – 52,143,616 Other long-term liabilities – 7,698,319 – – 1,388,492 (1,388,492) 7,698,319 Total liabilities – 201,225,985 479,416 4,859,345 2,248,959 (2,882,653) 205,931,052

Net assets: Unrestricted 48,461 91,669,542 3,813,187 7,624,367 (2,220,657) (3,813,187) 97,121,713 Temporarily restricted – 1,753,338 1,346,028 – – (1,346,028) 1,753,338 Permanently restricted – 9,472,176 9,472,176 – – (9,472,176) 9,472,176 48,461 102,895,056 14,631,391 7,624,367 (2,220,657) (14,631,391) 108,347,227

Total liabilities and net assets $ 48,461 $ 304,121,041 $ 15,110,807 $ 12,483,712 $ 28,302 $ (17,514,044) $ 314,278,279

47 Washington Health Care Services, Inc. and Affiliates

Details of Consolidation – Balance Sheet

June 30, 2011

The Washington The Washington Washington Health Care Washington Hospital Physicians Health Services, Inc. Hospital Foundation Group Futures, Inc. Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 48,391 $ 19,107,950 $ 590,285 $ 516,900 $ 31,842 $ – $ 20,295,368 Short-term investments – 286,337 – – – – 286,337 Patient and other accounts receivable, net – 31,207,166 – 4,247,002 128,328 (1,308,997) 34,273,499 Inventories – 1,267,087 – – – – 1,267,087 Prepaid insurance and other assets – 2,060,766 – 548,172 24,067 – 2,633,005 Current portion of assets whose use is limited – 4,321,322 – – – – 4,321,322 Total current assets 48,391 58,250,628 590,285 5,312,074 184,237 (1,308,997) 63,076,618

Assets whose use is limited – 79,839,575 13,910,897 – – – 93,750,472 Funds held by The Washington Hospital Foundation – 14,467,982 – – – (14,467,982) –

Property, plant, and equipment: Land and land improvements – 7,664,359 – 495,205 – – 8,159,564 Buildings – 144,298,570 – 3,130,337 443,678 – 147,872,585 Equipment – 111,613,214 219,986 3,467,488 378,766 – 115,679,454 Construction-in-progress – 829,071 – – – – 829,071 – 264,405,214 219,986 7,093,030 822,444 – 272,540,674 Less allowance for depreciation and amortization 132,068,736 193,302 3,133,138 279,010 – 135,674,186 – 132,336,478 26,684 3,959,892 543,434 – 136,866,488

Other long-term assets: Pledges receivable – – 360,629 – – – 360,629 Deferred bond issuance costs, net – 1,006,584 – – – – 1,006,584 Investments in affiliates and related notes receivable – 12,730,632 – 857,500 – (1,404,436) 12,183,696 Goodwill, net – – – 925,928 – – 925,928 Other long-term assets – 2,599,741 – 64,997 – (2,293,868) 370,870 Total other long-term assets – 16,336,957 360,629 1,848,425 – (3,698,304) 14,847,707 Total assets $ 48,391 $ 301,231,620 $ 14,888,495 $ 11,120,391 $ 727,671 $ (19,475,283) $ 308,541,285

48 The Washington The Washington Washington Health Care Washington Hospital Physicians Health Services, Inc. Hospital Foundation Group Futures, Inc. Eliminations Consolidated Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ – $ 8,038,736 $ 420,513 $ 837,251 $ 534,321 $ (1,043,879) $ 8,786,942 Accrued salaries, wages, and related benefits – 10,888,552 – 2,927,293 – – 13,815,845 Employer insurance reserves – 4,353,058 – – – – 4,353,058 Due to third-party payors – 11,517,418 – – – – 11,517,418 Accrued interest payable – 965,560 – – – – 965,560 Current portion of long-term obligations – 4,628,000 – 17,784 – – 4,645,784 Variable rate debt classified as current obligations – 14,205,000 – – – – 14,205,000 Total current liabilities – 54,596,324 420,513 3,782,328 534,321 (1,043,879) 58,289,607

Long-term obligations – 78,220,307 – 659,100 – – 78,879,407 Postretirement benefit obligations – 1,810,876 – – – – 1,810,876 Accrued pension costs – 26,317,921 – – – – 26,317,921 Other long-term liabilities – 4,246,626 – – 1,669,554 (1,669,554) 4,246,626 Total liabilities – 165,192,054 420,513 4,441,428 2,203,875 (2,713,433) 169,544,437

Net assets: Unrestricted 48,391 124,795,118 3,568,682 6,678,963 (1,476,204) (5,862,550) 127,752,400 Temporarily restricted – 1,899,128 1,553,980 – – (1,553,980) 1,899,128 Permanently restricted – 9,345,320 9,345,320 – – (9,345,320) 9,345,320 48,391 136,039,566 14,467,982 6,678,963 (1,476,204) (16,761,850) 138,996,848

Total liabilities and net assets $ 48,391 $ 301,231,620 $ 14,888,495 $ 11,120,391 $ 727,671 $ (19,475,283) $ 308,541,285

49 Washington Health Care Services, Inc. and Affiliates

Details of Consolidation – Statement of Operations

Year Ended June 30, 2012

The Washington The Washington Washington Health Care Washington Hospital Physicians Health Services, Inc. Hospital Foundation Group Futures, Inc. Eliminations Consolidated

Unrestricted revenues, gains, and other revenue: Net patient service revenue $ – $ 227,007,437 $ – $ 34,402,456 $ 787,078 $ – $ 262,196,971 Other operating revenue – 20,519,090 733,459 1,654,179 1,960 (2,571,440) 20,337,248 Earnings in equity investments – 922,916 – – – – 922,916 Net assets released from restrictions used for operations – 886,625 – – – – 886,625 Total unrestricted revenues, gains, and other revenue – 249,336,068 733,459 36,056,635 789,038 (2,571,440) 284,343,760

Expenses: Administrative services – 35,734,697 646,613 5,837,738 209,023 (58,878) 42,369,193 Employee benefits – 28,947,691 – – – – 28,947,691 General services – 14,308,850 – – – – 14,308,850 Nursing services – 32,148,799 – – – – 32,148,799 Ancillary services – 73,483,377 – – – – 73,483,377 Outpatient services – 21,225,854 – 34,270,770 780,133 (2,432,737) 53,844,020 Other services – 2,581,600 – – – – 2,581,600 MA modernization tax – 3,720,000 – – – – 3,720,000 Interest expense – 2,180,485 – 52,794 – – 2,233,279 Depreciation and amortization – 14,863,167 7,021 796,665 28,475 – 15,695,328 Provision for bad debts – 11,698,632 – 245,855 – – 11,944,487 Total expenses – 240,893,152 653,634 41,203,822 1,017,631 (2,491,615) 281,276,624 Gain (loss) from operations – 8,442,916 79,825 (5,147,187) (228,593) (79,825) 3,067,136

Nonoperating gains (losses), net 70 (2,421,506) 286,444 92,591 – (286,444) (2,328,845) Excess (deficiency) of revenues over expenses $ 70 $ 6,021,410 $ 366,269 $ (5,054,596) $ (228,593) $ (366,269) $ 738,291

50 Washington Health Care Services, Inc. and Affiliates

Details of Consolidation – Statement of Operations

Year Ended June 30, 2011

The Washington The Washington Washington Health Care Washington Hospital Physicians Health Services, Inc. Hospital Foundation Group Futures, Inc. Eliminations Consolidated

Unrestricted revenues, gains, and other revenue: Net patient service revenue $ – $ 229,144,974 $ – $ 31,712,342 $ 2,151,647 $ – $ 263,008,963 Other operating revenue – 14,889,198 752,830 1,251,969 2,714 (2,496,839) 14,399,872 Earnings in equity investments – 2,220,795 – – – (301,727) 1,919,068 Net assets released from restrictions used for operations – 788,208 – – – – 788,208 Total unrestricted revenues, gains, and other revenue – 247,043,175 752,830 32,964,311 2,154,361 (2,798,566) 280,116,111

Expenses: Administrative services – 29,835,539 617,969 5,088,813 344,771 (66,782) 35,820,310 Employee benefits – 28,251,894 – – – – 28,251,894 General services – 13,965,666 – – – – 13,965,666 Nursing services – 32,543,369 – – – – 32,543,369 Ancillary services – 73,592,830 – – – – 73,592,830 Outpatient services – 19,667,738 – 30,711,639 1,797,155 (2,303,367) 49,873,165 Other services – 2,627,083 – – – – 2,627,083 MA modernization tax – 3,282,098 – – – – 3,282,098 Interest expense – 2,417,731 – 50,489 – – 2,468,220 Depreciation and amortization – 15,198,479 8,171 553,678 76,665 – 15,836,993 Provision for bad debts – 10,521,479 – 161,386 – – 10,682,865 Total expenses – 231,903,906 626,140 36,566,005 2,218,591 (2,370,149) 268,944,493 Gain (loss) from operations – 15,139,269 126,690 (3,601,694) (64,230) (428,417) 11,171,618

Nonoperating gains (losses), net 113 10,469,326 337,091 50,000 – (337,091) 10,519,439 Excess (deficiency) of revenues over expenses $ 113 $ 25,608,595 $ 463,781 $ (3,551,694) $ (64,230) $ (765,508) $ 21,691,057

51 Ernst & Young LLP Assurance | Tax | Transactions | Advisory

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APPENDIX C

SUMMARY OF PRINCIPAL FINANCING DOCUMENTS

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APPENDIX C

SUMMARY OF PRINCIPAL FINANCING DOCUMENTS

The following summaries of certain provisions of the Indenture, the Loan Agreement and the Mortgage are not to be regarded as full statements thereof, and reference should be made to the instruments themselves for all terms and provisions thereof.

DEFINITION OF TERMS

“1998 Bonds” means the Authority’s Hospital Revenue Bonds, Series of 1998 (The Washington Hospital Project). “2001A Bonds” means the Authority’s Hospital Revenue Refunding Bonds, Series 2001A (The Washington Hospital Project). “2001B Bonds” means the Authority’s Hospital Revenue Refunding Bonds, Series 2001B (The Washington Hospital Project). “2007 Bonds” means the 2007A Bonds and the 2007B Bonds. “2007A Bonds” means the Authority’s Hospital Revenue Refunding Bonds, Series 2007A (The Washington Hospital Project). “2007B Bonds” means the Authority’s Hospital Revenue Refunding Bonds, Series 2007B (The Washington Hospital Project). “2008A Bonds” means the Authority’s Hospital Revenue Refunding Bonds, Series 2008A (The Washington Hospital Project). “2013A Bonds” means the Authority’s Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project). “Additional Bonds” means Bonds of any series authorized under the Indenture, other than the 2001 Bonds, the 2007 Bonds, the 2008A Bonds and the 2013A Bonds, duly executed, authenticated, issued and delivered pursuant to the provisions thereof, but shall not refer or apply to bonds issued under any other indenture or bond resolution of the Authority. “Alternate Letter of Credit” means a Letter of Credit provided in accordance with the Indenture, including, without limitation, a letter of credit or line of credit of a commercial bank or a credit facility from a financial institution, including, among others, a bond insurance policy, surety bond or like collateralization, or a combination thereof, which provides security for payment of the principal of and interest on Outstanding Bonds bearing interest at a variable rate when due (referred to in this definition as “credit support”) and for payment of the purchase price of the variable rate Bonds delivered or deemed delivered in accordance with the Indenture (referred to in this definition as “liquidity support”) “Administrative Expenses” shall mean compensation and expenses of officers and members of the Board of the Authority, legal, printing, advertising, architectural, engineering and auditing fees and expenses, and other items of general administrative expense incurred by the Authority allocable to the Indenture, the Bonds or any Capital Additions. “Authority” means the Washington County Hospital Authority, a body corporate and politic organized and existing under the laws of the Commonwealth of Pennsylvania, having its principal office in the City of Washington, Pennsylvania. “Authorized Denomination” means, with respect to the 2013A Bonds, $5,000 and integral multiples thereof. “Balloon Indebtedness” means any Long Term Indebtedness more than 25% of the principal amount of which is payable in the same Fiscal Year after giving effect to scheduled mandatory redemptions or prepayments payable prior to such Fiscal Year; provided, however, Balloon Indebtedness shall not include Interim Indebtedness or Intermediate Term Indebtedness. “Bank” means, with respect to the Bonds bearing interest at a variable rate, the bank or other financial institution then obligated under the Reimbursement Agreement at the time in effect, and means, with respect to any series of Additional Bonds, the bank or other financial institution then obligated under a Letter of Credit. “Bond” or “Bonds” means one or more of the 2001 Bonds, the 2007 Bonds, the 2008A Bonds, the 2013A Bonds and any Additional Bonds. “Bond Index” means (a) with respect to any Outstanding Indebtedness, a rate equal to the lesser of (i) the rate in effect on the last day of the preceding Fiscal Year or (ii) the weighted average of actual interest rates over the preceding three year period, or if such Indebtedness shall have borne a variable rate for less than a three year period, the average of such lesser period; and (b) with respect to any proposed Indebtedness, the average interest rate on Outstanding Variable Rate Indebtedness for the twelve (12) months immediately preceding the month prior to such calculation, or if no Variable Rate Indebtedness shall have been Outstanding for twelve (12) months, by reference to an index comparable to that to be utilized in determining the interest rate for the Variable Rate Indebtedness then proposed to be issued, or if no index is to be used, by reference to the Bond Market Association Index.

“Bond Insurer” means that entity providing Bond Insurance with respect to a series of the Bonds, and means, with respect to the 2001A Bonds, Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance company. “Book Value” means the value of an asset, net of accumulated depreciation, if any, as reported in the financial statements of the Hospital, which financial statements shall have been prepared in accordance with GAAP. “Business Day” means, with respect to the 2013A Bonds, a day which is not (a) a Saturday or Sunday, (b) a day on which banking institutions in the Commonwealth of Pennsylvania, the State of New York, or in any other city where the designated office of the Trustee is located are required or authorized by law (including executive order) or other governmental action to be closed or on which the designated office of the Trustee is closed for a reason not related to financial condition, or (c) a day on which The New York Stock Exchange is closed. “Capital Additions” shall mean any and all additions and improvements to the Hospital Premises, including, without intending to limit the generality of the foregoing, additions and improvements to and alterations of existing buildings, additional buildings, additional lands for Hospital purposes, improvements to grounds, and additional furnishings and equipment and any extraordinary repairs, renewals or replacements to the Hospital Premises. “Capitalization” shall mean the principal amount of all Long Term Indebtedness and Short Term Indebtedness (including the current portion of Long Term Indebtedness) Outstanding plus the equity accounts of the Hospital (i.e. unrestricted fund balances including any shareholder equity determined in accordance with generally accepted accounting principles). In the case of Long Term Indebtedness issued or incurred at a discount, such Long Term Indebtedness shall be valued at the accreted value thereof. “Closing Date” means the date of initial issuance and delivery of the 2013A Bonds. “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 Bonds or the use of the proceeds thereof. “Completion Indebtedness” means any Long Term Indebtedness incurred by the Hospital for the purpose of completing facilities for which Long Term Indebtedness had theretofore been incurred in accordance with the provisions of the Indenture, to the extent necessary to provide a completed and equipped facility of the type and scope contemplated at the time that such Long Term Indebtedness was originally incurred, and in accordance with the general plans and specifications for such facility as originally prepared with only such changes as have been made in conformance with the documents pursuant to which such Long Term Indebtedness was originally incurred. “Consultant” means an Independent, recognized consulting firm which is appointed by the Hospital, and acceptable to the Bond Insurer, for the purpose of passing on questions relating to the financial affairs or management or operations of the Hospital, has a favorable reputation for skill and experience in performing similar services in respect of entities of a comparable size and nature. If any Consultant's report or opinion is required to be given with respect to matters partly within and partly without the expertise of any Consultant, such Consultant may rely upon the report or opinion of another Consultant possessing the necessary expertise. “Cost” or “Costs” in connection with the Project or any other project financed under the Indenture, means all expenses which are properly chargeable thereto under GAAP which are permitted costs under the Act. “Days Cash On Hand” means the number determined as of the end each Fiscal Year (unless otherwise specified) by dividing (A) the Unrestricted Cash and Investments by (B) the quotient of (i) operating expenses less depreciation and amortization divided by (ii) the number of calendar days in the Fiscal Year. “Debt Service Requirements” means, for any specified period, all payments with respect to Long Term Indebtedness, including, but not limited to, the following: (a) the amounts payable as lease rentals with respect to any and all Long Term Indebtedness incurred in the form of capitalized leases (determined in accordance with GAAP), and (b) the amounts payable to any or all holders of Long Term Indebtedness other than capitalized leases (or to any trustee or paying agent for such holders) in respect of the principal of such Long Term Indebtedness (including mandatory redemptions or prepayments of principal) and the interest on such Long Term Indebtedness; provided, however, that (i) the amounts deemed payable in respect of interest shall not include interest on any Long Term Indebtedness which is funded from the proceeds thereof; (ii) Debt Service Requirements shall not include principal or interest on Long Term Indebtedness to the extent legally defeased pursuant to the terms of the documents under which such Long Term Indebtedness has been incurred; and (iii) the foregoing shall be subject to adjustment and recalculation as and to the extent permitted or required by the applicable the Loan Agreement. “Documents” means the Original Loan Agreement, as supplemented and amended by, among others, the Fifth Supplemental Loan Agreement, the Original Indenture, as supplemented and amended by, among others, the Eighth Supplemental Indenture, the Bonds and all other documents executed by the Hospital or the Authority in connection therewith. “DTC” means The Depository Trust Company, New York, New York, or any successor thereto engaged by the Authority at the request of the Hospital to operate a book-entry system for recording, through electronic or manual means, the ownership of the Bonds, in which system no physical certificates are issued, but in which a limited number of physical certificates are issued to and registered in the name of DTC or its nominee, and delivered to DTC; provided, that such book-entry system -2- operated by DTC may include the use of subsystems of recording the ownership of Bonds which are operated by parties other than DTC and the use of a nominee for DTC; and the term “DTC,” as used herein, includes any party operating any such subsystem. “Favorable Opinion” means an opinion of nationally recognized bond counsel to the effect that (i) the action proposed to be taken is authorized or permitted by the Act and the Indenture and (ii) such action will not adversely affect the exclusion from gross income of interest on the 2013A Bonds for purposes of federal income taxation. “Fifth Supplemental Loan Agreement” means the Fifth Supplemental Loan Agreement, dated as of February 1, 2013, supplementing and amending the Original Loan Agreement. “GAAP” shall mean generally accepted accounting principles as defined more specifically in the Loan Agreement. “Government Obligations” means the following: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, (b) evidences of ownership of a proportionate interest in specified direct obligations the payment of the principal of and interest on which are unconditionally guaranteed by the United States of America, which obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian, (c) obligations issued by the Resolution Funding Corporation pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (the “FIRREA”), the interest on which obligations, to the extent not paid from other specified sources, is payable when due by the Secretary of the Treasury pursuant to the FIRREA, and (d) except for the purposes of defeasance, any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state; and (A) which are rated, based on the escrow, in the highest rating category (disregarding qualifications of such categories by numerical symbols or symbols such as “+” or “-”) of each Rating Agency; and (B)(i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow fund consisting only of cash or obligations described in paragraphs (a), (b) or (c) above, which escrow fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow fund is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. “Governmental Requirements” means any law, ordinance, order, rule or regulation of the United States of America, the Commonwealth and any political subdivision thereof, and any agency, department, commission, board, bureau or instrumentality of any of them, including but not limited to laws, ordinances, orders, rules or regulations regarding zoning, subdivision, building, safety or environmental matters. “Gross Revenues” means all receipts, revenues, income, rentals, gifts, bequests, contributions and other moneys received or receivable ( in accordance with GAAP) by or on behalf of the Hospital, and all rights thereto whether in the form of accounts, contract rights, chattel paper, goods, documents, instruments, choses in action, general intangibles or other rights and the proceeds thereof and any insurance thereon, whether now existing or hereafter acquired by the Hospital; provided, however, that there shall be excluded from Gross Revenues gifts, grants, bequests, donations and contributions heretofore or hereafter made, designated or intended at the time of making thereof by the donor or maker as being for certain specified purposes (which purposes are inconsistent with the pledging thereof) or as not being subject to pledge, and the income or gains derived therefrom to the extent required by such designation or restriction. “Hospital” means The Washington Hospital, a nonprofit corporation duly organized and existing under the laws of the Commonwealth of Pennsylvania, its successors and assigns. “Hospital Premises” means the Hospital’s main campus, as more particularly described in the Indenture and the Mortgage. “Immediate Notice” means, with respect to the 2013A Bonds, notice by telephone, telex or telecopier to such address as the addressee shall have directed in writing, promptly followed by written notice by first class mail, postage prepaid. “Indebtedness” means, without duplication, (1) all obligations of the Hospital for borrowed money or with respect to deposits or advances of any kind, (2) all obligations of the Hospital evidenced by bonds, debentures, notes or similar instruments, (3) all obligations of the Hospital upon which interest charges are customarily paid, (4) all obligations of the Hospital under conditional sale or other title retention agreements relating to property acquired by the Hospital, (5) all obligations of the Hospital in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (6) all debt of others secured by (or for which the holder of such debt has an existing right, contingent or otherwise, to be secured by) any lien on property owned or acquired by the Hospital, whether or not the debt secured thereby has been assumed, (7) all guarantees by the Hospital of debt of others, excluding operating lease payment guarantees, (8) all capital

-3- lease obligations of the Hospital, (9) all obligations, contingent or otherwise, of the Hospital as an account party in respect to letters of credit and letters of guaranty and (10) all obligations, contingent or otherwise, of the Hospital in respect of bankers' acceptances, (11) short-term portion of long term debt, and (12) all short-term debt (including commercial paper, lines of credit, etc.). The Indebtedness of the Hospital shall include the debt of any other entity (including any partnership in which the Hospital is a general partner) to the extent the Hospital is liable therefore as a result of the Hospital's ownership interest in or other relationship with such entity, except to the extent the terms of such debt provides that the Hospital is not liable therefore. With the exception of Synthetic Debt, debt shall include payment obligations under capital leases that are off-balance sheet, “synthetic” or similar leases for the purpose of acquiring or financing a capital asset. For all purposes of determining the amount of Indebtedness, Indebtedness shall not include (i) any contingent liability resulting from the defeasance of any Indebtedness pursuant to its terms or debt service on Indebtedness secured by an escrow invested in Government Obligations to the extent so secured, (ii) liabilities arising in the ordinary course of business, including, but not limited to, accounts payable, take or pay contracts and contracts to construct additions to or renovations of property, unless such liabilities become overdue for a period in excess of that which is ordinary for similar institutions without being contested in good faith by appropriate proceedings. “Indenture” means Trust Indenture dated as of May 1, 1987, as supplemented by a First Supplemental Trust Indenture dated as of July 1, 1990, a Second Supplemental Trust Indenture dated as of April 15, 1993, a Third Supplemental Trust Indenture dated as of April 1, 1998, a Fourth Supplemental Trust Indenture dated as of May 15, 2001, a Fifth Supplemental Indenture dated as of July 1, 2004, a Sixth Supplemental Indenture dated as of March 15, 2007, a Seventh Supplemental Indenture dated as of June 15, 2008, and an Eighth Supplemental Indenture dated as of February 1, 2013, by and between the Authority and the Trustee. “Interest Payment Date” means, with respect to the 2013A Bonds, each January 1 and July 1, commencing July 1, 2013. “Interim Indebtedness” means Indebtedness other than Short Term Indebtedness and Intermediate Term Indebtedness incurred by the Hospital which shall mature within 60 months of the date of incurrence. “Intermediate Term Indebtedness” means Indebtedness other than Short Term Indebtedness incurred by the Hospital for any of the following: (a) payment under leases which are capitalized in accordance with GAAP having an original term, or a term renewable at the option of the lessee for a period from the date originally incurred, in excess of one year but not more than five years; (b) payments under installment purchase contracts having an original term in excess of one year but less than five years; and (c) payments under construction contracts pursuant to which payment is expected to be completed more than one year, but not more than five years, from the date on which construction commenced, except to the extent that such payments have been provided for from sources other than future operations as evidenced by an Officer's Certificate delivered to the Trustee. “Letter of Credit” means, with respect to the Outstanding Bonds bearing interest at a variable rate (the 2001B Bonds, the 2007 Bonds and the 2008 Bonds), the letter of credit or line of credit of a commercial bank or a credit facility from a financial institution, including, among others, a bond insurance policy, surety bond or like collateralization, or a combination thereof, which provides security for payment of the principal of and interest on the series of Additional Bonds when due (referred to in this definition as “credit support”) and for payment of the purchase price of the series of Additional Bonds delivered or deemed delivered in accordance with the provisions of a Supplemental Indenture (referred to in this definition as “liquidity support”). “Letter of Representation” means the Letter of Representation signed by the Authority, the Auction Agent and the Trustee, and accepted by DTC, pertaining to the payment of the 2013A Bonds and the “book-entry” system for evidencing the beneficial ownership of the 2013A Bonds prior to the Book-Entry Termination Date, and shall include any supplements or amendments thereto. “Loan” means the loan to the Hospital by the Authority, concurrently with the issuance of the Bonds, of the gross proceeds from the sale of the Bonds for the purpose of financing the Project. “Loan Agreement” shall mean the Loan Agreement, dated as of April 1, 1998, as supplemented and amended by the First Supplemental Loan Agreement dated as of May 15, 2001, the Second Supplemental Loan Agreement dated as of July 1, 2004, the Third Supplemental Loan Agreement dated as of March 15, 2007, the Fourth Supplemental Loan Agreement dated as of June 15, 2008, and the Fifth Supplemental Loan Agreement dated as of February 1, 2013, between the Hospital and the Authority pursuant to which the Authority has loaned the proceeds of the Bonds to the Hospital and the Hospital has agreed to make payments to the Authority, which have been assigned to the Trustee, sufficient to pay, among other things, debt service on the Bonds. “Long Term Indebtedness” means all Indebtedness other than (A) Short Term Indebtedness; (B) current obligations payable out of current revenues, including current payments for the funding of pension plans obligations; (C) obligations under contracts for supplies, services and pensions, allocable to the current operating expenses of future years in which the supplies are to be furnished, the services rendered or the pensions paid; and (D) rentals payable under leases which are not required to be capitalized under GAAP.

-4- “Maximum Annual Debt Service Coverage Ratio” means for any period of time the ratio determined by dividing the Revenues Available for Debt Service by the Maximum Annual Debt Service Requirements. “Maximum Annual Debt Service Requirements” means the maximum amount of Debt Service Requirements required to be paid in the then current or any subsequent Fiscal Year. “Mortgage”, means the Open Ended Mortgage and Security Agreement, dated as of July 1, 2004, as supplemented by a First Supplemental Mortgage dated as of March 15, 2007, a Second Supplemental Mortgage dated as of June 15, 2008, a Third Supplemental Mortgage dated as of July 2, 2012, a Partial Release of Mortgage dated March 2, 2011 (the “Partial Release of Mortgage”) correcting the description of the Mortgaged Property, and a Fourth Supplemental Mortgage dated as of February 1, 2013, pursuant to which the Hospital granted a mortgage interest in the Hospital Premises to the Trustee and the Banks to secure its obligations under the Loan Agreement and each Reimbursement Agreement. “Net Proceeds”, means proceeds from insurance or condemnation awards received with respect to damage to or a taking by eminent domain of the Hospital Premises, net of payment of all reasonable expenses (including attorney's fees, adjuster's fees and expenses of the Trustee). “Nonoperating Revenues” means, for any Fiscal Year, all nonoperating revenues of the Hospital for such period, including investment income, except for unrealized gains on investments and gifts, grants, bequests, donations, other similar contributions (other amounts constituting nonoperating revenues under GAAP) and the income from the foregoing, to the extent that such amounts are unavailable for the payment of Debt Service Requirements as a result of restrictions imposed by the donor or maker at the time of their making or applicable laws and regulations in effect from time to time. “Non-Recourse Indebtedness” means any indebtedness the holder of which has no claim for any payments in respect thereof against the general credit of the Hospital or against any properties or revenues. “Officer's Certificate” means a certificate signed, in the case of a certificate delivered by the Hospital, by the Chief Executive Officer, Chief Financial Officer, any Vice President, Secretary or Assistant Secretary of the Hospital or, in the case of a certificate delivered by any other Person, the chief executive or chief financial officer of such other Person, in either case whose authority to execute such Certificate shall be evidenced to the satisfaction of the Trustee. “Operating Revenues” means, for any Fiscal Year, all operating revenues of the Hospital for such period, before deduction of operating expenses, but after deduction of (a) contractual allowances and discounts, (b) provision for free care and doubtful accounts, (c) any operating revenues attributable to the ownership or operation of any properties securing Non-Recourse Indebtedness and (d) unrealized gains on investments. “Opinion of Bond Counsel” means a written opinion of nationally recognized bond counsel in form and substance acceptable to the Trustee. “Original Indenture” means Trust Indenture dated as of May 1, 1987, as supplemented by a First Supplemental Trust Indenture dated as of July 1, 1990, a Second Supplemental Trust Indenture dated as of April 15, 1993, a Third Supplemental Trust Indenture dated as of April 1, 1998, a Fourth Supplemental Trust Indenture dated as of May 15, 2001, Fifth Supplemental Indenture dated as of July 1, 2004, and a Sixth Supplemental Indenture dated as of March 15, 2007, and a Seventh Supplemental Indenture dated as of June 15, 2008. “Original Loan Agreement” means the Loan Agreement, dated as of April 1, 1998 as amended by the First Supplemental Loan Agreement dated as of May 15, 2001, a Second Supplemental Loan Agreement dated as of July 1, 2004, and a Third Supplemental Loan Agreement dated as of March 15, 2007 and a Fourth Supplemental Loan Agreement dated as of June 15, 2008. “Outstanding” means, (i) when used with reference to Indebtedness, as of any date of determination, all Indebtedness theretofore issued or incurred and not paid and discharged or deemed to be paid and discharged in accordance with the terms of the instrument or instruments creating or evidencing such Indebtedness; provided, however, that if two or more obligations represent the same underlying Indebtedness as specified in such obligations (as when an affiliate of the Hospital guarantees Indebtedness of the Hospital or when Indebtedness secures an issue of bonds and another obligation secures the repayment obligation to a bank under a letter of credit which secures such bonds) and if and to the extent that taking both such obligations into account would duplicate the debt service requirements to be made with respect to such underlying Indebtedness, for purposes of the various financial covenants contained in the Loan Agreement, but only for such purposes, only one of such obligations shall be deemed Outstanding; and (ii) with respect to the Bonds, as of any given date, all Bonds which have been duly authenticated and delivered under the Indenture, except: (a) Bonds canceled after purchase in the open market or because of payment at or redemption prior to the maturity date; (b) Bonds for the payment or redemption of which cash or Government Obligations shall have been theretofore deposited with the Trustee (whether upon or prior to the maturity date or redemption date of any such Bonds) in accordance with the Indenture; provided that if such Bonds are to be redeemed prior to the maturity date thereof, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee shall have been filed with the Trustee; and (c) Bonds in lieu of which others have been authenticated under the Indenture. “Participants” means those securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations that participate with DTC in a system under which DTC holds securities of its participants and facilitates the

-5- clearance and settlement of securities transactions in such securities through electronic book-entry changes in accounts of the participants. “Permanent Loan Commitment” means a binding loan commitment (a) which is issued in favor of the Hospital, and (b) pursuant to which a Qualified Financial Institution agrees to make a loan constituting Long Term Indebtedness to the Hospital for the purpose of retiring any outstanding Indebtedness of the Hospital. “Permitted Investments” means: (1) Government Obligations; (2) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including:  Export - Import Bank  Farm Credit System Financial Assistance Corporation;  Rural Economic Community Development Administration (formerly the Farmers Home Administration);  General Services Administration  U.S. Maritime Administration  Small Business Administration  Government National Mortgage Association (GNMA)  U.S. Department of Housing & Urban Development (PHA's)  Federal Housing Administration;  Federal Financing Bank;  Agency for International Development; and  Overseas Private Investment Corporation; (3) bond, notes or other evidences of indebtedness rated “AAA” by Standard & Poor's Corporation and “Aaa” by Moody's Investor's Service issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation Resolution Funding Corporation (REFCORP) principal strips, and Federal Home Loan Bank Systems (FHLB); (4) U.S. dollar denominated deposit accounts, federal funds and banker's acceptances with domestic commercial banks which have a rating on their short-term certificates of deposit on the date of purchase of “A-1 “ or “A-1 + “ by Standard & Poor's and “P-1 “ by Moody's and maturing no more than 360 days after the date of purchase; provided that ratings on holding companies are not considered as the rating of the bank; (5) commercial paper which is rated at the time of purchase in the single highest classification, “A-1” by Standard & Poor's and “P-1” by Moody's Investor's Service and which matures not more than 270 days after the date of purchase; (6) investments in a money market fund rated “AAAm” or “AAAm—G” or better by each Rating Agency; (7) investment agreements, including guaranteed investment contracts, repurchase agreements, and forward delivery agreements, which are obligations of an entity whose senior long term debt obligations or claims-paying ability are rated, or guaranteed by an entity whose obligations are rated, (at the time the investment is entered into) not lower than the second highest rating category by a Rating Agency without gradations or numerical qualifier within such category; and (8) other forms of investments approved in writing by the Bank; provided, however, that amounts representing accrued or capitalized interest and amounts deposited with the Trustee for defeasance purposes shall only be held in cash or invested in Government Obligations. “Permitted Liens and Title Defects” shall the mean the following: (a) liens arising by reason of good faith deposits with the Hospital in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Hospital to secure public or statutory obligations, or to secure or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; (b) any lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable the Hospital to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with worker's compensation, unemployment insurance, old age pensions or other social security, or to share in the privileges or benefits required for institutions participating in such arrangements; (c) any judgment lien against the Hospital so long as the finality of such judgment is being contested in good faith and execution thereon is stayed;

-6- (d) rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any property, to (i) terminate such right, power, franchise, grant, license or permit, provided that the exercise of such right would not materially impair the use of such property for its intended purpose or materially and adversely affect the value thereof, or (ii) purchase, condemn, appropriate or recapture, or designate a purchaser of such property; (e) any liens on any property for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any liens of mechanics, materialmen and laborers for work or services performed or materials furnished in connection with such property (i) which are not due and payable or are not delinquent, (ii) the amount or validity of which are being contested in good faith and on which execution is stayed or (iii) the existence of which will not materially impair the pledge and security interest of the Indenture or the Loan Agreement, or subject any property of the Hospital to material loss or forfeiture; (f) any lease which, in the judgment of the Hospital is reasonably necessary or appropriate for or incidental to the proper and economical operation of such property, taking into account the nature and terms of the lease and the nature and purposes of the property subject thereto; (g) easements, rights-of-way, restrictions and other minor defects, encumbrances, and irregularities in the title to any property which do not materially impair the use of such property for its intended purpose or materially and adversely affect the value thereof; (h) rights reserved to or vested in any municipality or public authority to control or regulate any property or to use such property in any manner, which rights do not materially impair the use of such property for its intended purposes or materially and adversely affect the value thereof; (i) any lien or security interest which is existing on the date of the Loan Agreement, provided that no lien or security interest so described or the indebtedness secured thereby may be extended or renewed (which terms shall not apply to the filing of any continuation statements under the Uniform Commercial Code) or modified to spread to any property not subject to such lien or security interest on the date of the Loan Agreement, except to the extent that such lien or security interest, as so extended, renewed or modified could have been granted or created under any provision of the Loan Agreement; (j) any leasehold interest granted by the Hospital to a state, a political subdivision of a state, the District of Columbia or any department, agency, authority or instrumentality of the foregoing in connection with a financing or refinancing transaction pursuant to which the lessee has issued its bonds, notes or other similar obligations or has obtained any government grants and has made the net proceeds thereof available to the Hospital as rental payments under the lease, provided that (i) the term of the lease has a stated expiration date not later than 30 days after the stated maturity date of any bonds, notes or other obligations issued as aforesaid or the date by which the Hospital is required to repay to the lessee the full amount of any grant so obtained and any interest thereon charged by the lessee, and such term is subject to sooner termination upon payment (or provision for payment) by the Hospital of all sums payable by the lessee in respect of its bonds, notes or other obligations so issued or to the lessee in respect of any grant so obtained and all fees payable to and expenses incurred by the lessee in connection with the transaction, and (ii) concurrently with the execution of any such lease, the lessee subleases the leased Hospital Premises to the Hospital pursuant to a sublease which provides for the payment by the Hospital of sublease rentals in the amounts and at the times required for the payment of the sums described in clause (i) above, and which further provides that the Hospital shall be entitled to exclusive possession of the leased Hospital Premises for so long as it is not in default of its rental payment and other obligations under the sublease and that any right of the lessee to dispossess the Hospital and to relet the leased Hospital Premises to another party shall be limited to the remaining term of the lessee's leasehold; (k) any lien or security interest which will not adversely affect the normal operations of the Hospital, and for which the Hospital has received the prior written consent of the Bond Insurer; (l) any lien on property received by the Hospital as a gift, grant or bequest, such lien being due to restrictions imposed by the donor, grantor, or testator of such gift, grant or bequest; (m) liens granted in connection with the incurrence of Indebtedness under the Loan Agreement; and (n) Any lien or security interest in the Gross Revenues or other property of the Hospital granted to a Qualified Provider to secure periodic payments and termination payments due with respect to a Qualified Derivative; provided, however, that to the extent that a lien or security interest is granted to secure (i) periodic payments due with respect to a Qualified Derivative, such lien or security interest may share a parity position with the lien and security interest granted to secure the Bonds, and (ii) termination payments due with respect to a Qualified Derivative, such lien or security interest shall be subordinate to the lien and security interest granted to secure Bonds; and provided further that such Qualified Provider (A) shall have given written notice to the Trustee of the nature of the security interest granted and (B) shall have agreed in writing with the Trustee to notify the Trustee of the Hospital’s failure to make periodic payments under a Qualified Derivative in advance of taking action to enforce its rights under any such lien or security interest sharing a parity claim to the Gross Revenues of the Hospital.. “Person” shall mean 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.

-7- “Project” means (a) refunding the Washington County Hospital Authority's Hospital Revenue Refunding Bonds, Series 1998 (The Washington Hospital Project), (b) funding any necessary reserves, and (c) paying a portion of the costs of issuance of the 2013A Bonds. “Property” means any and all rights, titles and interests in and to any and all property, whether real or personal, tangible or intangible and wherever situated, other than cash, cash equivalents and investment securities. “Property, Plant and Equipment” means the line item labeled as such on the financial statements of the Hospital prepared in accordance with GAAP. “Put Indebtedness” means Indebtedness which is (a) payable or required to be purchased or redeemed by or on behalf of the underlying obligor, at the option of the owner thereof, prior to its stated maturity date or (b) payable or required to be purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner) prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund or other than by reason of acceleration upon the occurrence of an event of default. “Qualified Derivative” means an interest rate swap, cap, collar, floor, forward option, or other hedging agreement, arrangement or security, however denominated, identified to the Trustee as having been entered into by the Hospital with a Qualified Provider not for investment purposes but with respect to Indebtedness for the purpose of (1) reducing or otherwise managing the Hospital’s risk of interest rate changes or (2) effectively converting the Hospital’s interest rate exposure, in whole or in part, from a fixed rate exposure to a variable rate exposure, or from a variable rate exposure to a fixed rate exposure. “Qualified Financial Institution” shall mean (a) any U.S. domestic institution which is a bank, trust company, national banking association or a corporation subject to registration with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, or a member of the National Association of Securities Dealers, Inc. whose unsecured obligations or uncollateralized long-term debt obligations have been assigned a rating within the three highest rating categories by Standard & Poor’s or Moody's Investors Service or which has issued a letter of credit, contract, agreement or surety bond in support of debt obligations which have been so rated; (b) an insurance company with a claims paying ability rated in the highest rating category by Standard & Poor’s or Moody's Investors Service or whose unsecured obligations or uncollateralized long-term debt obligations have been assigned a rating within the highest rating category by Standard & Poor’s or Moody's Investors Service; or (c) any banking institution whose unsecured obligations or uncollateralized long-term debt obligations have been assigned a rating within one of the three highest rating categories by S&P or Moody's. “Qualified Provider” means a financial institution which is a party to an interest rate swap, cap, collar, floor, forward option, or other hedging agreement, arrangement or security and which is rated at least “AA-” by S&P or “Aa3” by Moody’s or is acceptable to the Bond Insurer. “Rating Agency” means each nationally recognized securities rating service which at the time has a credit rating assigned to the Bonds at the request of the Hospital. “Receipts and Revenues” shall mean all Rental, revenues, receipts and moneys of the Authority derived or to be derived in any manner from or in connection with the Hospital Premises, including all sums of money due and payable to the Authority or the Trustee under the Loan Agreement and all interest, income and profit derived from the investment of moneys held under the Indenture. “Reimbursement Agreement” means, with respect to the Outstanding Bonds bearing interest at a variable rate, the agreement, between the Bank and the Hospital, pursuant to which the Bank has issued a Letter of Credit supporting payments on such Bonds. “Reimbursement Facility” means an unconditional irrevocable letter of credit, a line of credit which is revocable only upon the insolvency of the Hospital for whose account the line is established, a guaranty or an indemnity or surety insurance policy or bond which is issued (a) in favor of the holder of any Indebtedness for the purpose of providing a source of funds for the payment of all or any portion of the Hospital's payment obligations under the Indebtedness, and (b) by a Qualified Financial Institution. “Regular Record Date” means with respect to the 2013A Bonds, the fifteenth day of the month immediately preceding the relevant Interest Payment Date (whether or not a Business Day). “Rental” shall mean the amounts payable pursuant to the Loan Agreement and such other amounts as may be payable pursuant to any similar section of any supplement to the Loan Agreement with respect to the Bonds. “Revenues Available for Debt Service” means, for any Fiscal Year, the sum of (a) the excess of (1) all Operating Revenues and Nonoperating Revenues received during the period under consideration over (2) all operating and nonoperating expenses incurred during such period (other than expenses incurred in respect of the ownership or operation of properties securing Non-Recourse Indebtedness); plus (b) expenses incurred or recognized during the period under consideration in respect of (1) the interest on Long Term Indebtedness coming due within such Fiscal Year, (2) the amortization of financing charges and bond discount attributable to Long Term Indebtedness, and (3) depreciation and amortization attributable to the ownership or operation of all properties and investments. Notwithstanding the foregoing, no determination of Revenues Available for Debt Service shall take into account any extraordinary gains or losses, unrealized gains or losses resulting from the periodic valuation of investments, gains or loses resulting from the defeasance or discharge of Long Term Indebtedness, interest rate swap agreements, or similar agreements provided that, for such purposes, in determining gain or loss from the sale of or disposition of any asset for which an “other than temporary” impairment -8- loss has theretofore been recognized in accordance with Financial Accounting Standards (FAS) 115, any such gain shall be reduced (and any such loss shall be increased) by the amount of such loss previously recognized. “Short Term Indebtedness” means any Indebtedness which (a) matures not later than 365 consecutive days after it is incurred; or (b) is payable upon demand within such 365 day period at the option of the holder unless secured by or subject to a liquidity facility that is treated as Long Term Indebtedness pursuant to its terms; provided that the term “Short Term Indebtedness” shall not include any Non-Recourse Indebtedness. “SIFMA Municipal Swap Index” means the Securities Industry and Financial Market Association (“SIFMA”) Municipal Swap Index (formerly known as the Bond Market Association Municipal Index) as of the most recent date for which such index was published or such other weekly, high-grade index comprised of seven-day, tax-exempt variable rate demand notes produced by Municipal Market Data, Inc., or its successor, or as otherwise designated by SIFMA; provided, however, that, if such index is no longer produced by Municipal Market Data, Inc. or its successor, then SIFMA Municipal Swap Index” shall mean such other reasonably comparable index selected by the Hospital for which written notice has been given to the Trustee. “Subordinated Indebtedness” means Indebtedness which is evidenced by instruments, or issued under an indenture or other document, containing provisions limiting the security for such Indebtedness to an interest in the Trust Estate inferior or junior to that granted the Bondholders and the holders of other Indebtedness secured on a parity basis with the Bonds. “Synthetic Debt” shall mean the monetary obligation of a person under (i) a so-called synthetic or off-balance sheet or tax retention lease of real property or (ii) an agreement for the use or possession of real property creating obligations that do not appear on the balance sheet of such Person, which (x) contains a residual guarantee by such Person, within the meaning of FAS No. 13 - Accounting for Leases, and (y) upon the insolvency or bankruptcy of such Person, would be characterized as indebtedness of such Person (without regard to accounting treatment). The amount of synthetic lease obligations of any Person under any such lease or agreement shall be the amount which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP if such lease or agreement were accounted for as a capitalized lease. Synthetic lease obligations shall be included in all financial ratios and the maximum annual synthetic lease payment shall be included in the calculation of debt service. “Total Revenues” means the sum of Operating Revenues and Nonoperating Revenues. “Trust Estate” means any and all Receipts and Revenues of the Authority derived or to be derived in any manner from or in connection with the Hospital Premises and all of the right, title and interest of the Authority in and to the Loan Agreement (excluding the right to payment of Administrative Expenses and rights of indemnification), together with all sums of money due or payable or to become due and payable thereunder to the Authority or to the Trustee by the Hospital and all moneys, securities and funds at any time held or set aside by the Trustee pursuant to the provisions of the Indenture. “Trustee” means The Bank of New York Mellon Trust Company, N.A., as successor trustee to J.P. Morgan Trust Company, National Association, a national banking association organized and existing under and by virtue of the laws of the United States of America, and having power and authority to accept and execute trusts, having an office in the City of Pittsburgh, Pennsylvania. “Unassigned Rights” means the fees and expenses payable to the Authority, the Authority's right to indemnification under the Loan Agreement and the Authority's right to execute and deliver supplements and amendments to the Loan Agreement. “Unrestricted Cash and Investments” means, as determined by reference to the audited financial statements of the Hospital most recently available (unless otherwise specified), the sum of cash, cash equivalents and unrestricted marketable or liquid securities and investments, but excluding proceeds of Indebtedness and trustee-held funds, reserves, deposits or set-asides (A) derived from or for the payment of Indebtedness, including debt service, construction and reserve funds or (B) created to meet an obligation or potential obligation of the Hospital other than with respect to costs of operations or improvements, including but not limited to, for (i) liability (including malpractice) exposure, self insurance or “captive” insurer commitments and (ii) pension or retirement fund purposes. “Variable Rate Indebtedness” means any Long Term Indebtedness, the rate of interest on which is subject to change prior to maturity.

THE INDENTURE

The 2013A Bonds will be issued under and are subject to the provisions of the Indenture, to which reference is made for complete details of the terms of the 2013A Bonds. The following summarizes certain provisions of the Indenture but is not to be regarded as a full statement thereof and reference should be made to the Indenture itself for all of the provisions thereof. Pledge and Assignment In order to secure the payment of the Bonds and the performance and observance of the covenants in the Indenture, the Authority sells, assigns, transfers, sets over and pledges the Trust Estate to the Trustee under the Indenture.

-9- Disposition of Proceeds Upon the issuance and delivery of the 2013A Bonds, the Authority will transfer the proceeds to the Trustee, and the Trustee will deposit the same in the Series 2013A Clearing Fund to be applied in accordance with the provisions of the Indenture, and upon the issuance of any Additional Bonds the Trustee will deposit the proceeds thereof in a construction fund established for the Capital Additions for which the Bonds of such series were issued, or if the purpose is refunding or any other lawful purpose for which the Authority may issue its Bonds, the proceeds and any other amounts to be added thereto will be deposited in a special fund especially established for such purpose. Any portion of such proceeds representing accrued or capitalized interest on the Bonds will be then transferred to the Interest Account of the Debt Service Fund, and any portion representing reserves will be transferred to the Debt Service Fund or such other appropriate reserve fund as may be established for the Bonds of such series in accordance with the indenture or a supplemental indenture. Revenue Fund All Rental payable by the Hospital under the Loan Agreement and any and all money received by the Trustee in connection with the Hospital Premises, as provided in the Indenture, is to be deposited by the Trustee in the Revenue Fund; that portion of Rental representing interest due on the Bonds on the next succeeding interest payment date will be deposited by the Trustee in the Interest Payments Account of the Revenue Fund, the portion of Rental representing Administrative Expenses will be deposited in the Administrative Expenses Account of the Revenue Fund and the remaining portion of the Rental will be deposited in the Principal Payments Account of the Revenue Fund. Moneys from time to time in the Revenue Fund will be held by the Trustee, in trust, and are secured and applied as provided in the Indenture. Debt Service Fund The Trustee will transfer from the Revenue Fund and deposit into the Debt Service Fund: (a) on or before June 30, 2013, and on or before each subsequent June 30 and December 31 an amount equal to the interest becoming due on the 2013A Bonds on the next Interest Payment Date, which amount are to be deposited in the Interest Account in the Debt Service Fund; (b) on or before June 30, 2013, and on or before each June 30 thereafter, an amount equal to the principal amount of Outstanding 2013A Bonds which mature on the next maturity date, provided, however, that no deposit shall be made on any date on which deposits are required to be made to the 2013A Bond Sinking Fund pursuant to the Indenture; and (c) such amounts on such dates as may be required by any supplemental indenture for the payment of principal of and interest on Additional Bonds. The Trustee shall, without further direction from the Authority, pay out of the Principal Account the principal of, and out of the Interest Account the interest on, the Bonds as the same shall become due and payable. In lieu of the mandatory sinking fund redemption of 2013A Bonds, the Trustee may, at the written request of the Hospital received no later than 45 days prior to the applicable redemption date, purchase in the open market an equal principal amount of 2013A Bonds of the maturity date to be redeemed at prices not exceeding the principal amount of the 2013A Bonds being purchased plus accrued interest, with such interest portion of the purchase price to be paid from the 2013A Account of the Debt Service Fund. The amount of 2013A Bonds to be redeemed on any date pursuant to the mandatory redemption provisions of the Eighth Supplemental Indenture will be reduced by the principal amount of 2013A Bonds with the same maturity date which are acquired by the Hospital and delivered to the Trustee for cancellation. Payment in Full. Whenever the amount in the Debt Service Fund available for the payment of principal or redemption price of and interest is sufficient to redeem all of the Outstanding 2013A Bonds and to pay interest accrued to the redemption date, the Authority will, on the written request of the Hospital, cause the Trustee to draw moneys from the 2013A Account of the Debt Service Fund to redeem all such 2013A Bonds on the redemption date specified by the Hospital in accordance with the optional redemption provisions of the Eighth Supplemental Indenture. Any amount remaining in the Debt Service Fund after payment in full of the principal or redemption price of and interest on the 2013A Bonds (or provision for the payment thereof), the fees, charges and expenses of the Authority, the Trustee, will be paid to the Person entitled thereto in accordance with the Indenture. Rebate Fund The Rebate Fund shall be created and established with the Trustee separate and apart from the pledge of the Indenture. The Trustee shall make deposits to and disbursements from the Rebate Fund in accordance with the Rebate Instructions and the Indenture, shall invest the Rebate Fund pursuant to the Hospital's instructions and shall deposit income from such investments immediately upon receipt thereof into the Rebate Fund. Anything in the Indenture to the contrary notwithstanding, the rebate provisions of the Indenture may be superseded or amended by new Rebate Instructions delivered by the Hospital and accompanied by a Favorable Opinion. Bonds Redemption and Improvement Fund There will be deposited in the Bond Redemption and Improvement Fund any moneys which may be available for deposit therein as provided in the Indenture. Upon the election of the Hospital not to rebuild or repair the Hospital Premises, the proceeds from insurance or from an eminent domain proceeding received by the Trustee for deposit in the Bond Redemption

-10- and Improvement Fund as therein provided, shall be deposited in the Bond Redemption and Improvement Fund, to be applied to the retirement of outstanding Bonds as soon as practicable together with the payment of accrued interest thereon. All moneys remaining in any construction fund established under a supplemental indenture upon completion of the Capital Addition for which such construction fund was established shall, after making provision for the payment of any unpaid items, be withdrawn by the Trustee and deposited in the Bond Redemption and Improvement Fund. The Trustee shall, without any direction from the Authority, transfer moneys from the Bond Redemption and Improvement Fund to the Debt Service Fund, 2013A Bond Sinking Fund, or any sinking, purchase or analogous fund for any particular series of Bonds as established by any Indenture supplemental hereto, to the extent that the moneys in the Debt Service Fund, 2013A Bond Sinking Fund, or said sinking, purchase or analogous fund at any time may be insufficient to pay the Bonds, and the interest thereon as the same shall become due or any costs involved therewith or to make the withdrawals and deposits required pursuant to the terms of the Indenture. Subject to the foregoing, moneys in the Bond Redemption and Improvement Fund may be used by the Trustee, without any direction of the Authority, at any time, to pay costs of mandatory redemption of the Bonds pursuant to the operation of the 2013A Bond Sinking Fund or any similar sinking purchase or analogous fund or to repair any deficiency in the Debt Services Reserve Fund. Except as described in the preceding paragraph, moneys in the Bond Redemption and Improvement Fund also will be used or applied by the Authority from time to time (provided there are no deficiencies in any of the Funds as described above and no event of default under the Indenture or Loan Agreement) for or toward any of the following purposes, in accordance with the provisions of the Indenture: (a) costs of extraordinary repairs, renewals, replacements, alterations or improvements of the Hospital Premises; or (b) the cost of making Capital Additions; (c) redemption or purchase of Bonds; or (d) to pay, when the same shall become due and payable, any expenses, debts, liabilities and obligations of the Authority in connection with the Indenture for the payment of which provision otherwise shall not have been made; (e) any other lawful purpose for or on behalf of the Hospital, upon request of the Hospital and the Authority. Investment of Funds All investments or deposits shall mature or shall mature or shall be subject to redemption at the option of the holder thereof not later than the date upon which the invested or deposited moneys shall be required for the purposes of the Indenture, provided that, in the case of a repurchase agreement, the foregoing clause shall apply only to the maturity date of such repurchase agreement and not to the maturity date of the underlying obligations securing the same. For the purpose of any investment or reinvestment under this Section, investments shall be deemed to mature at the earliest date on which the obligor is, on demand, obligated to pay a fixed sum in discharge of the whole of such obligation. The Trustee may make any and all investments permitted by the Indenture through its trust department. Interest and profits realized from such investments or deposits made with moneys in a construction fund shall be credited to the Account in the construction fund in which such interest or profit was earned. Interest and profit realized from such investment or deposit of moneys in any other Fund or Account shall be credited to and remain in such Fund or Account or shall be transferred in accordance with the Indenture. Moneys in all Funds shall be invested for such a period as is necessary to carry out the purposes for which such Fund was established. Investments and deposits shall be deemed to constitute unexpended moneys and shall be valued in the manner specified by the Indenture. Covenants of the Authority The Authority covenants, among other things, to promptly pay or cause to be paid, but only from the Receipts and Revenues, the principal of and the interest and premium, if any, on all Outstanding Bonds and to require the Hospital to pay the Rental and other sums payable by it under the Loan Agreement and to observe faithfully all its obligations and agreements under the Loan Agreement. The Authority will cause the Hospital to pay all taxes and assessments levied against the Authority in connection with the Hospital Premises. The Authority covenants that the proceeds of the Bonds or any moneys on deposit with the Trustee will not be used in a manner which would cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. The Authority may instruct the Trustee to take such action as is necessary to restrict or limit the yield on investments of moneys held by the Trustee when the Authority believes such action is necessary to comply with such covenant. Application of Property Insurance Proceeds and Condemnation Awards The Hospital shall notify the Trustee and the Bond Insurer of any damage to or any destruction or condemnation (or other similar taking or conveyance in lieu thereof) of any of the Hospital's Premises in excess of 10% of Property, Plant and Equipment. Any insurance proceeds, condemnation awards (or other similar amounts) received in respect of such occurrence shall be applied at the option of the Hospital as follows: (i) to the reconstruction, replacement or repair of the affected Premises; provided that if such proceeds exceed the amount necessary for such reconstruction, replacement or repair, the excess shall be applied to the Extraordinary Redemption or Optional Redemption of the Bonds, and if such proceeds are insufficient to reconstruct, replace or repair the Premises to its revenue-producing capability prior to such event, then the Hospital shall provide the balance necessary to

-11- reconstruct, replace or repair the Premises unless it receives the written consent of the Bond Insurer that such balance does not have to be provided; or (ii) to the extent permitted under the redemption provisions of the Indenture, to the Extraordinary Redemption or Optional Redemption of the Bonds, in whole, or if there are insufficient proceeds to redeem all of the Bonds then Outstanding and the Hospital chooses not to provide such other moneys sufficient for the Optional Redemption of the balance of such Bonds, then such proceeds shall be applied to the Extraordinary Redemption of a part of the Bonds; provided, that the written consent of the Bond Insurer shall be required for the partial Extraordinary Redemption of the Bonds. Events of Default and Remedies Each of the following shall be an Event of Default under the Indenture: (i) if payment of any installment of interest on any Bond is not made when it becomes due and payable; or (ii) if payment of the principal of or premium, if any, of any Bond is not made when it becomes due and payable at maturity or upon call for redemption; or (iii) if there is a default under the Loan Agreement or any other loan agreement permitted to be entered into pursuant to the Indenture or any amendment or supplement thereto or any other default thereunder, and such default gives the Authority the right to accelerate payments under the Loan Agreement or such other agreement; or (iv) payment of any amount due with Eligible Moneys in respect of the purchase price of Tendered Bonds, delivered to the Tender Agent or the Trustee pursuant to the provisions of the Indenture shall not be made when the same shall become due and payable [applicable to Outstanding Bonds bearing interest at a variable rate]; or (v) so long as the Letter of Credit is in effect with respect to the 2001B Bonds, Eligible Moneys are not on deposit in the LOC Debt Service Account of the Debt Service Fund and available to make payment on any date on which interest, premium, if any, or principal is payable on the 2001B Bonds (other than Pledged Bonds) in an amount sufficient to make payments of principal, premium, if any, and interest becoming due on such 2001B Bonds on such date; or (vi) if there is an event of default under a Reimbursement Agreement and the Bank directs the Trustee to declare an Event of Default and to accelerate payments due on the series of the Bonds secured by the Letter of Credit issued under such Reimbursement Agreement [applicable to Outstanding Bonds bearing interest at a variable rate]. Remedies, Acceleration and Annulment Thereof Subject to the rights of the Bond Insurer and the Bank to control remedies, upon the occurrence of any event of default, the Trustee may pursue any available remedy including a suit at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Bonds outstanding under the Indenture and may request payment under the Bond Insurance. Subject to the rights of the Bond Insurer and the Bank to control remedies, if any Event of Default has occurred and is continuing, the Trustee may, and at written request of the holders of 25% in principal amount of the Bonds then Outstanding, shall, by notice in writing to the Authority, declare the principal of all Bonds then Outstanding to be immediately due and payable, and upon such declaration the said principal, together with interest accrued thereon, shall become due and payable immediately at the place of payment provided therein. If after the principal of the Bonds has been so declared to be due and payable, all arrears of interest upon the Bonds (and interest on overdue installments of interest at the maximum rate permitted by law or 1% over the interest rate on the respective Bonds, whichever is lesser) are paid by the Authority, and the Authority also performs all other things in 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 attorney's fees, then, and in every such case, the Trustee, with the consent of the Bond Insurer with respect to each series of the Bonds if a Bond Insurance is then in effect with respect to such series Bonds and with the consent of the Bank with respect to each series of the Bonds if a Letter of Credit secures such series of Bonds, may annul such declaration and its consequences and such annulment shall be binding upon the Trustee and upon all holders of Bonds issued under the Indenture; but no such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. Notwithstanding any other provision in the Indenture, the Trustee shall demand payment under the Bond Insurance in accordance with its terms and the Indenture in the amount required in order to provide for the payment in full of the principal and interest on the Bonds secured by the Bond Insurance due or to become due by reason of any acceleration required by the Bond Insurer (excluding Bonds owned or held by or for the account of the Authority or the Hospital) and shall immediately take such actions and give such notice as may be required to pay or redeem the Outstanding Bonds entitled to the benefits of the Bond Insurance. Legal Proceedings by Trustee Subject to the rights of the Bond Insurer and the Bank to control remedies, if any Event of Default has occurred and is continuing, the Trustee in its discretion may, and upon the written request of the holders of 25% in principal amount of the Bonds then Outstanding and receipt of indemnity to its satisfaction shall in its own name:

-12- (a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders, including the right to require the Hospital to charge and collect rates, rentals and other charges adequate to carry out the terms of the Indenture and to require the Authority to carry out any other agreements with, or for the benefit of, the Bondholders and to perform its duties under the Act; (b) bring suit upon the Bonds; (c) by action or suit in equity require the Authority to account as if it were the trustee of an express trust for the Bondholders; and (d) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders. Bondholders May Direct Proceedings Subject to the rights of the Bond Insurer and the Bank to control remedies, the holders of a majority in principal amount of the Bonds then Outstanding under the Indenture shall have the right to direct the method and place of conducting all remedial proceedings by the Trustee under the Indenture, provided such written request shall not be otherwise than in accordance with law or the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such written request which in the opinion of the Trustee would be unjustly prejudicial to Bondholders not parties to such written request. Limitations on Actions by Bondholders Subject to the rights of the Bond Insurer and the Bank to control remedies, no Bondholder shall have any 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 amount of the Bonds then Outstanding shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names, (c) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities, and (d) the Trustee shall have failed to comply with such request within a reasonable time. Application of Moneys in Event of Default Provided that amounts drawn under Bond Insurance or a Liquidity Facility, if any, shall be applied solely to pay the principal of and interest on the Bonds secured by such Bond Insurance or Liquidity Facility and shall not be applied to pay any costs or expenses of collection or expenses, liabilities or advances of the Trustee, or to restore any deficiency in the Rebate Fund, all moneys received by the Trustee pursuant to any right given or action taken under the provisions of this provision shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee, be deposited in the Debt Service Fund, or in the case of proceeds of the Bond Insurance, in such manner as is provided under the terms of the Bond Insurance, or in the case of proceeds of the drawing under a Letter of Credit, in such manner as is provided under the terms of the Letter of Credit, and together with all moneys in the funds maintained by the Trustee under the Indenture shall be applied as follows: (i) Unless the principal of all the Bonds 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 Bonds, 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 of any of the Bonds which shall have become due (other than the Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture), in the order of their due dates, and, if the amount available shall not be sufficient to pay in full the Bonds due on any particular date, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege; (ii) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied to eliminate any deficiency in the Rebate Fund and then to the payment of the principal and interest then due and unpaid upon the Bonds, without preference or priority of principal over interest or of interest over principal or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege; and (iii) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of the Indenture, then, subject to the provisions of paragraph (ii) above in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (i) above.

-13- Rights of Bond Insurer and Bank Controlling Anything herein to the contrary notwithstanding, if Bond Insurance or a Letter of Credit is in effect with respect to any series of the Bonds and the Bond Insurer or the Bank, as applicable, is not in default of its obligation to make payments thereunder, then: (a) the Bond Insurer or the Bank, as applicable, shall be deemed to be the owner of all Bonds of such series then Outstanding, with the exclusive right to exercise or direct the exercise of remedies on behalf of the owners of such series of Bonds in accordance with the terms of the Indenture following an Event of Default; (b) any notice that is required to be given to a holder of a Bond or to the Trustee pursuant to the Indenture shall also be provided to the applicable Bond Insurer and the Bank; (c) the prior written consent of the applicable Bond Insurer and the Bank shall be required in every situation in which the consent of any of the holders of the Bonds of a series is required under the Indenture; and (d) notwithstanding anything in the Indenture to the contrary, the Trustee shall not declare principal of any series of Bonds to be immediately due and payable without first obtaining the consent of the Bond Insurer and the Bank providing Bond Insurance or a Letter of Credit, as applicable, with respect to such series of Bonds. If, however, the applicable Bond Insurer or Bank is in default of its obligation under the Bond Insurance or Letter of Credit, it shall have no right to control remedies and shall have no rights under the Indenture. Removal of Trustee Any Trustee under the Indenture may be removed at any time by an instrument appointing a successor to the Trustee so removed, executed by the holders of a majority in principal amount of the Bonds then Outstanding and filed with the Trustee, the Hospital, the Bond Insurer, the Bank and the Authority. If no Event of Default under the Loan Agreement has occurred and is continuing, the Hospital may remove the Trustee and appoint a successor by an instrument filed with the Trustee and the Authority, with the approval of the Bond Insurer and the Bank, which shall not be unreasonably withheld. For so long as the Bond Insurance and the Letter of Credit remains in effect and each of the Bond Insurer and the Bank is not in default of its payment obligations thereunder, the Bond Insurer and the Bank may remove the Trustee for “cause” by written notice to the Authority and the Trustee. The Trustee shall continue to act as Trustee under the Indenture and have the right to proceed to cure any gross negligence or willful misconduct or failure or unwillingness to perform its duties (any of which shall be deemed to constitute “cause”), for a period of two weeks. If such cure is not effected within such time, the Trustee's functions under the Indenture will terminate immediately upon the acceptance of the duties required by the Trustee under the Indenture by a successor trustee appointed by the Hospital with the prior written consent of the Bond Insurer and the Bank. Defeasance When interest on, and principal or redemption price (as the case may be) of, all Bonds issued under the Indenture have been paid or there shall have been deposited with the Trustee an amount, evidenced by moneys or non-callable Government Obligations the principal of and interest on which, when due, will provide sufficient moneys to fully pay the Bonds at the maturity date or date fixed for redemption thereof, as well as all other sums payable under the Indenture by the Authority and by the Hospital, the right, title and interest of the Trustee shall thereupon cease and the Trustee, on demand of the Authority, shall release the Indenture and shall execute such documents to evidence such release as may be reasonably required by the Authority and shall turn over to the Authority or to such person, body or authority as may be entitled to receive the same all balances remaining in any funds under the Indenture. Notwithstanding the foregoing provisions of the immediately preceding paragraph, the lien of the Indenture shall not be released and discharged until the Trustee has received an Opinion of Counsel to the effect that all conditions precedent to such discharge have been satisfied and, in the event that provision has been made to pay all Bonds rather than having paid all Bonds, the Trustee receives a verification of the sufficiency of funds held to discharge Bonds from an Independent Public Accountant. Deposit of Funds for Payment of Bonds If the Authority deposits with the Trustee moneys, Federal Securities or Government Obligations sufficient to pay the principal or redemption price of any particular Bond or Bonds becoming due, either at maturity or by call for redemption or otherwise, together with all interest accruing thereon to the due date, interest on the Bond or Bonds shall cease to accrue on the due date and all liability of the Authority with respect to such Bond or Bonds shall likewise cease. Thereafter such Bond or Bonds shall be deemed not to be Outstanding under the Indenture and the holder or holders of such Bond or Bonds shall be restricted exclusively to the funds so deposited for any claim of whatsoever nature with respect to such Bond or Bonds, and the Trustee shall hold such funds in trust for such holder or holders. Amendments and Supplements Without Bondholders' Consent The Indenture may be amended or supplemented from time to time, without the consent of the Bondholders, but upon consent of the Bond Insurer, by a supplement to the Indenture for one or more of the following purposes:

-14- (a) to add additional covenants of the Authority or to surrender any right or power conferred by the Indenture upon the Authority; (b) to cure any ambiguity, to cure, correct or supplement any defective (whether because of any inconsistency with any other provision of the Indenture or otherwise) provision of the Indenture, or to make any other revision which shall not impair the security of the Indenture or adversely affect the Bondholders; (c) to obtain, maintain or upgrade a rating on the Bonds; (d) to permit the use of certificated Bonds; and (e) to permit the issuance of Additional Bonds. Amendment of Indenture With Bondholders' Consent The Indenture may be amended from time to time by a supplement to the Indenture approved by the Bond Insurer and the holders of at least 51% in aggregate principal amount of the Bonds then Outstanding; provided, that (a) no amendment shall be made which affects the rights of some but less than all the Outstanding Bonds of any one series without the consent of the holders of 51% of the Bonds so affected, and (b) no amendment which alters the interest rates on any Bonds, the maturities, interest payment dates or redemption provisions of any Bonds, this provision of the Indenture or the security provisions thereunder may be made without the consent of the holders of all Outstanding Bonds adversely affected thereby. Amendment of the Loan Agreement Not Requiring Consent of Bondholders The Authority and the Trustee shall, without the consent of or notice to the Bondholders, but upon consent of the Bond Insurer, consent to any amendment, change or modification of the Loan Agreement as may be required or otherwise permitted by the provisions of the Loan Agreement or the Indenture for the purpose of curing any ambiguity, defect, inconsistent provision or omission in the Loan Agreement, or in connection with any other change therein which, in the judgement of the Trustee, is not to the prejudice of the Trustee or the holders of the Bonds. Amendment of the Loan Agreement Requiring Consent of Bondholders Except for the amendments, changes or modifications described in the immediately preceding paragraph, neither the Authority nor the Trustee shall consent to any other amendment, change or modification of the Loan Agreement without the written approval or consent of the holders of not less than 51% in aggregate principal amount of the Bonds then Outstanding and upon consent of the Bond Insurer.

THE LOAN AGREEMENT

Under the Loan Agreement, the Authority will lend to the Hospital the gross proceeds from the sale of the 2013A Bonds to finance the Project and the Hospital will agree to make installment payments to the Authority, which shall be assigned to the Trustee, at such times and in such amounts as is necessary to meet the payment obligations under the Bonds when the same become due. The following summarizes certain provisions of the Loan Agreement, but is not to be regarded as a full statement of its terms, and reference should be made to the Loan Agreement itself for all of the provisions thereof. The Loan Agreement will remain in effect until such time as all Outstanding Bonds and all other expenses payable by the Hospital under the Loan Agreement have been paid or provision for such payment has been made as described under the heading “THE INDENTURE - Defeasance” in this Appendix C. Security To secure the payments due under the Loan Agreement, the Hospital has granted to the Authority a first lien security interest in and agrees and acknowledges that the Authority has and shall continue to have a security interest in and a first lien on, subject to Permitted Liens and Title Defects, the Hospital's Gross Revenues. Any provisions of the Loan Agreement to the contrary notwithstanding, if no event of default shall have occurred and then be continuing under the Loan Agreement, the Hospital shall be permitted to commingle, transfer or make expenditures from or deposits of its Gross Revenues and the proceeds thereof, including transfers of cash or investments to the extent provided therein, free and clear of any lien, pledge, security interest or other encumbrance. As additional security for the satisfaction of the Hospital’s obligation under the Loan Agreement and with respect to the repayment of the Bonds, the Hospital shall grant a mortgage on the Hospital Premises to the Authority to secure the payments due by the Hospital under the Loan Agreement. Upon the occurrence and continuance of any of the events listed in the paragraph immediately below (collectively, the “Lock Box Events”), the Hospital covenants and agrees that it shall cause all Gross Revenues to be deposited into a lock box account held by the Trustee separate and apart from all other funds of the Hospital. Such Gross Revenues so collected for deposit into a lock box account shall be applied to satisfy the Hospital’s payment obligations certain provisions under the Loan Agreement relating to payments due on Bonds and the provisions of any Qualified Derivative relating to the payment of scheduled periodic payments under such Qualified Derivative and, to the extent not then needed to satisfy the Hospital’s obligations under such provisions such Gross Revenues may be released to satisfy the Hospital’s other obligations. The Gross

-15- Revenues shall be collected only until such time as the Trustee shall have received a written notice from the Bond Insurer, with the consent of the Banks and any Qualified Providers having a parity lien in the Gross Revenues, that no Lock Box Events have existed for a period of three (3) consecutive years and that the Hospital’s Gross Revenues no longer need be deposited into a lock box account. The Hospital shall enter into a control agreement with the Trustee, in form acceptable to the Bond Insurer, any Bank providing a letter of credit supporting payments of principal of and interest on a series of Bonds and any Qualified Providers having a parity lien in the Gross Revenues, to convey a possessory interest in such collected Gross Revenues so as to permit the perfection of a security interest in such moneys. The four events that constitute Lock Box Events are the following: (i) the Hospital’s failure for two (2) consecutive Fiscal Years to maintain Revenues Available for Debt Service in each such Fiscal Year at a level which is at least equal to 125% of Maximum Annual Debt Service Requirements for each such Fiscal Year; (ii) the Hospital’s failure to maintain Days Cash on Hand in an amount equal to at least 85 days; (iii) the Hospital’s ratio of Indebtedness to Capitalization exceeds 65%; or (iv) the Hospital’s credit ratings have fall below BBB or below Baa2 by any Rating Agency. Any provision of this Section to the contrary notwithstanding, if no Lock Box Event shall have occurred and then be continuing, or if a Lock Box Event has occurred but written notice from the Bond Insurer, with the consent of the Banks and any Qualified Providers having a parity lien in the Gross Revenues, of the Hospital’s curing of such event has been received, the Hospital shall be permitted to commingle, transfer or make expenditures from or deposits of its Gross Revenues and the proceeds thereof. Time and Manner of Repayment Under the Loan Agreement, the Hospital agrees to make the following payments with respect to the 2013A Bonds, in addition to payments with respect to other series of Bonds and the payment of the fees and expenses of the Trustee and the Authority, in the manner specified hereinafter: The Hospital agrees to make the following payments on the following dates: (i) Payments Equal to Interest. On the fifteenth day next preceding July 1, 2013, an amount equal to the interest due on the 2013A Bonds on July 1, 2013. Thereafter, on the fifteenth day next preceding each October 1, January 1, April 1 and July 1, commencing on the fifteenth day next preceding October 1, 2013, an amount equal to one- half (1/2) of the interest due on the 2013A Bonds on the next succeeding Interest Payment Date. (ii) Payments Equal to Principal. On the fifteenth day next preceding July 1, 2013, an amount equal to the principal due on the 2013A Bonds on July 1, 2013. Thereafter, on each, October 1, January 1, April 1 and July 1 thereafter to and including July 1, 2028, an amount equal to one-quarter (1/4) of the principal amount of the 2013A Bonds maturing by their terms, if any, on the fifteenth day next preceding the next succeeding July 1. (iii) Payments Required to Effect Mandatory Redemption. Commencing on the fifteenth day next preceding October 1, 20__ and on the fifteenth day next preceding each January 1, April 1 and July 1 and October 1 thereafter to and including July 1, 2028, an amount equal to one-quarter (1/4) of the principal amount of the 2013A Bonds to be redeemed pursuant to the mandatory redemption provisions of the Indenture, if any, on the next succeeding July 1. (iv) Payments Required to Effect Optional Redemption. On or before the fifth Business Day next preceding the date of redemption of any 2013A Bonds to be optionally redeemed pursuant to the Indenture, an amount not less than the full amount required to pay the principal of and premium, if any, on such 2013A Bonds to be optionally redeemed. (v) Rebate to the United States. If there is any amount required to be paid to the United States pursuant to Section 148(f) of the Code, the Indenture and Section 5.06(d) of the Original Loan Agreement, the Hospital agrees to pay such amount to the Trustee for deposit to the Rebate Fund created under the Indenture, which will submit the payment to the United States. (vi) Trustee's Fee. While the Bonds remain Outstanding, the reasonable compensation and expenses of the Trustee under the Indenture shall be paid directly to such Trustee by the Hospital upon the receipt by the Hospital of a bill for such services from the Trustee. (vii) Authority's Administrative Fee. The Hospital shall pay a closing fee in the amount of $_____ on the Closing Date. Commencing on July 1, 2013 and on July 1 of each year thereafter while the Bonds remain Outstanding, an amount equal to the Administrative Fee of the Authority shall be payable by the Hospital. The Administrative Fee shall be in an amount not to exceed $5,000, together with any other administrative expenses (including reasonable legal fees) reasonably incurred by the Authority in connection with inquiring into, or enforcing, the performance by the Hospital of its obligations hereunder. The payment of any such administrative expenses shall be due within 30 days of receipt of an itemized statement from the Authority.

-16- Payment Credits. Notwithstanding any provision contained in the Loan Agreement or in the Indenture to the contrary, the Hospital shall be entitled to receive a credit against the payments required with respect to the 2013A Bonds in accordance with Section 4.03 of the Original Loan Agreement. Specifically, to the extent that any payment required to be made pursuant to the Loan Agreement would cause the amount in the Revenue Fund in the Indenture to exceed the amount required to be transferred by the Trustee from said Revenue Fund pursuant to the provisions of the Indenture, as supplemented and amended, on or before the next succeeding payment date, the payment required is to be reduced so that such excess will not occur. The Hospital may make all or any part of any required payment by delivering to the Trustee any Bond maturing, or subject to mandatory redemption or optional redemption (assuming notice in accordance with the Indenture has been timely delivered) on the July 1 immediately following the date of such delivery and having it credited at the face amount to the payment and canceled by the Trustee. In addition, the Hospital shall be entitled to a credit during the last year of maturity to the extent that any payment required to be made pursuant to the Loan Agreement would, together with the amount held by the Trustee in all funds (other than the Rebate Fund) under the Indenture, exceed the principal amount of the Bonds Outstanding and the amount of the interest due both at the final maturity date and the interest payment date immediately preceding the final maturity date. Rate Covenant and Negative Pledge The Hospital covenants that it shall (i) conduct and maintain its operations as is necessary in each Fiscal Year to provide Revenues Available for Debt Service which are at least equal to 150% of the Maximum Annual Debt Service Requirements; and (ii) maintain Days Cash On Hand in an amount greater than 100 days; and (iii) at all times maintain the ratio of Long Term Indebtedness and Short Term Indebtedness (including the current portion of Long Term Indebtedness) Outstanding to Capitalization of less than 60%. Within five months after the end of each Fiscal Year, the Hospital will provide to the Trustee and the Bond Insurer an Officer's Certificate evidencing compliance with the foregoing covenants, or compliance with the provisions discussed below regarding the engagement of a Consultant. Within forty-five (45) days of the last day of the sixth month following the last day of each Fiscal Year, the Hospital will provide to the Trustee and the Bond Insurer an Officers' Certificate evidencing compliance with items (ii) and (iii) listed above, or, if not compliant, information concerning remedial action mandated by the Loan Agreement. If either the Revenues Available for Debt Service or the Days Cash On Hand of the Hospital is less than the amounts required in the preceding paragraph as of the end of any Fiscal Year or as of the last day of the sixth month following the last day of any Fiscal Year, the Hospital shall, within sixty days of the completion of the audit in the case of clause (i) above or after the completion of an internal financial statement in the case of clause (ii) above disclosing such failure to comply, engage the services of a Consultant for the purpose of examining and reporting on the revenues and expenses of the Hospital. Each report so prepared shall contain recommendations as to such actions as the Consultant deems to be reasonably necessary in order to increase the Revenues Available for Debt Service or the Days Cash On Hand of the Hospital, as applicable, to the levels required by the paragraph above. Each such report shall be delivered to the Trustee and the Bond Insurer as soon as practicable upon receipt from the Consultant. No Event of Default shall be deemed to have occurred hereunder as a result of a failure to realize Revenues Available for Debt Service in the amounts required above in any Fiscal Year or to maintain the required Days Cash On Hand, as applicable, provided that (i) the Revenues Available for Debt Service realized by the Hospital during such Fiscal Year were at least equal to 100% of the Debt Service Requirements on all Long Term Indebtedness of the Hospital, (ii) the Days Cash on Hand maintained by the Hospital on each semi-annual testing date was greater than 50 days, (iii) a Consultant is engaged for the purposes herein, and (iv) upon receipt of the Consultant's report, the Hospital makes good faith effort (A) to implement such recommendations of the Consultant as are applicable to their operations and financial affairs, to the extent permitted by applicable laws and regulations, and (B) to negotiate such future contracts as will permit full implementation of such recommendations. If, however, Revenues Available for Debt Service or the Days Cash On Hand fails to reach the levels required by clauses (i) or (ii) in the first paragraph above within two years following the initial violation, the Hospital shall be required again to (i) engage a Consultant for the purposes set forth above in this paragraph and (ii) make good faith efforts to implement such recommendations. Nothing in the Loan Agreement shall be construed to prohibit the Hospital from serving indigent patients to the extent required for it to continue its qualification as an organization recognized by the Internal Revenue Service to be exempt from federal income taxation as an organization described in Section 501(c)(3) of the Code or by reason of any other legal obligation of the Hospital to serve indigent patients or from serving any other class or classes of patients at reduced rates so long as such service does not prevent the Hospital from paying the total operating expenses of the Hospital and debt service on all Indebtedness then Outstanding. If the Hospital breaches any of the financial covenants contained in clauses (i) through (iii) in the first paragraph, and the Hospital has complied with the provisions of second and third paragraphs above, and if as of the end of any subsequent Fiscal Year or semi-annual testing period, as applicable, the Hospital comes into compliance with such financial covenants, the Hospital shall, as of the end of such subsequent Fiscal Year or semi-annual testing period, as applicable,, be deemed to have remedied the breach of such financial covenants for such prior period or periods and such breach of the covenant shall thereafter no longer serve as the basis for the declaration of an Event of Default under the Loan Agreement. Additional Indebtedness The Hospital shall be permitted to incur additional Indebtedness as follows:

-17- Long Term Indebtedness. The Hospital may not incur any additional Long Term Indebtedness in excess of 5% of the Total Revenues of the Hospital, unless the Hospital shall deliver to the Trustee either of the following: (i) an Officer's Certificate demonstrating and concluding that the Maximum Annual Debt Service Coverage Ratio, taking into account all Outstanding Long Term Indebtedness and the Long Term Indebtedness to be incurred as if it had been Outstanding at the beginning of such period, for the most recently completed Fiscal Year preceding the date of delivery of such certificate for which audited financial statements have been prepared, is not less than 1.50 for such immediately preceding Fiscal Year; or (ii) an Officer's Certificate demonstrating and concluding that: (A) the Maximum Annual Debt Service Coverage Ratio, taking into account all Long Term Indebtedness then Outstanding for the two most recently completed Fiscal Years preceding the date of delivery of such certificate for which audited financial statements have been prepared, is not less than 1.50 for such immediately preceding two Fiscal Years; and (B) the projected Maximum Annual Debt Service Coverage Ratio of the Hospital, taking the proposed Long Term Indebtedness into account, for the two Fiscal Years succeeding the date of incurrence of such Long Term Indebtedness is not less than 1.50. Short Term Indebtedness. The Hospital may incur Short Term Indebtedness from time to time, provided that: (i) the principal amount of any Short Term Indebtedness to be incurred, when added to the then Outstanding principal amount of all Short Term Indebtedness of the Hospital, shall not exceed 20% of the Operating Revenues of the Hospital for the Fiscal Year immediately preceding such incurrence; and (ii) for 7 consecutive days within each Fiscal Year, the Hospital shall reduce the aggregate principal amount of all Outstanding Short Term Indebtedness to less than 5% of the Operating Revenues of the Hospital for the immediately preceding Fiscal Year, except that such percentage shall be increased to 7% in the event that the Trustee receives an Officer’s Certificate certifying that delays in payment by any third party reimburser or insurer have prevented the Hospital from reducing its Outstanding Short Term Indebtedness to 5%. Non-Recourse Indebtedness and Subordinated Indebtedness. The Hospital shall be permitted to incur Non- Recourse Indebtedness and Subordinated Indebtedness without complying with the financial requirements for the incurrence of Long Term Indebtedness listed above in connection with such incurrence limitation; provided, however, that the aggregate amount of Non-Recourse Indebtedness and Subordinated Indebtedness shall not at any time exceed thirty percent (30%) of Total Revenues. Balloon Indebtedness and Put Indebtedness. The Debt Service Requirements on Balloon Indebtedness and Put Indebtedness shall be determined as follows: The principal of Balloon Indebtedness and Put Indebtedness is: (A) amortized from the date of calculation thereof over a term equal to the least of twenty (20) years, with level annual debt service payments at an assumed interest rate equal to the average of The Bond Buyer Thirty Year Revenue Bond Index over the immediately preceding three years; or (B) amortized during the term to the maturity thereof by deposits made to a trustee held sinking fund therefor pursuant to the terms of such Balloon Indebtedness or Put Indebtedness, or in accordance with a sinking fund schedule established by resolution of the Board of the Hospital adopted at or subsequent to the time of incurrence of such Balloon Indebtedness or Put Indebtedness, as certified in an Officer's Certificate, provided that, at the time of such calculation, all deposits required to have been made prior to such date shall have been made and shall be held in trust; or (C) due and payable on the specified due date or due dates thereof; or (D) with respect to Balloon Indebtedness or Put Indebtedness for which there exists a Permanent Loan Commitment, due and payable in the amounts and at the times specified in the Permanent Loan Commitment. Notwithstanding the provisions above, with respect to Balloon Indebtedness or Put Indebtedness maturing by its terms in less than twenty-four (24) months and for which there is no Permanent Loan Commitment, the principal of such Balloon Indebtedness or Put Indebtedness, as applicable, shall be deemed to be due and payable in full at the maturity date thereof. The interest rate on Balloon Indebtedness or Put Indebtedness is an interest rate equal to (A) the actual rate of interest payable on such Indebtedness in the case of fixed rate Indebtedness or (B) the rate determined as described immediately below in the case of Variable Rate Indebtedness. Notwithstanding anything herein or in the Loan Agreement to the contrary, the aggregate amount of Balloon Indebtedness permitted to be incurred and Outstanding, together with any Outstanding Interim Indebtedness, may not exceed 30% of total Operating Revenues; provided, however, that Balloon Indebtedness for which there exists a Permanent Loan Commitment or Reimbursement Facility to pay such Indebtedness at maturity shall not be counted against the 30% limit.

-18- Variable Rate Indebtedness. For the purpose of determining the Debt Service Requirements on any Variable Rate Indebtedness, the Debt Service Requirements thereon shall be deemed to include the amount of principal maturing or subject to mandatory redemption in such year plus interest at a rate equal to the Bond Index. Guaranties. The Debt Service Requirements on any Long Term Indebtedness in the form of a guaranty shall be determined to be an amount equal to 20% of the debt service on the Long Term Indebtedness being guaranteed; provided, however, that if the Hospital makes any payment under a guaranty described above, the Debt Service Requirements thereon for the Fiscal Year in which the payment is made and each of the next two succeeding Fiscal Years shall be deemed equal to 100% of the debt service requirements on the Indebtedness or portion thereof being guaranteed. Permanent Loan Commitment or Reimbursement Facility. For the purpose of calculating the Debt Service Requirements on a Permanent Loan Commitment or Reimbursement Facility, there shall be included: (i) the amount of principal maturing in the year under consideration or, if no amortization schedule is provided therein, principal in an amount calculated assuming a level amortization of the aggregate principal amount of the Indebtedness over the term thereof, plus (ii) interest at the rate stated under the terms of the Permanent Loan Commitment or Reimbursement Facility, or, if no stated fixed interest rate, at a rate equal to the Bond Index. Variable Rate Balloon Indebtedness. If any Long Term Indebtedness issued in the form of Balloon Indebtedness bears interest at a variable rate, such rate of interest shall be calculated in the manner provided above for the calculation of interest rates on Variable Rate Indebtedness. The foregoing shall also apply to any calculation of the debt service requirements on any Indebtedness of a similar nature which is guaranteed by the Hospital. Interim Indebtedness. The Hospital shall be permitted to incur Interim Indebtedness provided that: (i) the conditions described in either (i) or (ii) disclosed above governing the incurrence of Long Term Indebtedness (are met with respect to such Indebtedness as if it were being incurred with substantially equal annual amounts to be paid for principal and interest over a term of twenty (20) years and at an interest rate determined in accordance with The Bond Buyer Revenue Bond Index; and (ii) to the extent that the amount of Interim Indebtedness incurred pursuant to this provision and Outstanding, together with any Outstanding Balloon Indebtedness, will exceed 30% of total Operating Revenues, actual debt service on such Indebtedness (including, in the case of Interim Indebtedness that is payable upon demand, tender of all Indebtedness at the earliest possible time) will be used rather than the amount calculated in subsection (i) above unless the Hospital provides a Permanent Loan Commitment or Reimbursement Facility to pay such Indebtedness at maturity. Completion Indebtedness. Completion Indebtedness may be incurred by the Hospital without limitation; provided, however, that an Officer's Certificate be submitted to the Trustee and the Bond Insurer including (i) the estimated cost of completing the project; (ii) a schedule demonstrating that the Completion Indebtedness will be sufficient to complete the project; and (iii) a statement that the original Indebtedness was reasonably expected to have been sufficient to complete the project and describes the reasons why such Completion Indebtedness is being incurred. Limit on Ratio of Variable Rate Debt. The Hospital covenants to maintain its ratio of variable rate Long Term Indebtedness to total Long Term Indebtedness to less than 50%. For purposes of this test, variable rate Debt shall include all auction rate securities that are not converted to a fixed rate obligations via a long-dated interest rate swap. Security for Indebtedness Indebtedness incurred pursuant to the Loan Agreement may be secured only by such liens, security interests or other similar rights and interests (hereinafter collectively referred to as “liens”) as are permitted below: (a) Long Term Indebtedness may be secured by liens on property constituting all or any portion of the Property, Plant and Equipment (and the proceeds thereof) of the Hospital if the current value of the property to be so encumbered, together with the current value of all other property then encumbered pursuant to paragraphs (a) and (b) hereof does not exceed 15% of the current value of the Property, Plant and Equipment (exclusive of properties securing Non-Recourse Indebtedness) of the Hospital, such valuations to be made on the basis (consistently applied on the date of such valuation) of either the Book Value of the property under consideration, as set forth in the financial statements of the Hospital, or the appraised value thereof, as set forth in writing by a qualified appraiser not unsatisfactory to the Trustee. At the time any such lien is granted, the Hospital shall deliver to the Trustee an Officer's Certificate demonstrating and concluding that the lien is being granted in accordance with the foregoing. No lien which does not meet the foregoing requirements may be granted to secure any Long Term Indebtedness unless a lien of equal or superior rank and priority is granted in favor of the Trustee for the benefit of the Holders of all Bonds issued and Outstanding under the Indenture. For the purposes of the foregoing, leasehold interests described in Section 5.12(j) of the Loan Agreement shall not be construed as liens securing Indebtedness pursuant to this Section. (b) Short Term Indebtedness may be secured by liens (i) on property constituting all or any portion of the Property, Plant and Equipment (and the proceeds thereof) of the Hospital if the current value of the property to be so encumbered, together with the current value of all other property then encumbered pursuant to paragraphs (a) and (b) hereof does not exceed 15% of the current value of the Property, Plant and Equipment (exclusive of properties securing Non-Recourse Indebtedness) of the

-19- Hospital, such valuations to be made on the basis (consistently applied on the date of such valuation) of either the Book Value of the property under consideration, as set forth in the financial statements of the Hospital, or the appraised value thereof, as set forth in writing by a qualified appraiser not unsatisfactory to the Trustee; and (ii) on current assets of the Hospital; provided, however, that such liens on current assets must be limited to not more than 35% of net accounts receivable of the Hospital for the most recent Fiscal Year. (c) Non-Recourse Indebtedness may be secured by liens on: (i) any real property, fixtures and tangible personal property (and the proceeds thereof) acquired with the proceeds of the Non-Recourse Indebtedness and any improvements to such property; (ii) any other real property, fixtures and tangible personal property of the Hospital hereof; (iii) revenues derived from the ownership or operation of the property described in clauses (i) and (ii) above; and (iv) gifts, grants, bequests, donations, other similar contributions (or pledges thereof), other amounts constituting nonoperating revenues under GAAP, and the income from the foregoing, if and to the extent required hereunder to be excluded from any calculation of Nonoperating Revenues. At the time any such lien is to be granted, the Hospital shall deliver to the Trustee an Officer's Certificate demonstrating and concluding that the lien is being granted in accordance with the foregoing. (d) If a Reimbursement Facility is issued in support of any Long Term Indebtedness secured as permitted by this Section, the Hospital may grant a lien in favor of the issuer of the Reimbursement Facility which upon payment by the issuer of the Reimbursement Facility as a result of a payment default by the Hospital is equal in rank and priority with or subordinate to the lien granted to secure the Long Term Indebtedness. Sale and Pledging of Accounts Receivable. Notwithstanding anything in the Loan Agreement to the contrary, the sale of or granting of a security in the accounts receivable of the Hospital shall not be permitted. SWAPS. Any posting of collateral by the Hospital pursuant to the terms of any “Qualified Derivative” (as defined in the Loan Agreement) shall be considered a lien subject to compliance with the provisions of the Original Loan Agreement and said collateral shall be excluded from the determination of Unrestricted Liquid Funds. The posting of collateral as well as any termination payments shall be considered asset dispositions subject to the provisions of this Loan Agreement. As long as the Hospital’s ratings are below either A- (Standard & Poor’s or Fitch) or below A3 (Moody’s), it shall subtract all cumulative contingent termination payments potentially due on any Qualified Derivatives when calculating Days Cash on Hand. The determination of contingent termination payments shall be calculated at least semi-annually. The Hospital’s obligation to make termination payments pursuant to a Qualified Derivative shall be explicitly subordinate to the Hospital’s obligation to make payments pursuant to this Loan Agreement with respect to principal of and interest on Bonds. The inability to post collateral may not constitute an event of termination under the terms of any Qualified Derivative. Permitted Liens and Title Defects The Hospital shall not create or suffer to be created or exist upon the Hospital Premises or any property now owned or hereafter acquired by it any mortgage or other lien, security interest or other similar right or interest, servitude, easement, right-of- way, license, encumbrance, irregularity or defect in title, cloud on title, restriction, reservation or covenant running with the land, other than Permitted Liens and Title Defects. Consolidation, Merger, and Maintenance of Existence. The Hospital agrees not to merge or consolidate with any Person unless: (i) the successor corporation shall be a corporation organized and existing under the laws of the United States of America or a state thereof and shall expressly assume the due and punctual payment of the principal of, premium, if any, interest on and all amounts payable in respect of all outstanding Indebtedness incurred or permitted to be incurred hereunder, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of the Loan Agreement to be performed or observed by the Hospital; (ii) the Hospital or such successor corporation, as the case may be, immediately after such merger or consolidation, would not be in default in the performance or observance of any covenant or condition under the Loan Agreement and the conditions described above for the incurrence of one dollar of Long Term Indebtedness would be met, taking into account any adverse effect on the tax exempt status of the Hospital or successor corporation; (iii) the fund balance of the Hospital or such successor corporation, as the case may be, as disclosed on the financial statements of such surviving entity, immediately after such merger or consolidation shall be not less than 90% of the fund balance of the Hospital immediately preceding such merger or consolidation, (iv) the amount of Outstanding Long Term Indebtedness of the Hospital or such successor corporation, as the case may be, as disclosed on the financial statements of such surviving entity, immediately after such merger or consolidation shall not be in excess of 125% of the fund balance of the Hospital or such successor corporation, as the case may be, immediately following such merger or consolidation and (v) there shall have been delivered to the Trustee and the Bond Insurer an opinion of Bond Counsel to the effect that the consummation of such merger or consolidation will not adversely affect any applicable exemption from federal income taxation of the interest payable on any Outstanding Bonds issued pursuant to the Indenture. The Hospital or any successor corporation assuming the obligations of the Hospital pursuant to the provision above shall continuously maintain its existence as an organization described in Section 501(c)(3) of the Code and shall not liquidate, dissolve or otherwise terminate its existence so long as the Bonds are Outstanding. The Hospital further covenants that its Board of Directors will remain self-nominating and self-appointing. Prior to a Change in Control (as defined below), the following must be satisfied:

-20- (i) The Bond Insurer shall receive written confirmation from Moody's or S&P that the Bonds will be rated at least “Baa” or “BBB” subsequent to the proposed change in corporate control, or (ii) The Bond Insurer consents in writing to the Change in Control. For the purposes of this provision, “Change in Control” means the occurrence of either of the following events: (i) the Hospital's Board of Directors grants to any party the right to appoint a majority of the members Hospital's Board of Directors, or (ii) a majority of the members Hospital's Board of Directors become employed, controlled or affiliated with any one corporation or entity. Sale of Property The Hospital agrees that it will not in any Fiscal Year sell, lease or otherwise dispose of a “substantial part” of the Property of the Hospital, except for (x) transfers at arm's length in the ordinary course of business, (y) the sale of Property for fair market value as determined by an MAI appraiser in an arm’s length transaction, and (z) those transfers enumerated below. For the purposes of the Loan Agreement, a “substantial part” is an amount which exceeds 5% of the previous year's net plant, property and equipment, as disclosed on its audited financial statements in such Fiscal Year. The following dispositions of Property may be made subject to the conditions, if any, contained hereinafter: (i) to any Person if prior to the sale, lease or other disposition there is delivered to the Trustee and the Bond Insurer an Officer's Certificate of the Hospital stating that in the judgment of the signer, such Property has become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale lease or removal or other disposition thereof will not impair the structural soundness, efficiency or economic value of the remaining Property of the Hospital; provided, however, that the aggregate of all dispositions of Property pursuant to this paragraph (b) shall not in any Fiscal Year exceed 10% of the Book Value of the Property, Plant and Equipment of the Hospital as reported on the audited financial statements of the Hospital for the immediately preceding Fiscal Year unless such Officer's Certificate is supported by a certificate of a Consultant to the same effect, and provided further that any assets so disposed of which shall be replace with assets of equal value and usefulness shall not be included in determining such aggregate annual limit; or (ii) to any Person, provided that prior to the sale, lease or other disposition there is delivered to the Trustee and the Bond Insurer the following: (A) an Officers' Certificate certifying that during each of the two Fiscal Years immediately preceding the proposed disposition for which audited financial statements are available, the Maximum Annual Debt Service Coverage Ratio of the Hospital, taking into account such disposition, would not have been reduced by more than 35% and not to less than 1.50, or (B) an Officers' Certificate (accompanied by a nationally recognized independent certified public accountant's report) certifying that during each of the two Fiscal Years immediately preceding the proposed disposition for which audited financial statements are available, the Maximum Annual Debt Service Coverage Ratio of the Hospital, taking into account such disposition, would not have been reduced by more than 10% and not to less than 1.35, or (C) a Consultant's opinion and report, taking into account such dispositions, demonstrating that the projected Maximum Annual Debt Service Coverage Ratio for each of the two full Fiscal Years immediately after such disposition will be greater than the projected Maximum Annual Debt Service Coverage Ratio of the Hospital for such Fiscal Years had such disposition not occurred. In the case of dispositions of cash, cash equivalents and investment securities, the following dispositions are permitted: (i) in each Fiscal Year, the Hospital may grant or loan to any Person cash, cash equivalents and investment securities with an aggregate value not in excess of 15% of the total cash and board designated funds as shown on the most recent audited financial statements; and (ii) cash, cash equivalents and investment securities without limit provided that the amount of cash, cash equivalents and investment securities being transferred shall be excluded from Revenues Available for Debt Service when calculating ratios set forth in (ii)(A), (B) or (C) above for the transfer of Property and such ratios are being met given such exclusion; and (iii) with the consent of the Bond Insurer, provided that no such transfer would leave the Hospital with less than 60 days cash on hand, and provided further, borrowing for the purpose of meeting this test shall be expressly prohibited. Insurance The Hospital covenants that it will (a) to the extent obtainable at reasonable rates, maintain, or cause to be maintained, insurance covering such risks and in such amounts as is customary for other comparable institutions and is adequate to protect it and its properties and operations, (b) cause such coverages to be reviewed and reported on as to adequacy and acceptability of the insurance carrier by a firm of insurance agents, brokers or consultants which is selected by the Hospital for the purpose of

-21- reviewing and recommending insurance coverages for the facilities and operations of the Hospital and has a favorable reputation for skill and experience in performing such services in respect of health care facilities and operations of a comparable size and nature (an “Insurance Consultant”), such reports to be issued as soon as practicable at the end of each second Fiscal Year after the execution of the Fifth Supplemental Indenture and at the end of each second Fiscal Year thereafter, and (c) upon receipt of each report of the Insurance Consultant, deliver the same as soon as practicable to the Trustee and the Bond Insurer and, to the extent obtainable at reasonable rates, obtain or cause to be obtained such additional, alternative or increased coverages as may be recommended therein by the Insurance Consultant. Such coverages shall be obtained and maintained through commercial insurance carriers or captive insurance companies acceptable to the Insurance Consultant or through self-insurance plans which are in accordance with sound actuarial practices. Notwithstanding the foregoing, (a) self-insurance plans maintained by the Hospital shall be reviewed as to adequacy and acceptability by an Insurance Consultant as soon as practicable after the end of each Fiscal Year, and (b) property and casualty coverage insuring the replacement value of the properties of the Hospital in excess of 10% of the book value of property plant and equipment may not be self-insured (insurance coverage may, however, employ reasonable deductibles). Covenant With Bondholders The Authority and the Hospital agree that the Loan Agreement is executed in part to induce the purchase by others of the Bonds, and accordingly, all representations, warranties, covenants and agreements on the part of the Hospital and the Authority as set forth therein are declared to be for the benefit of the Trustee, the Bond Insurer and the registered owners from time to time of the Bonds. Additional Covenants for the Benefit of the Bond Insurer Most Favored Nations Clause. In the event that the Hospital establishes any special conditions, exceptions, modifications, covenants or other provisions in respect of any financing agreement for borrowed funds that are more favorable than what has been provided the Bond Insurer with respect to any Bonds insured by the Bond Insurer, then the Bond Insurer, in its capacity as Bond Insurer with respect to any series of Outstanding Bonds, shall be offered those more favorable terms on a ratable basis. Restriction on Tender Purchase in Lieu of Redemption. The Hospital covenants that, without the prior written consent of the Bond Insurer, it will not utilize a synthetic refunding structure in which savings are realized by the Hospital through a remarketing of Bonds insured by the Bond Insurer (“Insured Bonds”), or interests in such Insured Bonds, and which Insured Bonds have been acquired by the Hospital or its agent through a tender offer for Insured Bonds in lieu of redemption. Notwithstanding anything herein to the contrary, the Hospital will not be precluded from making an open market tender offer for Bonds insured by the Bond Insurer. Events of Default and Remedies The occurrence of any of the following shall constitute an Event of Default under the Loan Agreement: (a) Failure by the (i) Hospital to make any payments required under the Loan Agreement, and (ii) the Hospital to make the payments required under the Guaranty when due and such default shall not be cured within two days after such payments have become due; or (b) Failure by the Hospital to make any payment under the Loan Agreement or in the performance of or compliance with any of the provisions, warranties, covenants, agreements, terms or conditions contained in the Loan Agreement, other than those specified in (a) above, which continues for thirty (30) days following written notice thereof to the Hospital from the Authority or the Trustee except in the case of a default which cannot be cured within such thirty (30) days, in which case the period shall be extended for such period as is reasonable to cure the same with due diligence, provided the Hospital commences within thirty (30) days and proceeds diligently to cure the same; or (c) If the Hospital shall make an assignment of substantially all of its assets for the benefit of creditors or is adjudicated a bankrupt or shall file a bill in equity or otherwise initiate proceedings for the appointment of a receiver of its assets, or shall file a case under the Federal Bankruptcy Code to be declared a bankrupt or for reorganization or otherwise initiate any proceedings in any court for a composition with its creditors or for relief in any manner from the payment of its debts when due under any state or federal laws; or if any proceedings in bankruptcy or for the appointment of a receiver shall be instituted against the Hospital under any state or federal law and shall not be dismissed within sixty (60) days; or (d) the occurrence of an Event of Default under any of the Documents; or (e) if the Hospital shall default in the payment of any Indebtedness (other than Bonds Outstanding under the Indenture, Subordinated Indebtedness and Non-Recourse Indebtedness), whether such Indebtedness now exists or shall hereafter be created, and any period of grace with respect thereto shall have expired, or an event of default as defined in any related financing documents under which any such Indebtedness may be issued, secured or evidenced shall occur, which default in payment or event of default shall result in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; provided, however, that such default shall not constitute an Event of Default if within the time allowed for service of a responsive pleading in any proceeding to enforce payment of the Indebtedness under the laws governing such proceeding (A) the Hospital in good faith commence proceedings to contest the existence or payment of such Indebtedness, or (B) sufficient moneys are escrowed with a bank or trust company for the payment of such Indebtedness; or

-22- (f) the Trustee’s receipt of written notice from a Qualified Provider that the Hospital has failed to make one or more periodic payments under a Qualified Derivative and that such Qualified Provider intends to take action to enforce its claim to the Gross Revenues of the Hospital in accordance with a lien or security interest sharing a parity claim to the Gross Revenues of the Hospital with that of the Bonds. Upon the occurrence of an Event of Default, subject to the rights of the Bond Insurer and the Bank to control all remedies, including any waiver of an Event of Default pursuant to the Indenture, the Trustee may declare the entire Outstanding balance of the Loan and any other sums which the Hospital is obligated to pay to the Authority under the Loan Agreement immediately due and payable. Amendment of the Loan Agreement The Loan Agreement may be amended from time to time in accordance with the provisions of the Indenture described below under the heading “AMENDMENTS OF LOAN AGREEMENT NOT REQUIRING CONSENT OF BONDHOLDERS” and “AMENDMENT OF LOAN AGREEMENT REQUIRING CONSENT OF BONDHOLDERS” in this Appendix C.

MORTGAGE

As additional security for the satisfaction of the Hospital’s obligation under the Loan Agreement and with respect to the repayment of the Bonds, the Hospital has granted a mortgage on the Hospital Premises to the Trustee, as assignee of the Authority, to secure the payments due by the Hospital under the Loan Agreement. The Mortgage also grants to the Banks issuing Letters of Credit supporting payments on the 2001B Bonds, the 2007 Bonds and the 2008A Bonds a parity position with the Trustee under the Mortgage.

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APPENDIX D

FORM OF BOND COUNSEL OPINION

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[The proposed form of the legal opinion of Buchanan Ingersoll & Rooney PC, bond counsel, is set forth below. The actual opinion will be delivered on the date of delivery of the bonds referred to therein and may vary from the form to reflect circumstances both factual and legal at the time of delivery.]

20th Floor, One Oxford Centre Pittsburgh, Pennsylvania 15219-1410

February __, 2013

RE: Washington County Hospital Authority Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project)

To the Purchasers of the Above-Captioned Bonds:

We have acted as Bond Counsel in connection with the issuance by the Washington County Hospital Authority (the “Issuer”) of its Hospital Revenue Bonds, Series 2013A (The Washington Hospital Project) in the aggregate principal amount of $______(the “Bonds”) pursuant to the Pennsylvania Municipality Authorities Act, as amended (the “Act”), and a Trust Indenture dated as of May 1, 1987 (the “Original Indenture”) executed by and between the Issuer and The Bank of New York Mellon Trust Company, National Association, as trustee (the “Trustee”), as supplemented by, among others, an Eighth Supplemental Trust Indenture dated as of February 1, 2013 (the “8th Supplemental Indenture,” and together with the Original Indenture and all supplements thereto, the “Indenture”). As Bond Counsel we have examined originals or certified copies of the Indenture, the Loan Agreement dated as of April 1, 1998 (the “Original Loan Agreement”), as supplemented and amended by, among others, a Fifth Supplemental Loan Agreement dated as of February 1, 2013 (the “5th Supplemental Agreement,” and together with the Original Loan Agreement, and all supplements thereto, the “Loan Agreement”) by and between The Washington Hospital (the “Hospital”) and the Issuer, the form of the Bonds, the Assignment dated as of February 1, 2013 (the “Assignment”), such constitutional and statutory provisions and such other certificates, instruments and documents as we have deemed necessary or appropriate in order to enable us to render an informed opinion as to the matters set forth herein. We have also reviewed the opinion of Goldfarb, Posner, Beck, DeHaven & Drewitz, counsel to the Hospital, dated February __, 2013 (the “Hospital Counsel Opinion”), as to certain matters relating to the Hospital. We call your attention to the fact that the Indenture provides that the Bonds are a limited obligation of the Issuer payable solely from the Trust Estate (as defined in the Indenture). Neither the general credit nor the taxing power of the County of Washington (the “County”), the Commonwealth of Pennsylvania (the “Commonwealth”) or any political subdivision or instrumentality thereof is pledged for the payment of the principal of or interest on the Bonds; nor shall the Bonds be deemed to be an obligation of the County or the Commonwealth or any political subdivision thereof; nor shall the County or the Commonwealth or any political subdivision thereof be liable for the payment of principal of or interest on the Bonds. The Issuer has no taxing power. We have not been engaged, nor have we undertaken, to review the adequacy of disclosure in the Official Statement or any other offering material in respect of the Bonds, and we express no opinion with respect thereto. As to questions of fact material to our opinion, we have relied upon the representations of the Issuer and the Hospital contained in the proceedings relating to the issuance of the Bonds and other certifications furnished to us without undertaking to verify the same by independent investigation. Based on such examination and in reliance on the Hospital Counsel Opinion, and the certifications and representations of fact contained in the proceedings relating to the issuance of the Bonds, we are of the opinion, as of the date hereof and under existing law, as follows: 1. The Issuer is validly existing as a body corporate and politic duly created, organized and existing under the Act with the corporate power to authorize, execute and deliver the Bonds and to enter into the 8th Supplemental Indenture and the 5th Supplemental Agreement and to carry out its obligations thereunder. February __, 2013 Page 2

2. The 8th Supplemental Indenture and the 5th Supplemental Agreement have been duly authorized, executed and delivered by the Issuer and, assuming due authorization, execution and delivery by the other parties thereto, constitute valid and binding obligations of the Issuer. 3. The Bonds have been duly authorized, executed, issued and delivered by the Issuer and are valid and binding limited obligations of the Issuer payable solely from the sources provided therefor in the Indenture. 4. Pursuant to the Assignment, all right, title and interest of the Issuer in and to the installment payments due under the 5th Supplemental Agreement have been duly assigned to the Trustee. 5. Under the laws of the Commonwealth, as presently enacted and construed, the Bonds are exempt from personal property taxes in the Commonwealth and interest on the Bonds is exempt from Pennsylvania personal income tax and corporate net income tax. 6. Under existing law, the interest on the Bonds (a) is excluded from gross income for federal income tax purposes and (b) is not an item of tax preference within the meaning of Section 57 of the Internal Revenue Code of 1986, as amended (the “Code”), for purposes of the alternative minimum tax imposed by Section 55 of the Code on individuals and corporations; however, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed by Section 55 of the Code on such corporations. The opinions set forth in the preceding sentence are subject to the condition that the Issuer and the Hospital comply with all the requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest on the Bonds be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactively to the date of issuance of the Bonds. The Issuer and the Hospital have covenanted to comply with all such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. It is to be understood that the rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture and the Loan Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights heretofore and hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. This opinion is rendered solely for the benefit of the addressee hereof in connection with the initial issuance of the Bonds. The addressee may not rely on this opinion letter for any other purpose and no other person may rely on this opinion letter for any purpose without the express written consent of the undersigned. This opinion letter is limited to the matters set forth herein. This opinion is subject to future changes in applicable law and we do not undertake any obligation to update any of the opinions expressed in this letter. No opinion may be inferred or implied beyond the matters expressly stated herein, and our opinions expressed herein must be read in conjunction with the assumptions, limitations, exceptions and qualifications set forth herein. We express no opinion herein with respect to the adequacy or accuracy of any offering document or other information pertaining to the offering for sale of the Bonds. The law covered by the opinions expressed herein is limited to the laws of the Commonwealth of Pennsylvania and the federal law of the United States of America. Very truly yours,

BUCHANAN INGERSOLL & ROONEY PC