Since its inception in 1924, Baptist Healthcare System, Inc. and its affiliated organizations (“Baptist”) have been dedicated to providing accessible, quality healthcare to all patients regardless of their ability to pay. Baptist owns and operates:

Baptist also manages a county owned facility, Hardin Memorial Hospital, in Elizabethtown, Kentucky.

VISION
The vision of Baptist is to be the healthcare leader in Kentucky. Having earned a reputation of providing high quality patient care and utilizing the latest in medical technology, patients seek out Baptist facilities for their care. According to state statistics in 2005, Baptist is one of the largest healthcare providers in the state.

Kentucky 2005 Hospital Statistics

MISSION

As indicated by its mission statement, Baptist strives to continue its “Christian heritage of service and to enhance the health of the people and the communities we serve.” Baptist is organized and operated exclusively for the benefit of each community and each hospital is considered a valuable community asset. The Baptist Boards of Directors are comprised of local representatives who, along with the hospitals’ management and employees, understand that they are responsible to the communities for providing high quality health care services. Over the years, Baptist has gained a reputation for providing compassionate, high quality, cost efficient, patient friendly care.

RESPONSIVE TO COMMUNITY NEED

Operating healthcare facilities in today’s environment requires a delicate balance between producing a sufficient margin to allow for adequate staffing and investment in new technologies, while also providing enough resources to absorb the cost of care for those patients who do not have the ability to pay for the services. In fiscal year 2006, because of its ability to produce a modest operating margin, Baptist was able to re-invest nearly $101 million into the communities in new technology, construction, renovation and systems improvement. Because of the need to generate a modest margin while caring for all patients, Baptist strives to fulfill its community responsibility of collecting appropriate reimbursement from all patients who have the necessary resources while providing a generous, yet accountable charity care policy to assist those patients who do not have the means to pay for the services rendered. (See “Charity Care Policy” on the next page for further discussion).

From a broad perspective, Baptist hospitals consistently provide a high level of quality care to every patient and enhance the health of the people it serves through health promotions, health screenings, medical research, and training of health professionals.

Other community benefits include:

• Maintaining necessary, but unprofitable services that meet community needs
• Helping to recruit physicians to underserved areas
• Helping patients coordinate services with other healthcare providers
• Providing resources for support groups
• Promoting and providing preventive care services
• Monitoring clinical outcomes in order to the quality of care
• Committing resources to improving safety and processes of care
• Providing services conveniently accessible by patients

In addition, Baptist employees volunteer thousands of hours in community services and leadership. Baptist’s support for community activities underscores its commitment to improving the lives of those served. Because Baptist and its employees contribute so much of their time, talents and resources to serve others, communities served by Baptist are better places to live and work.

Quantification of many of the community benefits is detailed below under “Quantifiable Community Benefit”. However, what the Quantifiable Community Benefit doesn’t measure is the economic benefit derived by each community from Baptist being one of the largest employers in the state. The economic impact of the wages paid to Baptist employees is significant considering the dollars they spend on food, housing, services, and other products.

CHARITY CARE POLICY

To further the mission of enhancing the health of the people and communities it serves, Baptist provides medically necessary inpatient and outpatient care to patients regardless of race, religion, sex, national origin, disability, age or their ability to pay. Recognizing that not all patients have the ability to pay, Baptist has a charity care policy to accurately evaluate a patient’s ability to pay for services received.

Baptist relies solely on the physician order to determine whether treatment is medically necessary and whether the patient is treated on an inpatient or outpatient basis. Neither the patient’s financial condition nor their ability to pay for services has any bearing upon whether, or how, the patient is treated in a Baptist facility. Patients are transferred only when Baptist does not provide the specialized service that is required, or by specific request of the patient.

Baptist has notices posted throughout the hospital that clearly communicate Baptist’s charity care policy. Baptist employees are instructed in the application of the charity care policy and are trained to recognize situations that indicate the financial resources of a patient may be inadequate. These employees freely and willingly volunteer information regarding the charity care policy to any patient who may express a concern regarding the ability to pay for services. The policy provides that:

1. Patients/Guarantors with resources of less than 200% of the Poverty Guideline for their family size will receive full charity.
   
2. Patients/Guarantors with resources of 200% but less than 400% of the Poverty Guideline for their family size will qualify for partial charity. The portion of the bill owed by Patients/Guarantors will follow a sliding scale prorated linearly from 10% of Patient Liability when Resources are 200% of the Poverty Guideline to 100% when Resources reach 400% of the Poverty Guideline. However, if Resources are no more than 700% of the Poverty Guideline for a Family of one, the Patient/Guarantor’s liability will be limited to only 20% of their Resources.
   
3. Patients/Guarantors with Resources of 400% or more of the Poverty Guideline for their Family size but no more than 700% of the Poverty Guideline for a Family of one will qualify for partial charity if Patient Liability exceeds 20% of their Resources. In these situations, the Guarantor will be responsible for an amount equal to only 20% of their Resources.
   
4. If eligible for a charity discount, a patient will receive the discount regardless of whether they pay the balance on the bill. If necessary, payment arrangements may be made on the balance of the patient’s bill in accordance with hospital procedures.

If charity care eligibility cannot be determined, good stewardship requires that the hospital initially begin the collection process. However, immediately upon determining that the guarantor is eligible for charity care, collection efforts on the balance eligible for charity will cease and the appropriate balance will be designated as charity.

TAX-EXEMPT STATUS REQUIREMENTS

The Internal Revenue Service Revenue Ruling 69-545 provided that a hospital can demonstrate it has met the community benefit standard by having a full-time emergency room open to the public regardless of ability to pay for services received.

Baptist operates Emergency Departments that are open 24 hours a day, 365 days a year and treated 179,411 emergency patients during fiscal year 2006. Baptist facilities and emergency departments post policies stating that patients will be treated regardless of their ability to pay. Depending on the severity of a patient’s condition, as a service to the patient Baptist may verify insurance prior to rendering services in the emergency department. Under no circumstances is emergency care delayed by discussions regarding insurance coverage or ability to pay for services. In addition, Baptist does not convey or intimate in any way to any emergency medical transportation service an unwillingness to treat any particular patient in need of medical attention.

ACCOUNTABILITY TO THE BROADER COMMUNITY

As previously noted, the Baptist Board of Directors embraces its responsibility to represent the broader community in guiding Baptist in its provision of healthcare services. The Board’s specific responsibilities require them to set organizational direction, assure effective management and governance, act as community stakeholders, enhance Baptist’s assets and continuously improve the quality of care. The Board meets periodically to provide oversight as to how best to continue to serve each community. Regularly scheduled meetings of the full Board and its Committees are described below:

One of the key functions of the Board is to ensure Baptist not only utilizes sound financial management, but also embraces a culture of compliance that permeates throughout the healthcare system. This is best demonstrated by Baptist’s commitment of resources for compliance activities including the designation of a Compliance Officer. The compliance function reports to the Audit Committee (established in 1994) which is comprised of three independent members of the Board who are not members of either the Executive or Finance Committees. Additionally, at least one member has the expertise to be considered a financial expert in the public sector.

Another key function of the Board is to ensure that compensation paid to executives is reasonable and meets the guidelines set forth by the Internal Revenue Service. Through the Executive Compensation Committee (ECC), the Board ensures that: 1) members of the ECC do not have any conflicts of interest, i.e., they are not employed or receive compensation subject to approval by the executives, 2) the compensation is approved in advance by the ECC, 3) the ECC obtains and relies upon appropriate comparability data in making decisions, 4) every form of compensation and benefit is included in the comparisons, 5) the ECC documents the basis for its decision concurrently with making the decision, and 6) based upon the data, the compensation is reasonable.

The following is a summary of Baptist’s community service for the fiscal year ended August 31, 2005, in terms of services to the poor and indigent and the benefits provided to the communities it serves. (The summary for the fiscal year ended August 31, 2006 is currently being compiled. This schedule will be updated once the analysis is complete).

Quantifiable Community Benefit

Baptist is fully committed to its responsibility as a charitable organization and commits extensive resources to fulfill that obligation to the community. To the extent possible, Baptist has quantified the benefits provided to the communities it serves:

* Represents nearly 12,000 hours of donated service by BHS employees that served over 275,000 members of the community.

Glossary of Community Benefit Terms:

Benefits for the Poor and Indigent:

Describes services provided to persons who cannot afford healthcare because of inadequate resources and/or who are uninsured or underinsured. This includes those patients that qualify for Charity, Medicaid, Kentucky’s Children Health Insurance Program (KCHIP), Kentucky Hospital Care Program (KHCP) and other citizens whose income is inadequate (based on each patient’s individual circumstances).

1. Unreimbursed cost of charity care describes the services provided to persons who cannot afford to pay. The amounts reflect the net cost of these services after reducing the costs for contributions and other revenues received by Baptist as direct assistance for the provision of care. It also includes the Health Care Provider Tax (Kentucky Revised Statutes 142.303) that is assessed on all hospital patient revenues received for the purpose of funding state Medicaid, KHCP and KCHIP programs.
   
2. Unreimbursed cost of Medicaid reflects costs of treating Medicaid beneficiaries not reimbursed by government programs.

Benefits for the Community:

Describes services provided to other needy populations that may not qualify as indigent but that need special services and support. The benefits include the cost of health promotion and education, health clinics and screenings, and medical research that benefits the community.

1. Unreimbursed cost of Medicare reflects the costs of treating Medicare beneficiaries not reimbursed by government programs.
   
2. Other community benefit includes costs incurred by Baptist in providing support and coordination of health education and awareness events as well as the cost of employees paid time to attend, staff, and coordinate these activities.
   
3. Baptist makes cash and in-kind donations on behalf of the poor and needy to community agencies and to special funds used for charitable purposes.