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2016 Report to the Community

The only constant is change.

Wow, does that ever sum up healthcare, and our2016 at Altru Health System.

Change can be viewed in a couple of ways. Manyview change as a bad thing—an unwelcome butnecessary part of life. There’s another way to viewchange: as a beautiful opportunity to rethink howwe carry out our mission. Change happens,whether we like it or not, and it’s up to us todetermine how we respond.

At Altru, we like to think of the changinglandscape of healthcare as a transformation. If weare open to change, we have the uniqueopportunity to lead the transformation rather thanfollow the path of others.

December 29, 2016The year ended with a bang — literally. Theafternoon of December 29 brought about a loudand terrifying crack in the structure of our MainClinic. Quickly and safely, we evacuated allpatients and staff from the building and movedinto emergency management mode.

Our staff worked through the night and,amazingly, rescheduled patients for the very nextday in new locations throughout the healthsystem. In times of great trial, it’s inspiring whatpeople can do, what we can accomplish as a team.

During the relatively calm week between end-of-the-year holidays, our world was quickly turned

upside down. While we are beyond grateful no onewas harmed in this incident, the coordination andadaptation to change that happened in the followingdays, weeks and months had to happen quicklyand efficiently. Our staff worked tirelessly, whileconsistently putting our patients’ needs first.

Sometimes in our darkest moments, we shine thebrightest.

So, What’s Next?After the decision to start fresh and rebuild, wehave been continuing to reinvent the future,starting with the present.

Working as a team, with input from our staff andproviders as well as community members, we arelaying the groundwork to transform not only ourphysical spaces but the way we will continue toprovide care today and for all of our tomorrows.We want to improve the patient experience,working smarter with fewer resources, whiledecreasing cost and improving outcomes. Wecould look at this as one giant and overwhelmingchallenge. Or, we can see it as a uniqueopportunity to reimagine the future of healthcarefor the entire Red River Valley.

Shifts in the Right DirectionAlready, we are seeing trends of consumerism andinstant gratification seep into healthcare. Appleand Amazon, leaders in innovation, have ampedup our expectations. Patients aren’t afraid to“shop around” for healthcare. Convenience isstarting to outshine brand loyalty. Technology and

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access will continue to be challenged, and it’s upto us to grow with the times, offering flexible andconvenient access for our consumers. We’vealready started doing this in many ways, with ourrobust telemedicine offerings throughout theregion, as well as new eVisit options available.Further, we brought the Mako® Robotic-Arm toAltru Advanced Orthopedics last year, using thelatest technology to improve alignment andplacement for joint surgery.

As the baby boomer generation continues to age,we are already starting to see a workforceshortage. We are developing creative solutions,such as having more advance practice providersassisting doctors and more certified nurseassistants helping nurses. We’ll continue to lookfor ways to make a smaller team stronger. Wehave to change how we efficiently and effectivelydeliver care.

Altru Health System launched its firstaccountable care organization (ACO) insuranceoption in 2016: Altru & You with Medica. Underthis ACO model, the provider and the health planwork together to improve quality of care, managetotal cost of care and optimize the consumerexperience. The goal is to better engage ourpatients, with a preventative focus on staying wellin the present rather than fighting sickness in thefuture. This contributes to the bigger picture ofkeeping our population healthy and out of thehospital.

What Doesn’t ChangeWhen we look to the future, we see more change,more re-thinking, more innovation. While changeis constant, a few things never change. Ourvalues—our patients, our care, our team and ourcommunities—hold steady as we create ourfuture. Our patients remain at the center of everydecision throughout this process. We’re all herefor one purpose, and that’s to take care of people.

Transformation is not a future event. It is apresent activity.

Now is our time to innovate.

In health,

Eric Lunn, MD Dave Molmen, MPHPresident Chief Executive Officer

EXECUTIVEMESSAGE

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Our generous donors in 2016 gifted a record $2.7million of support to the needs of our patients.We moved $1.9 million of these gifts to Altru in2016 to provide world-class care in the followingareas (with several examples):

$730,000 for patient care programs/services» Free autism screening clinic» Healthy n’ Fit Kids nutrition education in the

classrooms» Infant Bereavement program/services» Multiple Sclerosis Clinic» Suicide prevention and education

$407,000 for patient care equipment» Cardiac/Pulmonary rehabilitation equipment» Neonatal Intensive Care Unit equipment» Renal Dialysis equipment» Hospice equipment

$495,000 in patient assistance to financiallyeligible individuals» Charitable care» Free foot and eye exams for patients with

diabetes» Free colonoscopies» Scholarships to Healthy n’ Fit Kids» Filling the Gap gas cards and lodging (patients

receiving cancer care)» Caring for Kids gas cards and lodging (children

receiving regular treatments)

$290,000 to Third Street Clinic» Supporting prescription assistance

LIFETIMEGIVING LEVELS

Founder ($100,000 and above)AlerusAltru AllianceAmerican Heart Association, Inc.AMGEN PharmaceuticalsAnderson ConsultingBremer BankLawrence BrownPerry BundeC.L. Linfoot Co.Charles Swanson EstateCity of Grand ForksDakota Medical FoundationWinnifred FalkangerImpact FoundationKnight FoundationKodak - Eastman Kodak CompanyRichard MeivesDavid and Karen MolmenMyra FoundationND Department of TransportationND Division of EmergencyManagement

ND Department of HealthOtto Bremer TrustHarris A. PetersonBen E. PintaLinda RedmannRehab FoundationDr. Casey and Beverly RyanJerry & Sanny RyanRydell GM Auto CenterSafe Kids WorldwideSertoma Club of Grand ForksUCareUND School of Medicine & HealthSciences

University of North DakotaUS Department of AgricultureVaaler Insurance, Inc.VHAN. Birdie WilcoxWorkforce Safety and Insurance Yorhom Medical Essentials

Partner ($50,000-$99,000)Alliance for Clinical Trials in Oncology

Altru Family Medicine CenterPharmacy

Shirley M. BostromBrady, Martz & Associates, P.C.Randy and Merrilee BrownE. I. Dupont Denemours & Co.Edgar Haunz FoundationEngelstad Family FoundationEpic Systems CorporationFrandsen Bank & TrustGap FoundationGeorge Washington UniversityGrand Forks HeraldHugo'sLane and Lavon JacobsonLeighton BroadcastingLions District 5M8Lunseth Plumbing & Heating Co.Medica FoundationND Department of Human ServicesDoug and Sandy NorbyDr. Robert and Genevieve PainterMike and Tricia RyanDr. Mark B. SiegelTAG-The Art of Giving CorpThe Farrah Fawcett FoundationDwight and Ruth ThompsonUnited Way of Grand Forks, East GrandForks and Area

US BankBill and Cheryl WidmanWill Rogers InstituteXcel Energy

Benefactor ($25,000-$49,999)Abbott LaboratoriesAlpha Phi SororityBank of AmericaBergstrom Electric, Inc.Drs. Ron Brockman and Ellen FeldmanCamrud, Maddock, Olson & Larson, Ltd.Cardinal Health FoundationCincinnati Children's HospitalRichard and Phyllis ClarkConstruction Engineers, IncCoverys Community HealthCareFoundation

Tim and Sandra CraryJoe and Mary CraryDelta Dental of MinnesotaEAPC Architects EngineersEcolab FoundationEdgewood Healthcare SystemPhilip D. EdmanGeneral Motors CorporationGreg GerloffGrand Forks Public SchoolsDr. Greg and Colette GreekGreenberg RealtyAlice HansonBill and Joanne HaugRobert M. and Helen JacobsonJLG Architects, Ltd.David and Pamela KvidtDr. John and Doris LambieLifeCare Medical CenterArnold LindquistLockton Dunning BenefitsRobert and Janice LorchDr. Eric LunnMerrill LynchMinnkota Power Cooperative, Inc.National Breast Cancer Foundation, Inc.Nodak Electric Cooperative, Inc.North Dakota Community FoundationRobert and Jeanine PeabodyPorpoura Coffee HouseChristy RamseyRed River Lions ClubRed River Valley MotorcyclistsSammons PrestonSenior Meals and ServicesDr. Louis B. and Thelma SilvermanPaul and Susan SprouleSt. Ansgar's HospiceDr. Paul StademTeva Neuroscience, Inc.Thrivent Financial for LutheransVALDAK Corporation dba Valley DairyJeff and Kim VigenWalmart FoundationTerry L. WatneBrad and Marcia WeheDonnabelle and Lloyd Weston

Thanks to our generous donors and supporters for their passion and commitment. It is through thesegifts that we are able to provide outstanding medical services, programs, technology and education forpatients of Altru and their families.

The following donors have achieved lifetime giving levels of $25,000 and higher by December 31,2016. For more information on donating to Altru Health Foundation, please visit altru.org/foundation.

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In 2016, Altru provided more than $26 million incommunity benefit activities relating to charitycare, health professional education, communityhealth improvement, research and financial andin-kind contributions. All of our resources aredevoted to improving health in the communitieswe serve.

Altru Quick Facts» 4,091 employees, including 198 physicians

and 77 mid-levels (nurse practitioners andphysician assistants)

» 14,829 inpatient discharges» 498,295 total clinic visits at Grand Forks and

regional clinics» 67 physician specialties» 13 Grand Forks practice locations» 11 regional practice locations

*2016 Statistics

Social Responsibility» $26 million: total community benefit» $23.5 million: total cost of providing charity

care» $328.2 million: total compensation, including

benefits (average hourly salary of $53.21including benefits)

» 309 volunteers contributed 18,832 hours ofservice, providing an economic impact of$475,320

» Organized under 501(c)(3) of the InternalRevenue Code organized and operated exclusivelyfor exempt purposes; no earnings may inure toany private shareholder or individual

» Governed by volunteer, unpaid communityboard; board members are ratified by 228community and regional volunteer corporatemembers

» Serves as the provider arm for the Third StreetClinic for no compensation

» Conducts Altru’s Community Care programwhich provides primary care physician andrelated services for those uninsured and/orunderinsured (discount 10% to 80% for thosebelow 250% of the Federal Poverty Level)

» Serves as the no cost medical waste disposalprovider for individuals throughout the region.

» On any given day Altru Health System has 300students from area schools in a variety oftraining programs within the system.

» Provides interpreter service for non-Englishspeaking patients in numerous languages

» Houses and hosts a home-delivered mealprogram

» Chaplaincy program provides spiritual supportto patients, family members and staff forAltru’s patients, Valley Memorial Homes andAltru’s Hospice. This service is available 24hours a day, seven days a week.

COMMUNITY COMMITMENT

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Capital InvestmentIn 2016, Altru continued to strengthen its abilityto provide world class care through strategicinvestments in capital. For the year, Altruinvested $25 million into various projects thataddressed equipment replacement and upgrades,facilities improvements, and informationtechnology upgrades and expansion. Included inAltru’s capital investments in 2016 were theacquisition of the Mako Robotic Arm system foruse in orthopedic surgery, creation of a state-of-the-art area for the sterilization of surgicalequipment and instruments, and the initiation ofrenovating and expanding our clinic in Crookstonto provide enhanced services to that community.

Financial Performance from OperationsAltru’s operating income of $13.8 millionrepresented a 2.4 percent operating margin, ascompared to 3.7 percent in 2015. Financialperformance was most impacted by significantvariances in contract labor costs in 2016, at$12.5 million over plan. Total operating revenueincreased 4.8 percent year over year, topping$550 million for the year. Targeted operationalassessment work began late in the year, andidentified revenue and expense opportunities in2017 are projected to improve operating marginto Moody’s benchmarks of 3+ percent. Strongrevenue cycle performance resulted in continuedimprovement in bad debts. Gross revenueincreased $90 million over 2015, with bad debtdecreasing $2.3 million.

On December 29, 2016, a building failureoccurred in our 140,000-square-foot Main Clinic.The building was declared uninhabitable and willbe demolished in 2017. As a result, theremaining net book value of the building andimprovements, along with estimated costs ofdisposal, were recorded as a $7.1 million loss onimpairment. Doctors, staff and leadership haveresponded well to this significant event, and plansare in the works as we use this opportunity tobetter serve our patients. Planning is underwayas we firm up our future capital plans.

Balance SheetStrategic capital investments and operatingperformance have resulted in steady days cash onhand totals in the 140+ day range. Capitalinvestments have been funded throughoperations, without issuing additional debt. Daysin accounts receivable over the last two years hasdecreased nearly 8 days to 41.6 days in 2016,due to significant systems and operationsenhancements in revenue cycle. Our debt tocapitalization ratio has improved 3.7 percent overthe last two years, to 41.5 percent. Equity hasincreased by $28.2 million over the same timeperiod.

FINANCIALOVERVIEW

220

200

180

160

140

120

100

80

60

40

20

0

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

2,400

2,000

1,600

1,200

800

400

0

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

60%

50%

40%

30%

20%

10%

0

141.24

49.35

145.3 142.31

187.4DaysCashMedian

Days Cash on Hand and Days in Accounts Receivable- 80

- 70

- 60

- 50

- 40

- 30

- 20

- 10

- 02014 2015 2016 Moodys

A3 Median

45.2%42.8% 41.5%

36.5%

Debt to Capitalization

2014 2015 2016 MoodysA3 Median

14,091 14,526 14,829

Hospital Discharges

2014 2015 2016

64,109 67,462 70,581

Emergency Department Visits

2014 2015 2016

1,816 1,7641,828

Births

2014 2015 2016

Days Cash on Hand Days in Accounts Receiveable

47.11 41.56

67.90

Days in AR Median

To view Altru's Audited Financial Report for 2016, please visit altru.org/financialreports.

$70 14%

$60 12%

$50 10%

$40 8%

$30 6%

$20 4%

$10 2%

0 0%

14%

12%

10%

8%

6%

4%

2%

0%

- 2%

- 4%

10%

8%

6%

4%

2%

0%

- 2%

- 4%

Operating & Total Margin Percentage

Operating Margin Excess Margin

4.4%4.2%

2.9

5.4%

3.8%

Earnings Before Interest, Depreciation and Amortization

Series 1 Series 2

2014 20152016 BeforeClinic Building

Disposal

2016 AfterClinic Building

Disposal

MoodysA3 Median

2014 2015 2016

Annual Growth in Gross and Net Revenues

Growth in Gross Revenue Growth in Net Revenue

12.3% 11.1%

9.6%8.3%

61,889,168 59,366,994 53,595,417 46,524,169

10.0%

2014 20152016 BeforeClinic Building

Disposal

2016 AfterClinic Building

Disposal

MoodysA3 Median

3.2% 3.7% 2.4% 1.1% 3.1%

Altru Health System complies with applicable Federal civil rights laws and does not discriminate on the basis of race, color, national origin, age, disability, or sex. For more information,see link on our website at altru.org. ATENCIÓN: si habla español, tiene a su disposición servicios gratuitos de asistencia lingüística. Llame al 1.800.732.4277. ACHTUNG: Wenn SieDeutsch sprechen, stehen Ihnen kostenlos sprachliche Hilfsdienstleistungen zur Verfügung. Rufnummer: 1.800.732.4277. LUS CEEV: Yog tias koj hais lus Hmoob, cov kev pab txog lus,muaj kev pab dawb rau koj. Hu rau 1.800.732.4277.

P.O. Box 6002Grand Forks, ND

58206-6002

altru.org