for the period ended september 30, 2020 unaudited

0

For the Period Ended September 30, 2020

Unaudited Quarterly Disclosure

1

Tower Health Overview

Tower Health (“Tower Health” or the “System”) is a Pennsylvania nonprofit corporation that serves as the parent organization of seven acute care hospitals, an inpatient behavioral health facility, and related facilities that have formed an integrated healthcare system located in the Counties of Berks, Chester and Montgomery, Pennsylvania and the City of Philadelphia, Pennsylvania.

Brandywine Hospital in Coatesville (171 licensed beds);

Chestnut Hill Hospital in Philadelphia (148 licensed beds);

Jennersville Hospital in West Grove (63 licensed beds);

Phoenixville Hospital in Phoenixville (137 licensed beds*);

Pottstown Hospital in Pottstown (232 licensed beds*);

Reading Hospital, a teaching hospital in West Reading (738 licensed beds*, including 62 beds at a dedicated rehabilitation hospital); and

St. Christopher’s Hospital for Children, in partnership with Drexel University (188 licensed beds)

On July 14, 2020, Tower Behavioral Health, a 144-bed inpatient facility and ambulatory campus opened under a joint venture with Acadia Healthcare.

Tower Health Medical Group, a network of more than 128 primary care and specialty care practices, that includes 890 physicians and 411 Advanced Practice Providers.

Tower Health Urgent Care - Tower Health acquired 19 urgent care locations from Premier Urgent Care in 2018 and has added 4 new locations, making Tower Health the largest operator of urgent care centers in the metropolitan Philadelphia area according to the Philadelphia Business Journal

Tower Health at Home, one of the region’s largest regional home health and hospice organizations

Tower Health Partners, a clinically integrated physician network with more than 3,100 providers

Tower Health – UPMC Health Plan, a joint venture with UPMC Health Plan that offers affordable health insurance coverage and access to high quality care in nine counties, with over 50,000 member lives in all lines of business including Medicare Advantage, Administrative Services Only (ASO) for self-insured employers, Individual (Exchange), as well as Commercial Group, Special Needs Plans (SNP), Managed Medical Assistance, and Children’s Health Insurance Program (CHIP).

Drexel University College of Medicine at Tower Health – 120,000 square feet of new Medical School located ½ mile from Reading Hospital that will educate 200 enrolled medical students annually – starting July 2021

Medical Education Expansion to 600-700 Residents and Fellows.

*Number of licensed beds, excludes nursery

2

Tower Health at a Glance (excluding St. Christopher’s)

1) 2020 Environics Analytics Estimate based on Tower Health combined PSA 2) FY2019 market share based on Tower Health combined PSA 3) Excludes nursery beds and Observation; Includes 62 beds at Reading Hospital Rehabilitation at Wyomissing 4) Current as of June 30, 2020; includes THMG, THP, THUC, THAH, TowerDirect and all hospitals except St. Christopher’s 5) Excludes normal newborns 6) Includes residents; 890 physicians and 411 APPs; source THMG as of June 30, 2020 7) Includes THMG, THP, THUC, THAH, Clinics, Foundation, and all hospitals except St. Christopher’s 8) Actual THMG primary and specialty care visits 9) Includes 12,185 inpatient and 16,427 outpatient surgeries; Excludes endoscopies * All data is FY2020 unless otherwise noted

St. Christopher’s Hospital for Children At-A-Glance (Dec 2019 - June 2020)

(1) 2020 Environics Analytics Estimate (2) FY2019 PHC4 inpatient data; Patients age 0-17 (3) Current as of June 30, 2020 (4) Includes St. Christopher’s Hospital for Children only (5) Includes 476 inpatient and 2,246 outpatient surgeries; Excludes endoscopies * All data is Dec 15, 2019-June 30, 2020 unless otherwise noted

64,085Total

Admissions(5)

12,162 Employees

(10,362 FTEs)(4)

906,277PSA Population(1)

1,432Staffed Beds(3)

$1.71 billionRevenue(7)

28,612Total Surgeries(9)

44%PSA Inpatient

Market Share(2)

4,643Babies Delivered

246,408Emergency Room Visits

328,618Patient Days(5)

122,219Adjusted

Admissions

1,301Employed Physicians and

Healthcare Providers(6)

1.76 millionPhysician Office Visits(8)

240,245PSA Pediatric

Population(1)103

Staffed Beds

2,722Total Surgeries (5)

30.2%PSA Pediatric

Inpatient

Market Share (2)

27,223Emergency Room Visits

13,670Patient Days

$206 MRevenue (4)

2,434Total

Admissions

5,309Adjusted

Admissions

2,034 Employees

(1,589 FTEs)(3)

3

Awards

Reading Hospital

Verras' Medical Value Index™: One of 10 Best Value Hospitals in Pennsylvania Centers for Medicare & Medicaid Services:

5-Star Rating for Overall Hospital Quality

Healthgrades • 100 Best Hospitals’ Award™ (2017-2020)

• America’s 250 Best Hospitals • Patient Safety Excellence Award (2020)

4

Awards (cont’d)

Brandywine Hospital, Chestnut Hill Hospital, Jennersville Hospital, Phoenixville Hospital, Pottstown Hospital

Phoenixville

Chestnut Hill Phoenixville

Phoenixville PhoenixvillePottstown

Phoenixville

Chestnut Hill

Phoenixville

Phoenixville Pottstown

Chestnut Hill

Pottstown Brandywine Phoenixville

Phoenixville

Phoenixville Pottstown

Brandywine Jennersville Phoenixville Pottstown

Brandywine Jennersville Phoenixville Pottstown

Brandywine Chestnut Hill Phoenixville Pottstown

Pottstown Phoenixville Pottstown

Jennersville

Pottstown

Chestnut Hill Pottstown

Brandywine Pottstown Chestnut Hill

Brandywine

• Joint Commission Gold Seal of Approval for:- Hip and Knee Replacement (2018)- Acute Myocardial Infarction (AMI) (2019)

- Wound Care (2019)- Advanced Certification in Stroke - Primary Stroke Center

(2018)

- Laboratory (2019)

Chestnut Hill• Joint Commission Certified Advanced Primary Stroke Center

(2020-2022)• Joint Commission Accredited - Laboratory (2019)

Jennersville• Joint Commission Gold Seal of Approval – Laboratory (2018)

Phoenixville

• Joint Commission Advanced Heart Failure Disease Specific Certification (2018)• Joint Commission Advanced Total Joint Replacement Disease Specific

Certification (2018)

• Joint Commission Accredited Primary Stroke Center (2019)

Pottstown

• Joint Commission Gold Seal of Approval for:- Hip and Knee Replacement (2018)- Primary Stroke Center Designation (2018)- Laboratory (2019)

All Hospitals• Joint Commission Hospital Accreditation

5

Awards (cont’d)

St. Christopher’s Hospital for Children

2019

Verified PediatricBurn Center

RICHARD ROBINSON

AWARD St. Christopher’s Pediatric

Associates Center for the Urban Child

- Reach Out and Read -

Level 1Pediatric

Trauma Center

45 St. Christopher’s Hospital for Children

Physicians included in Top Docs 2019

Enitan Adegite, MD, Adolescent Medicine L. Grier Arthur III, MD, Pediatric Surgery

Kiersten Arthur, MD, Sports Medicine Brooke Burkey, MD, Plastic Surgery

Alison Carey, MD, Neonatology Karen Carvalho, MD, Neurology

Janet Chen, MD, Immunology & Infectious Diseases

Daniel Conway, MD, Immunology Gregory Dean, MD, Urology

Nicole DeLarato, MD, Ophthalmology Shuping Ge, MD, Cardiology

Paul Glat, MD, Plastic Surgery Donald Goldsmith, MD, Rheumatology

Jeremiah Goldstein, MD, Pediatrics Harsh Grewal, MD, Pediatric Surgery

Gregory Halligan, MD, Oncology Martin Herman, MD, Orthopedic Surgery Keith Herzog, MD, Infectious Diseases Folasade Kehinde, MD, Neonatology

Shareen Kelly, MD, Pediatrics Hans Kersten, MD, Pediatrics

Roberta Laguerre, MD, Pediatrics Svetlana Lvovich, DO, Rheumatology

Nandini Madan, MD, Cardiology Francis McNesby Jr., MD, Pediatrics

Joseph Melvin, DO, Neurology C. Igor Mesia, MD, Cardiology

Kathleen O’Brien, MD, Sports Medicine Michael Packer, MD, Urology Nadja Peter, MD, Pediatrics

Rajeev Prasad, MD, Pediatric Surgery Jonathan Roth, MD, Urology

Marta Rozans, MD, PhD, Oncology Deborah Sandrock, MD, Pediatrics

Robert Spector, MD, Ophthalmology Elizabeth Suarez, MD, Endocrinology

Daniel Taylor, DO, Pediatrics Renee Turchi, MD, Pediatrics

Laurie Varlotta, MD, Pulmonology Alan Zubrow, MD, Neonatology

David Zwillenberg, MD, Otolaryngology

2017-2020 ECMO Team at

St. Christopher’s Hospital for Children

6

Service Area – Primary Service Area and Secondary Service Area

The Tower Health Primary Service Area

(PSA) accounts for 75% of Tower’s general

acute care hospitals’ combined inpatient

discharges using the top-volume zip codes

and adjusting for contiguous zip codes.

The Tower Health Secondary Service Area

(SSA) accounts for an additional 15% of

combined inpatient discharges from

Tower’s general acute care hospitals.

Displays Tower Health Hospitals and its top 10 competitors in terms of total discharges.

7

Recent Events

Tower Health Strategic Highlights

Tower Behavioral Health Opens in Reading

Tower Behavioral Health, a joint venture between Acadia Healthcare and Tower Health, opened on July 14, 2020. The new behavioral health facility will initially offer acute inpatient care for adults age 18 and older. When fully operational, Tower Behavioral Health will include 144 inpatient beds and will offer inpatient psychiatric care for children, adolescents, adults, and seniors; partial hospitalization program (PHP); intensive outpatient program (IOP); dual diagnosis services; outpatient counseling; and physician services and consultations.

Tower Health Opens Three New Urgent Care Locations

Tower Health opened three new Tower Health Urgent Care facilities in July and August: North Coventry on July 6, Sinking Spring on July 20, and Thorndale on August 3. All Tower Health Urgent Care facilities are open 365 days a year from 9 a.m. to 9 p.m. to provide walk-in care for a variety of conditions. All Tower Health Urgent Care Centers use Epic, the electronic medical record that integrates care across Tower Health.

Reading Hospital Performs Berks County's First Trans-Carotid Transcatheter Aortic Valve Replacement

Reading Hospital’s cardiovascular team recently performed the first trans-carotid transcatheter aortic valve replacement (TAVR) in Berks County. Replacing a damaged aortic valve via the carotid artery, located on the side of the neck, is a significant advancement for patients unable to undergo the more common approach through the large artery (femoral) in the thigh. This alternative treatment option provides a lifesaving procedure for patients who are not surgical candidates for the traditional aortic valve replacement and have no other treatment options.

St. Christopher’s Hospital for Children Appoints Donald Mueller as CEO

Donald Mueller joined St. Christopher’s Hospital for Children as President and Chief Executive Office on July 27, 2020. Don joins St. Christopher’s from his role as CEO of Children’s Hospital at Erlanger in Chattanooga, Tennessee. Don is a highly skilled and experienced executive, with an extensive and successful background in developing high-quality pediatric clinical programs; recruitment of physicians and researchers; strengthening nursing; and building effective partnerships with the community.

Karen Restifo, MD, JD, Named Inaugural Vice Dean of Drexel University College of Medicine at Tower Health

Karen Restifo, MD, JD, was named regional vice dean of Drexel University College of Medicine's Tower Health campus in West Reading, effective September 1, 2020. Dr. Restifo comes from the Keck School of Medicine of the University of Southern California, where she served as associate dean of student affairs. During her tenure there, she helped with preparation for a Liaison Committee on Medical Education (LCME) full accreditation site visit. She also served on numerous committees, including the Student Performance Committee, Student Affairs Committee, Medical Education Committee, Diversity Council, and the Wellness Task Force. She played a role in the development of Keck School of Medicine's new MD program curriculum.

8

Recent Events (cont’d)

Tower Health Prepares for Resurgence of COVID-19 Cases

Tower Health has the necessary policies and protocols in place to manage a surge in inpatient COVID-19

cases. Not only do our caregivers have a better understanding of the disease, its process, and how to manage

its symptoms, Tower Health has also:

Expanded its in-house coronavirus testing capabilities, speeding diagnosis.

Expanded a range of virtual and telemedicine services that allow patients to engage with their healthcare providers while reducing the need for in-person interactions.

Carefully managed our PPE and testing supply chains and inventories.

Rigidly monitored that our facilities are clean and safe for patients, visitors, and staff, including:

o temperature screening at all entry points,

o enforcing a universal masking policy,

o implementing enhanced cleaning and disinfection processes, using ultraviolet light disinfection robots in the most critical areas, and

o encouraging appropriate social distancing.

Created cohorted COVID units and ensured strict isolation for COVID positive patients.

Reduced capacity in waiting rooms, conference rooms, break rooms, eateries, etc.

Tower Health Enrolls Patients For COVID-19 Research Study

Tower Health has enrolled 40 COVID-19 patients in the "IMmunoPhenotyping Assessment in a COVID-19 Cohort" study, or IMPACC, that aims to develop effective treatments for COVID-19. Tower Health is among 10 leading medical institutions nationwide embarking on the study which is funded by the National Institutes of Health's National Institute of Allergy and Infectious Diseases. Participants are followed for 12 months after their hospitalization to assess how well they recover and whether they develop durable immunity to the virus. Tower Health is collaborating with the Drexel University College of Medicine in collecting and analyzing data.

COVID-19 Antibody Testing Available at Tower Health Urgent Care

Tower Health Urgent Care began offering COVID-19 antibody testing in July. Individuals may qualify for an antibody test if they had a confirmed case of COVID-19 and have since recovered. They may also be eligible if they previously experienced symptoms but never got tested, or were exposed to a confirmed COVID-19 positive individual more than 14 days before.

St. Christopher’s Hospital for Children to Become COVID-19 Testing Site for City of Philadelphia

St. Christopher’s Hospital for Children was awarded a grant by the City of Philadelphia to provide community COVID testing which began in October 2020. The program includes the installation of a 1,500-square-foot trailer adjacent to the parking garage for walk-up appointments and the reintroduction of drive-through testing.

9


Tower Health Leadership/Physicians Taking the Lead

Tower Health Appoints New Members to Board of Directors

Tower Health recently announced updates to its Board of Directors. Jim Boscov, Angel Helm, and William

Thornton, Jr. joined the Board effective July 1, 2020. Mr. Boscov is CEO of Boscov’s, a family-owned retail

enterprise and active in the community. Ms. Helm is a retired investment banking and finance executive with

29 years of experience in bond financing transactions for healthcare, higher education, and municipal and

corporate clients. Mr. Thornton is Co-Chair of the Litigation Department at Stevens & Lee and an experienced

securities and commercial litigator. With these new members, the total number of members on the Board of

Directors is increasing to 13 from 10.

Tower Health Expands Access and Services with Addition of New Physicians

Tower Health continues to expand access to healthcare in its communities with the addition of physicians and

advanced practice providers across the system, including:

Edward Pavillard, DO, Vascular Surgeon, Pottstown Hospital

Rouslan Tourtsev, DO, Primary Care, Pottstown Hospital

Eddy Mizrahi, MD, Cardiology, Phoenixville Hospital

Adrian Pearson, DO, Cardiology, Phoenixville Hospital

Katherine Catallo, MD, Emergency Medicine, Phoenixville Hospital

Lauren Shirley, DO, Emergency Medicine, Phoenixville Hospital

Nathan Peterson, MD, Hematology/Oncology, Phoenixville Hospital

Sophia Baig, MD, Neonatology, Phoenixville Hospital

Chestnut Hill Hospital welcomed Premier Orthopaedics, effective August 1, 2020. Jeffrey Vakil, MD, will lead

the transition for the team that includes former Chestnut Hill medical staff members Drs. Dennis McHugh,

Timothy Amann and John Pasquella.

Adanna Akujuo, MD, joined Tower Health Medical Group Cardiothoracic Surgery - West Reading. The addition

of Dr. Akujuo offers new procedures for the health system. Dr. Akujuo is an accomplished structural heart

surgeon proficient in valvular and aortic surgery with an expertise in minimally invasive valvular surgery and

complex mitral valve repair.

Reading Hospital Announces Ron Nutting, MD as Chief Medical Officer

Ron Nutting, MD was appointed as the Chief Medical Officer for Reading Hospital, effective July 19, 2020. In

this role Dr. Nutting will provide senior executive leadership to the Hospital's medical staff, while fostering quality

and innovation in medical services provided to the community. Dr. Nutting began serving as the interim Chief

Medical Officer at Reading Hospital in March 2020.

Susan Looney Appointed Vice Chair of Reading Hospital Board of Trustees

Susan Looney, J.D., Ed.D, has been appointed as the Vice Chair of the Reading Hospital Board of Trustees

effective July 23, 2020. Dr. Looney joined the Board of Trustees in June 2019. She currently serves as President

at Reading Area Community College.

10


Advancing Health. Transforming Lives. In Our Communities

Reading Hospital Saves $1 Million in Emergency Department Costs for Medicare and Medicaid Patients

A new case study released by Reading Hospital and Healthify shows the positive real-world impact Reading Hospital has made in the community by identifying and addressing social determinants of health-related needs for local Medicare and Medicaid beneficiaries. Reading Hospital formed the Community Connection Project (CCP) consortium to link the hospital with Berks County organizations such as New Journey Community Outreach, Berks Encore, and Centro Hispano. Using Healthify's platform, the CCP consortium was able to screen and refer patients for needed healthcare or other services. In just one year, Reading Hospital and the CCP consortium reduced the cost of unnecessary emergency department visits by $1 million for Medicare and Medicaid patients.

Reading Hospital Receives More Than $460,000 in Grant Funds to Fight Opioid Addiction

Reading Hospital received a $469,810 State Opioid Response grant via the Pennsylvania Department of Drug and Alcohol Programs to enhance Medication Assisted Treatment (MAT) delivered to individuals with an Opioid Use Disorder (OUD), including covering the cost of treatment and medication for uninsured individuals.

Reading Hospital Discharges 500th COVID-19 Patient

In September, Reading Hospital recognized the discharge of its 500th patient to successfully recover from COVID-19.

Reading Hospital Named One of the Top 50 Best Teaching Hospitals in the United States*

Reading Hospital was named one of the top 50 best teaching hospitals in the United States, according to a ranking released by Washington Monthly Magazine and the Lown Institute. Washington Monthly Magazine and the Lown Institute reviewed 3,359 hospitals and based scores on performance in three categories: patient outcomes, civic leadership, and value of care. Patient outcomes focused on clinical outcomes, patient safety, and patient satisfaction. Civic leadership involves community benefit, inclusivity, and pay equity. Value of care is based on an examination of rates of overuse for specific medical procedures.

* Award was received on October 20, 2020.

11

Management Discussion and Analysis

YTD Consolidated Statement of Operations for the 3-Months Ended September 30, 2020 and 2019

Long-Term Debt Service Ratio for Tower Health Obligated Group for the three months ended September 30, 2020 was 3.61x.

Note: $45 million of CARES Act funds are included in revenue for the three months ended September 30, 2020.

12

Management Discussion and Analysis (cont’d)

YTD Consolidated Statement of Operations for the 3-Months Ended September 30, 2020 (FY21 Q1) and Ended June 30, 2020 (FY20 Q4)

Note: $45 million of CARES Act funds are included in revenue for the three months ended September 30, 2020. $98 million of CARES Act funds are included in the revenue for the three months ended June 30, 2020.

13


Operational Performance 3-Months Ended September 30, 2020 vs September 30, 2019 and June 30, 2020

Tower Health (“Tower” or “System”) year-to-date operating performance through September 30, 2020 (Q1 FY

2021) reflects a significant increase over Q4 FY 2020. Operating income in Q1 FY 2021 was a negative $37.8

million compared to Q4 FY 2020 that was a negative $313 million. In Q1 FY 2021, total revenue increased by

79.9% over Q4 FY 2020, the System generated a negative operating margin of 6.7% in Q1 FY 2021 in

comparison to a Q4 FY 2020 operating margin of negative 99.4%. Each quarter includes CARES Act grant

funds received from the federal government. In Q1 FY 2021 we received $45 million versus $97.7 million in Q4

FY 2020. All CARES Act grant funds received were recognized and recorded in other operating revenue.

The year-to-date operating performance through September 30, 2020 (Q1 FY 2021) compared to Q1 FY 2020

reflects a decline, particularly with the five Chester/Montgomery/Philadelphia (“CMP”) hospitals. In Q1 FY 2021,

although total revenue increased by 15.0% compared with the three-month period ending September 30, 2019

(Q1 FY 2020). The System generated a negative operating margin of 6.7% in Q1 FY 2021 in comparison to Q1

FY 2020 operating margin of negative 1.9%.

Q1 FY 2021 includes $2.2 million of one-time, non-recurring expenses. Of the $2.2 million, $0.5 million was

related to EPIC implementation costs at the Urgent Care and the St. Christopher Hospital for Children project,

with the remainder related to other one-time transaction costs. Excluding the $2.2 million in one-time, non-

recurring expenses, the System’s operating income in Q1 FY 2021 was negative $35.6 million, resulting in an

operating margin of negative 6.3%, compared with negative 1.0% in Q1 FY 2020 and negative 98.3% in Q4 FY

2020.

Excluding the $2.2 million in one-time, non-recurring expenses, the System’s operating cash flow margin (as

defined on the prior page) was positive 1.8%, compared with positive 5.9% in Q1 FY 2020. The operating cash

flow margin for Q4 FY 2020 was negative 85.1%. Included in the Q4 2020 results are one-time costs associated

with the severance and unemployment costs of $18 million.

Across the system Tower has seen volumes start to recover for Q1 FY 2021 from Q4 FY 2020. Admissions are

up 17.9%, ER inpatient visits are up 18.9% and outpatient ER visits are up 37.4%. Inpatient surgeries are up

42.6% and outpatient surgeries are up 76.6%. OP registrations are up 64.5%.

Reading Hospital continued to generate significant operating income. Reading Hospital produced $53.6 million

in operating income (19.4% operating margin) in Q1 FY 2021 compared with 17.5% in Q1 FY 2020. Reading

Hospital’s operating cash flow margin* was 29.3%, compared with 25.7% in Q1 FY 2020.

Total revenue for the CMP hospitals in Q1 FY 2021 decreased 9.6% as compared with the prior year period, while total expenses (including interest, depreciation and amortization) decreased by 5.4%. The CMP hospitals’ results declined in Q1 FY 2021 as compared to the prior year period, generating an operating income of negative $12.9 million, for an operating margin of negative 8.5%, compared with the three-month period ending September 30, 2019, which had an operating loss of $6.1 million and an operating margin of negative 3.6%. The CMP hospitals generated operating cash flow* of positive $4.3 million and operating cash flow margin* of positive 2.9% in Q1 FY 2021 compared to positive $8.7 million and positive 5.2% in Q1 FY 2020. The CMP hospitals’ net income decreased to negative $12.9 million in Q1 FY 2021 from negative $6.1 million in Q1 FY 2020.

*as defined on the prior page

14


Strategies aimed at increasing utilization at the CMP hospitals were initiated and were continuing to produce

results until late March when the COVID-19 pandemic hit. Admissions (including newborns) in Q1 FY 2021

decreased by 4.9%, compared with Q1 FY 2020. Admissions at the CMP hospitals had previously shown an

increasing trend over the previous eight quarters.

Unrestricted Liquidity

Total balance sheet unrestricted cash and board-designated investment funds for capital improvements were

$894 million at September 30, 2020. This represents a modest decrease of $1 million from June 30, 2020.

Total days cash on hand for the System was 140 at September 30, 2020, representing a decrease of 7 days

from June 30, 2020. Net assets were $293 million at September 30, 2020. This represents a decrease of $16

million from June 30, 2020.

Included in unrestricted cash and investments above is approximately $166 million of CMS Advance Payments received during FY2020, which equates to approximately 26 days cash on hand. This amount is expected to be start to be repaid using an amortized schedule beginning April 2021

Transformational Excellence Plan (TEP)

In the 3rd quarter of FY 2020, Tower Health launched Transformational Excellence, a system-wide continuing effort to improve financial performance. In response to expected impacts of the Covid-19 pandemic, the annual margin improvement target of the Transformational Excellence was expanded since last quarter to $250 million.

The scope includes adoption of a more centralized and streamlined model for Tower Health management that will support greater efficiency and faster decision-making. These actions and system-wide teams across all functions are enabling improvements in labor productivity, management structure, administrative services, patient care delivery, clinical cost management, supply chain and other areas. Transformational Excellence has realized early success, with $34.7 million in realized savings in Q1 FY 2021 against a $26.4 million target for the quarter. As of the end of September, more than $157.7 million in specific FY 2021 initiatives have been identified and launched towards the $250 million goal to be achieved by FY 2022.

Turnaround Consultant Hired

Tower Health has engaged Guidehouse as a turnaround consultant. Guidehouse is a global consulting firm that

has deep expertise in helping hospitals and health systems transform care delivery and operations.

Tower Health and Guidehouse are developing a comprehensive set of solutions to help Tower leadership make immediate operational and financial improvements that improve the system’s bond ratings while sustaining positive care quality and safety, including:

Identifying process redesign opportunities

Redesigning workflows to increase efficiencies

Addressing duplicative or redundant service

Standardizing reporting analytics and metrics

Optimizing the supply chain and pharmacy

Assessing financial, operational, management, clinical service, and strategic issues impacting Tower’s

employed medical group

Enhancing the revenue cycle and identifying net revenue opportunities

15


Revenue Cycle

Tower Health’s Revenue Cycle operational foundation allowed the organization to meet the challenges presented during 2020. The revenue cycle components of the CMP markets have stabilized since the implementation of Epic in August 2019 with KPIs being at or better than target levels. Revenues continue to increase since the pandemic lows of April and are above pre-pandemic levels on a consolidated basis.

As we continue to manage through the COVID-19 crisis, Revenue Cycle management continues to aggressively pursue outstanding claim resolution and reduce denials from their major commercial payors. Executive level discussions are held on a regular basis to expedite the payment of claims and ensure additional reimbursement opportunities are realized for COVID -19 diagnosed patients and for Telemedicine services.

Additional technology has been implemented to assist consumers and patients with understanding their liability for healthcare services. The implementation of self-service out of pocket estimates will help meet the new CMS price transparency regulations. The implementation of the Tower Epic system at St Christopher’s Children’s Hospital targeted for February of 2021 will allow for further consolidation and efficiencies within the Revenue Cycle.

The consolidation of systems and operations across Tower Health is allowing Revenue Cycle Operations to increase efficiencies and reduce costs as part of the Transformational Excellence program. The implementation of these initiatives is projected to increase revenues or reduce cost by more than $35 million annually.

CARES Act Relief Funds

As of September 30, 2020, Tower Health has received a total $143 million in grants from several phases of the CARES Act stimulus bill, which have been recognized as other operating revenue. Additionally, deferral of the FICA payroll tax provides $25 million in reduced cash payments. Tower anticipates that it will also benefit from the suspension of Medicare sequestration, the delay of Disproportionate Share Hospital payments reductions for hospitals and the 20% add-on to the DRG payment for inpatients with COVID-19.

Tower HealthConsolidated Statement of Cash Flow

For The Three Month Period Ending September 30, 2020

Cash flows from operating activities and gains:Change in net assets (16,074,000)Adjustments to reconcile change in net assets to netcash provided by operating activities and gains:

Change in unrealized gain on investments (19,092,000)Change in pension liability (11,745,000)Change in deferred revenue 19,233,000Amortization of bond discount 129,000Amortization of bond premium (1,692,000)Depreciation 28,965,000ROU asset amortization 818,000Change in Operating lease liabilities 31,000Realized gains on investments (175,000)Equity in (income) loss of affiliate 3,052,000HHS Stimulus (45,532,000)Restricted contributions (840,000)Change in cash due to changes in operating assets & liabilities:

Receivables from patients and others (16,405,000)Inventories 3,660,000Prepaid expenses and other current assets 4,094,000Deferred Compensation 828,000Goodwill 18,000Other assets 7,109,000Long term debt 1,000Third-party settlements 3,216,000Accounts payable and other liabilities 15,416,000Accrued vacation (1,693,000)Self-insurance cost 1,054,000

Net cash provided (used) by operating activities and gains (25,624,000)$

Cash flows from investing activities:Acquisition of property, plant and equipment (17,295,000)Distribution to/from equity investees 663,000Investment in equity investees (1,000)Sales from assets whose use is limited 2,114,000Purchases from assets whose use is limited (4,673,000)

Net cash provided (used) by investing activities (19,192,000)$

Cash flows from financing activities:Restricted contributions and investment income received 840,000HHS Stimulus 45,532,000Repayments of line of credit (25,005,000)Payments of finance leases 2,051,000

Net cash provided (used) in financing activities 23,418,000$

Net change in cash and cash equivalents (21,398,000)$

Cash and cash equivalents at beginning of year 356,892,000$

Cash and cash equivalents at end of year 335,494,000$

Tower Health

Historical Utilization of Services

For Fiscal Years 2019 through 2021 YTD

FY 2019* FY 2020FY2021 YTD

Consolidated

Beds in Service:

Adults & Critical Care 1,109 1,010 1,010

Obstetrics/Gynecology 60 91 91

NICU 30 34 34

Pediatrics 19 19 19

Skilled Nursing 50 50 50

Acute Rehab 76 76 76

Psych 152 152 152

Subtotal 1,496 1,432 1,432

Newborn 73 73 73

Total 1,569 1,505 1,505

Admissions:

Medical/Surgical 51,879 51,939 13,061

Obstetrics/Gynecology 4,910 4,993 1,222

NICU 417 282 60

Pediatrics 1,368 1,379 263

Skilled Nursing 1,197 1,075 281

Acute Rehab 1,548 1,554 419

Psych 3,652 2,867 551

Subtotal 64,971 64,089 15,857

Newborn 4,200 4,319 1,080

Total 69,171 68,408 16,937

Patient Days:

Medical/Surgical 224,775 233,151 60,502

Obstetrics/Gynecology 12,875 12,696 3,067

NICU 9,111 8,889 1,751

Pediatrics 2,569 2,578 450

Skilled Nursing 16,711 16,917 4,441

Acute Rehab 20,931 22,021 6,373

Psych 42,582 32,366 7,035

Subtotal 329,554 328,618 83,619

Newborn 8,752 8,710 2,085

Total 338,306 337,328 85,704

Acuity:

Case Mix Index 1.43 1.43 1.43

* Prior to FY20, the CMP Hospitals did not segregate beds among Med/Surg, OBGYN and NICU, updated in FY20.

Medical/Surgical includes Adult and Critical Care

FY 2019* FY 2020FY2021 YTD

Consolidated

Length of Stay:

Medical/Surgical 4.33 4.49 4.63

Obstetrics/Gynecology 2.62 2.54 2.51

NICU 21.85 31.52 29.18

Pediatrics 1.88 1.87 1.71

Skilled Nursing 13.96 15.74 15.80

Acute Rehab 13.52 14.17 15.21

Psych 11.66 11.29 12.77

Total 5.07 5.13 5.27

Newborn 2.08 2.02 1.93

Occupancy Rates:

Medical/Surgical 55.5% 59.5% 65.1%

Obstetrics/Gynecology 58.8% 34.0% 36.6%

NICU 83.2% 71.4% 56.0%

Pediatrics 37.0% 37.1% 25.7%

Skilled Nursing 91.6% 92.4% 96.5%

Acute Rehab 75.5% 79.2% 91.1%

Psych 76.8% 58.2% 50.3%

Total 60.4% 59.7% 63.5%

Newborn 32.8% 32.6% 31.0%

* Prior to FY20, the CMP Hospitals did not segregate beds among Med/Surg, OBGYN and NICU, updated in FY20.

Medical/Surgical includes Adult and Critical Care

FY 2019* FY 2020FY2021 YTD

Consolidated

Surgeries:

IP 14,306 12,616 3,476

OP 23,595 18,542 5,537

Total 37,901 31,158 9,013

Emergency Visits:

IP 48,736 50,602 12,558

OP 229,031 236,667 51,438

Total 277,767 287,269 63,996

OP Registrations: 1,304,467 1,388,777 154,508

Physician Vists: 1,728,810 1,871,449 716,374

Urgent Care Visits: 108,072 159,947 42,071

Telehealth** N/A 16,757 26,030

** Telehealth visits began to be collected beginning in June 2020.

Tower Health

Historical Utilization of Services by Hospital

########

Three months ending June 30, 2020 (Q4 FY 2020) and

three months ending September 30, 2020 (Q1 FY 2021)

Q1 FY 2021 vs.

Q4 FY 2020

Q4 FY 2020 Q1 FY 2021 Variance %

Reading 7,828 9,500

Brandywine 1,240 1,403

Chestnut Hill 1,498 1,645

Jennersville 514 593

Phoenixville 1,612 1,756

Pottstown 1,793 2,018

St Christopher's 682 974

Total 15,167 17,889 17.9%

Q4 FY 2020 Q1 FY 2021

Reading 1,281 1,837

Brandywine 154 179

Chestnut Hill 204 331


Phoenixville 244 301

Pottstown 257 376


Total 2,437 3,476 42.6%

Q4 FY 2020 Q1 FY 2021

Reading 846 1,477

Brandywine 183 293

Chestnut Hill 216 363


Phoenixville 618 1,278

Pottstown 340 654

St Christopher's 702 1,122

Total 3,135 5,537 76.6%

Admissions

IP Surg

OP Surg

Q1 FY 2021 vs.

Q4 FY 2020

Q4 FY 2020 Q1 FY 2021 Variance %

Reading 5,024 6,002







Total 10,559 12,558 18.9%

Q4 FY 2020 Q1 FY 2021

Reading 14,294 19,543



Jennersville 2,241 2,741



St Christopher's 5,106 7,929

Total 37,431 51,438 37.4%

Q4 FY 2020 Q1 FY 2021

Reading 54,027 82,004



Jennersville 3,224 5,844



St Christopher's 6,514 12,725

Total 93,928 154,508 64.5%

OP ER

OP Registrations

IP ER

TOWER HEALTH

NET REVENUE BY PAYOR CATEGORY

1Q YTD Annual Annual

FY 2021 FY2020 FY2019

Category

Medicare Including Mgd MCR 33% 34% 30%

Medicaid Including Mgd MCD 10% 15% 12%

Blue Cross 29% 26% 33%

Non-Blue Commercial 23% 18% 19%

Other & Self Pay 5% 7% 6%

Total 100% 100% 100%

* Reading and CMP Hospitals only Excluding St. Chris

St Christopher's 1Q YTD Annualized

FY 2021 FY2020*

Category

Medicare Including Mgd MCR 1% 1%

Medicaid Including Mgd MCD 81% 83%

Blue Cross 0% 0%

Non-Blue Commercial 17% 14%

Other & Self Pay 1% 2%

Total 100% 100%

*FY 2020 effective 12/15/2019-6/30/2020

for the period ended september 30, 2020 unaudited

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