TY 2012 Form 990 Schedule O

efile Public Visual Render ObjectId: 201411209349300906 - Submission: 2014-04-30 TIN: 41-1878730

SCHEDULE O
(Form 990 or 990-EZ)

Department of the Treasury
Internal Revenue Service

Supplemental Information to Form 990 or 990-EZ

Complete to provide information for responses to specific questions on
Form 990 or to provide any additional information.
MediumBullet

Attach to Form 990 or 990-EZ.

OMB No. 1545-0047

2012

Open to Public
Inspection

Name of the organization

SMDC Medical Center

Employer identification number

41-1878730

Identifier	Return Reference	Explanation
Form 990, Part III, Line 4		Program service accomplishments: SMDC Medical Center dba Essentia Health Duluth is organized and operated exclusively for charitable, scientific, and educational purposes. In furtherance of its purposes, Essentia Health Duluth provides health care services in Minnesota through its 154 bed hospital and 8 clinics. The hospital offers a broad range of inpatient and outpatient services for its patients, including medical surgical care, behavioral health, rehabilitation, orthopedics, neuroscience, digestive health, family and pediatrics services, and heart and vascular services. In accordance with the Federal Emergency Medical Treatment and Active Labor Act, any person who presents at the hospital seeking treatment of an emergency medical condition is given a medical screening and necessary stabilizing treatment regardless of the person's ability to pay. In addition to the hospital and clinics, Essentia Health Duluth also operates pharmacies, optical centers, infusion therapy centers, outpatient surgery centers, and a cancer center. Beyond its clinical services, Essentia Health Duluth also offers educational programs for the community, such as parenting classes and child safety programs such as bicycle helmet fitting, bicycle safety, and pedestrian safety. Essentia Health Duluth also participates in continuing education programs for health care professionals. Essentia Health Duluth employs over 2,200 full time equivalents. The hospital provided for over 27,500 hospital patient days and over 29,500 outpatient visits during the fiscal year ended June 30, 2013. The clinics had over 468,000 encounters during the same time period. Essentia Health Duluth provided over $2,486,000 in charity care as well as an additional $26,563,000 of costs incurred in excess of Medicaid payments received during the fiscal year ended June 30, 2013. Further community benefits provided during the fiscal year include cash and in-kind donations of over $288,000 and continuing education programs for health care professionals of over $861,000. Effective January 1, 2013, Essentia Health Duluth became the sole member of Essentia Health Virginia LLC. Essentia Health Virginia LLC is organized exclusively for charitable, scientific, and educational purposes. In furtherance of its purposes, Essentia Health Virginia LLC provides health care services in Minnesota through its 83 bed hospital, 90 bed skilled nursing facility, and effective May 1, 2013, a provider based clinic. The hospital offers a broad range of inpatient and outpatient services for its patients, including medical surgical care, rehabilitation, orthopedics, diabetes care, sleep lab, family and pediatric services, and heart and vascular services. In accordance with the Federal Emergency Medical Treatment and Active Labor Act, any person who presents at the hospital seeking treatment of an emergency medical condition is given a medical screening and necessary stabilizing treatment regardless of the person's ability to pay. The clinic offers a broad range of outpatient services for its patients, including family practice, obstetrics and gynecology, cancer center, orthopedics, digestive health, family, pediatrics services, weight management, and heart and vascular services. Essentia Health Virginia LLC employs over 220 full time equivalents. The hospital provided for over 3,500 patient days and over 6,000 emergency visits during the fiscal year ended June 30, 2013. The clinic had over 12,600 encounters during the same time period and the skilled nursing facility provided over 15,000 resident days. Essentia Health Virginia LLC provided over $82,000 in charity care as well as an additional $1,835,000 of costs incurred in excess of Medicaid payments received during the fiscal year ended June 30, 2013. Further community benefits provided during the fiscal year include continuing education programs for health care professionals of over $16,000.
Form 990, Part V, LINE 1A		1099 Reporting: Vendor payments and Form 1099's were processed through Essentia Health on behalf of certain legal entities comprising Essentia Health system.
Form 990, Part VI, SECTION A, LINE 4		During the fiscal year ended June 30, 2013, the Bylaws of Essentia Health Duluth were amended. The amendments removed the special board reserved powers.
Form 990, Part VI, LINE 6		Members of Organization: MEMBER, ESSENTIA HEALTH EAST, MAY ELECT ONE OR MORE MEMBERS OF THE GOVERNING BODY AS DESCRIBED IN SCHEDULE O PART VI LINE 7A. MEMBERS, ESSENTIA HEALTH AND ESSENTIA HEALTH EAST, HAVE RESERVED POWERS WITH RESPECT TO ESSENTIA HEALTH DULUTH AS DESCRIBED IN SCHEDULE O PART VI LINE 7B.
Form 990, Part VI, Line 7A		Members with right to elect governing body: ESSENTIA HEALTH EAST appointS and removeS ESSENTIA HEALTH DULUTH's governing body.
Form 990, Part VI, Line 7B		MEMBER WITH RIGHT TO APPROVE GOVERNING BODY DECISION: ESSENTIA HEALTH DULUTH is a subsidiary of Essentia Health, whose Board of Directors has reserved powers with respect to this corporation and its subsidiaries, and all of the other direct and indirect subsidiaries of Essentia Health (collectively, the "System"). Essentia Health's reserved powers are as follows: Strategic and Business Plans. Authority to create, and to approve, the System's strategic and business plans. Mission. Authority to create, and to approve, the mission, purpose and vision statements for all entities in the System by the affirmative vote of at least 67% of the Essentia Health board of directors. Debt. Approval of the incurrence of debt by, and the creation of all mortgages, liens, security interests, or other encumbrances on the assets of, all entities in the System in excess of the single or annual aggregate dollar limits prescribed in writing by the Essentia Health board of directors, and the authority to cause all entities in the System to participate in System borrowing. Governing Instruments. Authority to cause, and to approve, amendments of the articles of incorporation and bylaws of all entities in the System. Mergers and Acquisitions. Authority to cause, and to approve, all mergers, consolidations, and dissolutions of all entities in the System. Affiliations and Joint Ventures. Authority to cause, and to approve, all affiliations, joint ventures and other alliances with third parties of all entities in the System. Transfer of Assets Within the System. Authority to transfer assets, including cash, between and among entities within the System; provided, however, that Essentia Health shall not have authority to require any entity in the System to transfer assets (a) that would cause such entity to be in default of its covenants or obligations under any bond or other financing documents; (b) from the Catholic entities to the secular entities or from the secular entities to the Catholic entities in a manner or to an extent that would cause the Catholic entities to be in violation of the Ethical and Religious Directives for Catholic Health Care Services (ERDs) in the judgment of the local ordinary; or (c) such that money generated by services at secular facilities within the System by procedures that are contrary to the ERDs would be used at the Catholic entities or money generated by Catholic entities would be used in the providing of services contrary to the ERDs at secular facilities within the System. Transfer of Assets Outside the System. Authority to cause, and to approve, the sale, lease or other transfer of assets of all entities in the System to parties outside of the System when the asset's value exceeds the single or annual aggregate dollar limits prescribed in writing by the Essentia Health board of directors. Services. Authority to cause, and to approve, the addition of new services and service locations and the discontinuance of services and service locations within all entities in the System. Budgets. Approval of capital and operating budgets of all entities in the System. Professional Services. Selection of the general legal counsel and external auditors of all entities in the System. Approval of Parent Boards. Approval of the election and removal, with or without cause, of 100% of the CAG and SMDC boards of directors (who shall be elected by the methods set forth in the CAG and SMDC governing documents, respectively, subject to Essentias approval). Acquisitions. Authority to cause, and to approve, all acquisitions by and formations of entities in the System. Marketing. Authority to implement System-wide marketing and promotional activities. Compliance Plans. Authority to create, and to approve, corporate compliance, safety and risk management plans for entities within the System. Quality Plan. Authority to create, and to approve, the System's quality plan. Non-Budgeted Purchases. Approval of non-budgeted capital purchases and leases in excess of the single or annual aggregate dollar limits prescribed in writing by Essentia Health for entities within the System. Human Resources. Authority to create human resource policies and procedures within the System. Reserved Powers. Authority to create additional Essentia Health reserved powers by the affirmative vote of at least 80% of the Essentia Health board of directors (excluding the Essentia Health CEO); provided, however, that any additional Essentia Health reserved powers shall not contravene or hinder the reserved powers of Benedictine Sisters Benevolent Association.
Form 990, Part VI, Line 7B CONTINUED		Essentia Health East also has certain reserved powers over all East facilities within Essentia Health. Essentia Health East's reserved powers are as follows: Quality, Safety and Service. Authority to recommend quality and safety initiatives and to review and execute approved quality and safety plans for the East Region. Mission, Vision and Values. Authority to create a mission and a vision that support the mission and vision of Essentia Health; responsibility to oversee the mission performance, including charity care, of all facilities within the East Region; responsibility to adopt the values of Essentia Health. Operating and Financial Performance. Responsibility to oversee the operating and financial performance of the East Region. Development of Budgets, Strategic Plans and Strategy Map. Authority to develop and recommend, based on Essentia Health targets, capital and operating budgets for the East Region and its facilities; authority to recommend, within the Essentia Health context, regional and local strategic plans for the East Region; authority to develop East Region governance strategy map and balanced scorecard within Essentia Health's system strategy to meet system goals. Execution of Approved Budgets and Strategic Plans. Responsibility to execute the approved capital and operating budgets and strategic and business plans for the East Region. Non-budgeted Expenditures. Authority to approve non budgeted capital purchases and leases for East Region facilities within dollar limits defined by Essentia Health. Accreditation and Licensure. Responsibility to oversee accreditation and licensure compliance for the facilities of the East Region. Affiliations, Acquisitions and Joint Ventures. Authority to recommend proposed affiliations, acquisitions, joint ventures and other alliances; responsibility to oversee negotiation and implementation of approved acquisitions and operation of all approved affiliations, joint ventures and other alliances with third parties within the East Region. Appointment of Directors. Authority to appoint or elect directors of the Direct Subsidiaries, and to remove such directors, with or without cause. President. Authority to advise the CEO of Essentia Health regarding the appointment, removal and periodic evaluation of the President of SMDC. Satisfaction. Responsibility to execute, evaluate and oversee patient, family and customer satisfaction with respect to services provided within the East Region and to ensure established goals are met. Job Satisfaction. Responsibility to oversee job satisfaction and staff morale within the East Region facilities. Human Resources. Responsibility to oversee implementation of Essentia Health human resource policies and procedures throughout the East Region. Compliance. Responsibility to execute the approved Essentia Health corporate compliance and risk management plans for the East Region. Credentialing. Responsibility to perform medical staff credentialing for the East Region facilities. Nominations. Authority to nominate persons for appointment to the SMDC Board of Directors by Benedictine Sisters Benevolent Association and Essentia Health. Amendments. Authority to suggest proposed amendments to the Articles of Incorporation and Bylaws of this corporation, the Direct Subsidiaries, and any subsidiaries thereof. Compensation Plans. Responsibility to review and approve compensation of East Region executives and physicians for reasonableness and consistency with the law and Essentia Health's compensation philosophy. President/Chief Medical Officer. By action of the President of this corporation, authority to appoint and remove, with or without cause, the President/Chief Medical Officer of any of the Direct Subsidiaries. Public Policy. Responsibility to support Essentia Health public policy and advocacy plans. Marketing. Responsibility to coordinate regional marketing and promotional activities consistent with Essentia Health marketing plans. Philanthropy. Responsibility to coordinate philanthropy within the East Region consistent with Essentia Health foundation policies. Professional Services. Responsibility to oversee East Region management's cooperation with external auditors and general legal counsel selected by Essentia Health and coordination of legal services through the Essentia Health Office of General Counsel. Catholic Facilities. Responsibility to oversee implementation of BSBA-approved methods, policies and procedures pertaining to adherence by the East Region Catholic facilities with the Ethical and Religious Directives for Catholic Health Care Services and use of religious symbols, distinguishing elements and prayers. Projects Involving Real Estate. Authority to recommend facility development projects, subject to the approval of Essentia Health; responsibility to oversee execution of approved development projects according to Essentia Health policies.
Form 990, Part VI, Line 11A		Form 990 review process: The 2012 Form 990 including all schedules was reviewed by Essentia Health Duluth's management and governing body on MARCH 5, 2014 prior to filing with the Internal Revenue Service. Each current director of the governing body received a copy of the 2012 Form 990. Essentia Health Duluth's Chief Financial Officer led the review of the form and schedules and any questions were discussed.
Form 990, Part VI, Line 12C		Monitoring and enforcing Conflict of Interest policy: Essentia Health's comprehensive conflict of interest program prevents, detects and resolves actual conflicts of interests or the actual or potential appearance of such. Fiduciaries, defined as an Essentia Health board member/trustee, officer, board committee member, senior management employee, or any others considered to be in a position of influence, are covered under Essentia's conflict of interest program. Upon initial appointment, each fiduciary must complete an initial conflict of interest statement and disclosure questionnaire. At the conclusion of each fiscal year, each fiduciary must complete an annual conflict of interest statement and disclosure questionnaire. As needed, a fiduciary will update his/her most recently completed questionnaire each time the fiduciary becomes aware of a financial interest, a potential conflict, or change to any information that the fiduciary previously reported. Essentia Health's Chief Compliance Officer will collect the questionnaires and evaluate the disclosures. If a fiduciary has a potential conflict of interest, the Chief Compliance Officer or designee may request additional information from the fiduciary, the management team, and others. During the evaluation process, the Chief Compliance Officer may also consult with Essentia Health's Board and Audit Committee Chairs, senior management, legal department, or appropriate representatives from Essentia Health. The Chief Compliance Officer reports to the Essentia Health Audit Committee and the Essentia Health Board of Directors any actual or potential conflicts of interest disclosed by the fiduciary, along with recommended actions. The Essentia Health Board of Directors (or designee) will then determine whether to approve the situation or to implement special controls to manage the potential conflict of interest. The Chief Compliance Officer will then officially notify the fiduciary in writing of the board's decision. The decision of whether or not the disclosure constitutes a conflict or not will be at the Essentia Health Board of Director's (or designee) sole discretion, and its concern must be the welfare of Essentia Health and its affiliate(s) and the advancement of its purposes. When the Essentia Health Board of Directors (or designee) considers a Fiduciary's disclosure as a Conflict of Interest, special controls will be identified to manage, eliminate or reduce the likelihood and/or appearance of a conflict arising. Controls may include but are not limited to: A.If the conflict involves an on-going matter or relationship, the Fiduciary must not participate in Board, Board committee or management discussions related to the conflict and must recuse themselves and if appropriate, withdraw, from any Board meeting or portion thereof where the matter is being discussed and during the vote on the potential Conflict of Interest. The Fiduciary may answer questions at the Board's or the Board Committee's request. B.If the conflict involves a specific transaction or decision, the Fiduciary will fully disclose their interest and all related material facts. The Board or committee of the Board will determine whether the contemplated transaction may be authorized as just, fair, and reasonable to Essentia Health or its affiliate(s). If the Board determines a conflict does not exist, the Fiduciary may proceed with the transaction; however, he or she will not be eligible to vote on related issues should they arise. If the Board determines a conflict does exist, the Fiduciary will be notified of the decision regarding whether the contemplated transaction will be authorized as just, fair, and reasonable. Form 990, Pat VI, Line 12 POLICY APPLIES TO DISREGARDED ENTITY, Essentia Health Virginia, LLC.
Form 990, Part VI, LINE 13		POLICY APPLIES TO DISREGARDED ENTITY, Essentia Health Virginia, LLC.
FORM 990, PART VI, LINE 14		POLICY DOES NOT APPLY TO DISREGARDED ENTITY, Essentia Health Virginia, LLC. Essentia Health VIRGINIA, LLC HAS SUBSEQUENTLY ADOPTED A written document retention & destruction plan.
Form 990, Pat VI, Line 15		POLICY APPLIES TO DISREGARDED ENTITY, Essentia Health Virginia, LLC. Form 990, Part VI, Line 15 A&B PROCESS FOR DETERMINING COMPENSATION: The Executive Compensation Committee of Essentia Health's board of directors is authorized to fulfill the board's responsibilities regarding executive compensation consistent with Essentia's mission, values and tax-exempt status, and the Executive Compensation Committee's Charter. The Executive Compensation Committee meets at least twice annually to carry out its responsibilities, which include, but are not limited to, establishing, reviewing and modifying, as appropriate, reasonable compensation and benefits for designated Essentia executives who are officers or key employees of Essentia or any of its affiliates which may be paid by related organizations. The Executive Compensation Committee engages qualified independent compensation advisors to provide objective and impartial comparative data and to express opinions on total compensation reasonableness. The Executive Compensation Committee may request its independent advisors to: monitor comparability data and marketplace trends; make appropriate recommendations regarding salary ranges; and periodically review the market competitiveness of Essentia executive compensation packages. Prior to establishing or adjusting executive compensation, the Executive Compensation Committee will obtain and rely upon appropriate data as to comparability of the proposed compensation or adjustments. The Executive Compensation Committee will adequately document the basis for its determination concurrently with making those determinations. The Executive Compensation Committee minutes will include: the terms of the approved compensation and the date approved; the Executive Compensation Committee members present during the review, discussion and approval of the proposed compensation and those who voted on the proposed compensation; identification of the comparability data obtained and relied upon by the Executive Compensation Committee and how the data was obtained; any actions by a member of the Executive Compensation Committee having a conflict of interest; and documentation of the basis for the determination. The year this process was last undertaken for Essentia HEALTH DULUTH'S ADMINISTRATOR, CHIEF FINANCIAL OFFICER, EVP CLINICAL OPERATIONS, VP SURGICAL SERVICES, VP MEDICAL SPECIALTIES, VP HOSPITAL OPERATIONS, CHIEF NURSING OFFICER, AND VP MEDICAL AFFAIRS WAS 2012.
FORM 990, PART VI, LINE 19		Availability of governing documents, conflict of interest policy, and financial statements to the public: ESSENTIA HEALTH DULUTH makes its governing documents, conflict of interest policy, and financial statements available to the public upon request. ESSENTIA HEALTH DULUTH is part of Essentia Health's consolidated financial statements which are included in Essentia Health's annual report posted on Essentia Health's web site.
FORM 990, PART IX, LINE 24E		Essentia Health Duluth allocates out certain revenue and expenses to Essentia Health St. Mary's Medical Center, The Duluth Clinic, Ltd, Essentia Health Polinsky Medical Rehabilitation Center, and Essentia Health St. Mary's Hospital-Superior, related organizations. Net affiliate revenue and expense allocation of ($33,998,495) includes the following: GRANTS ($41), PROGRAM SERVICE REVENUE $20,137, INVESTMENT INCOME $376,989, REALIZED GAIN $926,352, MISCELLANEOUS REVENUE ($703,837), CONTRIBUTIONS ($791,173), COMPENSATION ($18,465,230), PAYROLL TAXES ($1,100,243), PENSION PLAN CONTRIBUTIONS ($1,053,224), ACCOUNTING FEES ($1,330), LEGAL FEES ($279,411), INVESTMENT MANAGEMENT FEES ($144,577), INTEREST $3,469,649, OTHER PURCHASED SERVICES ($3,371,810) ADVERTISING ($403,573), CONFERENCE/CONVENTIONS/MEETINGS ($285,187), DEPRECIATION & AMORTIZATION $896,951, INFORMATION TECHNOLOGY ($6,103,517), MEDICAL SUPPLIES $49,171, OCCUPANCY $168,572, OFFICE EXPENSES ($2,960,121), TRAVEL ($315,573), UNRELATED BUSINESS INCOME TAXES ($137,545), GAIN/LOSS ON REFINANCING $69,666, OTHER EXPENSES ($280,984), AND OTHER EMPLOYEE BENEFITS ($3,578,609).
FORM 990, PART XI, LINE 9		Other Changes in Net Assets: The total amount of other changes in net assets includes: Change in discount on City of Virginia Payable $4,111,296 Essentia Health Virginia Gain on affiliation $226,689 NET ASSET TRANSFER WITH RELATED ORGANIZATION; REALLOCATED BALANCE SHEET ITEM TRANSFERRED TO ALIGN WITH ORGANIZATIONAL STRUCTURE $3,046,304 NET ASSET TRANSFERS WITH RELATED ORGANIZATIONS; REALLOCATED INCOME STATEMENT ITEMS TRANSFERRED TO ALIGN WITH ORGANIZATIONAL STRUCTURE ($1,762,947) Uncollectible Pledges ($62,766) Pension and other post retirement liability $2,473,174 Prior Year Reversal of Grant Expense $175,000 Other Changes in Net Assets $107 Total $3,206,857
FORM 990, PART XII, LINE 3		Consolidated A-133: ESSENTIA HEALTH DULUTH, as part of Essentia Health's consolidated financial statements, was required and underwent a consolidated audit set forth in the Single Audit Act and OMB Circular A-133. The consolidated audit is reviewed by the Essentia Health Audit Committee.

Identifier

Return Reference

Explanation

Form 990, Part III, Line 4

Program service accomplishments: SMDC Medical Center dba Essentia Health Duluth is organized and operated exclusively for charitable, scientific, and educational purposes. In furtherance of its purposes, Essentia Health Duluth provides health care services in Minnesota through its 154 bed hospital and 8 clinics. The hospital offers a broad range of inpatient and outpatient services for its patients, including medical surgical care, behavioral health, rehabilitation, orthopedics, neuroscience, digestive health, family and pediatrics services, and heart and vascular services. In accordance with the Federal Emergency Medical Treatment and Active Labor Act, any person who presents at the hospital seeking treatment of an emergency medical condition is given a medical screening and necessary stabilizing treatment regardless of the person's ability to pay. In addition to the hospital and clinics, Essentia Health Duluth also operates pharmacies, optical centers, infusion therapy centers, outpatient surgery centers, and a cancer center. Beyond its clinical services, Essentia Health Duluth also offers educational programs for the community, such as parenting classes and child safety programs such as bicycle helmet fitting, bicycle safety, and pedestrian safety. Essentia Health Duluth also participates in continuing education programs for health care professionals. Essentia Health Duluth employs over 2,200 full time equivalents. The hospital provided for over 27,500 hospital patient days and over 29,500 outpatient visits during the fiscal year ended June 30, 2013. The clinics had over 468,000 encounters during the same time period. Essentia Health Duluth provided over $2,486,000 in charity care as well as an additional $26,563,000 of costs incurred in excess of Medicaid payments received during the fiscal year ended June 30, 2013. Further community benefits provided during the fiscal year include cash and in-kind donations of over $288,000 and continuing education programs for health care professionals of over $861,000. Effective January 1, 2013, Essentia Health Duluth became the sole member of Essentia Health Virginia LLC. Essentia Health Virginia LLC is organized exclusively for charitable, scientific, and educational purposes. In furtherance of its purposes, Essentia Health Virginia LLC provides health care services in Minnesota through its 83 bed hospital, 90 bed skilled nursing facility, and effective May 1, 2013, a provider based clinic. The hospital offers a broad range of inpatient and outpatient services for its patients, including medical surgical care, rehabilitation, orthopedics, diabetes care, sleep lab, family and pediatric services, and heart and vascular services. In accordance with the Federal Emergency Medical Treatment and Active Labor Act, any person who presents at the hospital seeking treatment of an emergency medical condition is given a medical screening and necessary stabilizing treatment regardless of the person's ability to pay. The clinic offers a broad range of outpatient services for its patients, including family practice, obstetrics and gynecology, cancer center, orthopedics, digestive health, family, pediatrics services, weight management, and heart and vascular services. Essentia Health Virginia LLC employs over 220 full time equivalents. The hospital provided for over 3,500 patient days and over 6,000 emergency visits during the fiscal year ended June 30, 2013. The clinic had over 12,600 encounters during the same time period and the skilled nursing facility provided over 15,000 resident days. Essentia Health Virginia LLC provided over $82,000 in charity care as well as an additional $1,835,000 of costs incurred in excess of Medicaid payments received during the fiscal year ended June 30, 2013. Further community benefits provided during the fiscal year include continuing education programs for health care professionals of over $16,000.

Form 990, Part V, LINE 1A

1099 Reporting: Vendor payments and Form 1099's were processed through Essentia Health on behalf of certain legal entities comprising Essentia Health system.

Form 990, Part VI, SECTION A, LINE 4

During the fiscal year ended June 30, 2013, the Bylaws of Essentia Health Duluth were amended. The amendments removed the special board reserved powers.

Form 990, Part VI, LINE 6

Members of Organization: MEMBER, ESSENTIA HEALTH EAST, MAY ELECT ONE OR MORE MEMBERS OF THE GOVERNING BODY AS DESCRIBED IN SCHEDULE O PART VI LINE 7A. MEMBERS, ESSENTIA HEALTH AND ESSENTIA HEALTH EAST, HAVE RESERVED POWERS WITH RESPECT TO ESSENTIA HEALTH DULUTH AS DESCRIBED IN SCHEDULE O PART VI LINE 7B.

Form 990, Part VI, Line 7A

Members with right to elect governing body: ESSENTIA HEALTH EAST appointS and removeS ESSENTIA HEALTH DULUTH's governing body.

Form 990, Part VI, Line 7B

MEMBER WITH RIGHT TO APPROVE GOVERNING BODY DECISION: ESSENTIA HEALTH DULUTH is a subsidiary of Essentia Health, whose Board of Directors has reserved powers with respect to this corporation and its subsidiaries, and all of the other direct and indirect subsidiaries of Essentia Health (collectively, the "System"). Essentia Health's reserved powers are as follows: Strategic and Business Plans. Authority to create, and to approve, the System's strategic and business plans. Mission. Authority to create, and to approve, the mission, purpose and vision statements for all entities in the System by the affirmative vote of at least 67% of the Essentia Health board of directors. Debt. Approval of the incurrence of debt by, and the creation of all mortgages, liens, security interests, or other encumbrances on the assets of, all entities in the System in excess of the single or annual aggregate dollar limits prescribed in writing by the Essentia Health board of directors, and the authority to cause all entities in the System to participate in System borrowing. Governing Instruments. Authority to cause, and to approve, amendments of the articles of incorporation and bylaws of all entities in the System. Mergers and Acquisitions. Authority to cause, and to approve, all mergers, consolidations, and dissolutions of all entities in the System. Affiliations and Joint Ventures. Authority to cause, and to approve, all affiliations, joint ventures and other alliances with third parties of all entities in the System. Transfer of Assets Within the System. Authority to transfer assets, including cash, between and among entities within the System; provided, however, that Essentia Health shall not have authority to require any entity in the System to transfer assets (a) that would cause such entity to be in default of its covenants or obligations under any bond or other financing documents; (b) from the Catholic entities to the secular entities or from the secular entities to the Catholic entities in a manner or to an extent that would cause the Catholic entities to be in violation of the Ethical and Religious Directives for Catholic Health Care Services (ERDs) in the judgment of the local ordinary; or (c) such that money generated by services at secular facilities within the System by procedures that are contrary to the ERDs would be used at the Catholic entities or money generated by Catholic entities would be used in the providing of services contrary to the ERDs at secular facilities within the System. Transfer of Assets Outside the System. Authority to cause, and to approve, the sale, lease or other transfer of assets of all entities in the System to parties outside of the System when the asset's value exceeds the single or annual aggregate dollar limits prescribed in writing by the Essentia Health board of directors. Services. Authority to cause, and to approve, the addition of new services and service locations and the discontinuance of services and service locations within all entities in the System. Budgets. Approval of capital and operating budgets of all entities in the System. Professional Services. Selection of the general legal counsel and external auditors of all entities in the System. Approval of Parent Boards. Approval of the election and removal, with or without cause, of 100% of the CAG and SMDC boards of directors (who shall be elected by the methods set forth in the CAG and SMDC governing documents, respectively, subject to Essentias approval). Acquisitions. Authority to cause, and to approve, all acquisitions by and formations of entities in the System. Marketing. Authority to implement System-wide marketing and promotional activities. Compliance Plans. Authority to create, and to approve, corporate compliance, safety and risk management plans for entities within the System. Quality Plan. Authority to create, and to approve, the System's quality plan. Non-Budgeted Purchases. Approval of non-budgeted capital purchases and leases in excess of the single or annual aggregate dollar limits prescribed in writing by Essentia Health for entities within the System. Human Resources. Authority to create human resource policies and procedures within the System. Reserved Powers. Authority to create additional Essentia Health reserved powers by the affirmative vote of at least 80% of the Essentia Health board of directors (excluding the Essentia Health CEO); provided, however, that any additional Essentia Health reserved powers shall not contravene or hinder the reserved powers of Benedictine Sisters Benevolent Association.

Form 990, Part VI, Line 7B CONTINUED

Essentia Health East also has certain reserved powers over all East facilities within Essentia Health. Essentia Health East's reserved powers are as follows: Quality, Safety and Service. Authority to recommend quality and safety initiatives and to review and execute approved quality and safety plans for the East Region. Mission, Vision and Values. Authority to create a mission and a vision that support the mission and vision of Essentia Health; responsibility to oversee the mission performance, including charity care, of all facilities within the East Region; responsibility to adopt the values of Essentia Health. Operating and Financial Performance. Responsibility to oversee the operating and financial performance of the East Region. Development of Budgets, Strategic Plans and Strategy Map. Authority to develop and recommend, based on Essentia Health targets, capital and operating budgets for the East Region and its facilities; authority to recommend, within the Essentia Health context, regional and local strategic plans for the East Region; authority to develop East Region governance strategy map and balanced scorecard within Essentia Health's system strategy to meet system goals. Execution of Approved Budgets and Strategic Plans. Responsibility to execute the approved capital and operating budgets and strategic and business plans for the East Region. Non-budgeted Expenditures. Authority to approve non budgeted capital purchases and leases for East Region facilities within dollar limits defined by Essentia Health. Accreditation and Licensure. Responsibility to oversee accreditation and licensure compliance for the facilities of the East Region. Affiliations, Acquisitions and Joint Ventures. Authority to recommend proposed affiliations, acquisitions, joint ventures and other alliances; responsibility to oversee negotiation and implementation of approved acquisitions and operation of all approved affiliations, joint ventures and other alliances with third parties within the East Region. Appointment of Directors. Authority to appoint or elect directors of the Direct Subsidiaries, and to remove such directors, with or without cause. President. Authority to advise the CEO of Essentia Health regarding the appointment, removal and periodic evaluation of the President of SMDC. Satisfaction. Responsibility to execute, evaluate and oversee patient, family and customer satisfaction with respect to services provided within the East Region and to ensure established goals are met. Job Satisfaction. Responsibility to oversee job satisfaction and staff morale within the East Region facilities. Human Resources. Responsibility to oversee implementation of Essentia Health human resource policies and procedures throughout the East Region. Compliance. Responsibility to execute the approved Essentia Health corporate compliance and risk management plans for the East Region. Credentialing. Responsibility to perform medical staff credentialing for the East Region facilities. Nominations. Authority to nominate persons for appointment to the SMDC Board of Directors by Benedictine Sisters Benevolent Association and Essentia Health. Amendments. Authority to suggest proposed amendments to the Articles of Incorporation and Bylaws of this corporation, the Direct Subsidiaries, and any subsidiaries thereof. Compensation Plans. Responsibility to review and approve compensation of East Region executives and physicians for reasonableness and consistency with the law and Essentia Health's compensation philosophy. President/Chief Medical Officer. By action of the President of this corporation, authority to appoint and remove, with or without cause, the President/Chief Medical Officer of any of the Direct Subsidiaries. Public Policy. Responsibility to support Essentia Health public policy and advocacy plans. Marketing. Responsibility to coordinate regional marketing and promotional activities consistent with Essentia Health marketing plans. Philanthropy. Responsibility to coordinate philanthropy within the East Region consistent with Essentia Health foundation policies. Professional Services. Responsibility to oversee East Region management's cooperation with external auditors and general legal counsel selected by Essentia Health and coordination of legal services through the Essentia Health Office of General Counsel. Catholic Facilities. Responsibility to oversee implementation of BSBA-approved methods, policies and procedures pertaining to adherence by the East Region Catholic facilities with the Ethical and Religious Directives for Catholic Health Care Services and use of religious symbols, distinguishing elements and prayers. Projects Involving Real Estate. Authority to recommend facility development projects, subject to the approval of Essentia Health; responsibility to oversee execution of approved development projects according to Essentia Health policies.

Form 990, Part VI, Line 11A

Form 990 review process: The 2012 Form 990 including all schedules was reviewed by Essentia Health Duluth's management and governing body on MARCH 5, 2014 prior to filing with the Internal Revenue Service. Each current director of the governing body received a copy of the 2012 Form 990. Essentia Health Duluth's Chief Financial Officer led the review of the form and schedules and any questions were discussed.

Form 990, Part VI, Line 12C

Monitoring and enforcing Conflict of Interest policy: Essentia Health's comprehensive conflict of interest program prevents, detects and resolves actual conflicts of interests or the actual or potential appearance of such. Fiduciaries, defined as an Essentia Health board member/trustee, officer, board committee member, senior management employee, or any others considered to be in a position of influence, are covered under Essentia's conflict of interest program. Upon initial appointment, each fiduciary must complete an initial conflict of interest statement and disclosure questionnaire. At the conclusion of each fiscal year, each fiduciary must complete an annual conflict of interest statement and disclosure questionnaire. As needed, a fiduciary will update his/her most recently completed questionnaire each time the fiduciary becomes aware of a financial interest, a potential conflict, or change to any information that the fiduciary previously reported. Essentia Health's Chief Compliance Officer will collect the questionnaires and evaluate the disclosures. If a fiduciary has a potential conflict of interest, the Chief Compliance Officer or designee may request additional information from the fiduciary, the management team, and others. During the evaluation process, the Chief Compliance Officer may also consult with Essentia Health's Board and Audit Committee Chairs, senior management, legal department, or appropriate representatives from Essentia Health. The Chief Compliance Officer reports to the Essentia Health Audit Committee and the Essentia Health Board of Directors any actual or potential conflicts of interest disclosed by the fiduciary, along with recommended actions. The Essentia Health Board of Directors (or designee) will then determine whether to approve the situation or to implement special controls to manage the potential conflict of interest. The Chief Compliance Officer will then officially notify the fiduciary in writing of the board's decision. The decision of whether or not the disclosure constitutes a conflict or not will be at the Essentia Health Board of Director's (or designee) sole discretion, and its concern must be the welfare of Essentia Health and its affiliate(s) and the advancement of its purposes. When the Essentia Health Board of Directors (or designee) considers a Fiduciary's disclosure as a Conflict of Interest, special controls will be identified to manage, eliminate or reduce the likelihood and/or appearance of a conflict arising. Controls may include but are not limited to: A.If the conflict involves an on-going matter or relationship, the Fiduciary must not participate in Board, Board committee or management discussions related to the conflict and must recuse themselves and if appropriate, withdraw, from any Board meeting or portion thereof where the matter is being discussed and during the vote on the potential Conflict of Interest. The Fiduciary may answer questions at the Board's or the Board Committee's request. B.If the conflict involves a specific transaction or decision, the Fiduciary will fully disclose their interest and all related material facts. The Board or committee of the Board will determine whether the contemplated transaction may be authorized as just, fair, and reasonable to Essentia Health or its affiliate(s). If the Board determines a conflict does not exist, the Fiduciary may proceed with the transaction; however, he or she will not be eligible to vote on related issues should they arise. If the Board determines a conflict does exist, the Fiduciary will be notified of the decision regarding whether the contemplated transaction will be authorized as just, fair, and reasonable. Form 990, Pat VI, Line 12 POLICY APPLIES TO DISREGARDED ENTITY, Essentia Health Virginia, LLC.

Form 990, Part VI, LINE 13

POLICY APPLIES TO DISREGARDED ENTITY, Essentia Health Virginia, LLC.

FORM 990, PART VI, LINE 14

POLICY DOES NOT APPLY TO DISREGARDED ENTITY, Essentia Health Virginia, LLC. Essentia Health VIRGINIA, LLC HAS SUBSEQUENTLY ADOPTED A written document retention & destruction plan.

Form 990, Pat VI, Line 15

POLICY APPLIES TO DISREGARDED ENTITY, Essentia Health Virginia, LLC. Form 990, Part VI, Line 15 A&B PROCESS FOR DETERMINING COMPENSATION: The Executive Compensation Committee of Essentia Health's board of directors is authorized to fulfill the board's responsibilities regarding executive compensation consistent with Essentia's mission, values and tax-exempt status, and the Executive Compensation Committee's Charter. The Executive Compensation Committee meets at least twice annually to carry out its responsibilities, which include, but are not limited to, establishing, reviewing and modifying, as appropriate, reasonable compensation and benefits for designated Essentia executives who are officers or key employees of Essentia or any of its affiliates which may be paid by related organizations. The Executive Compensation Committee engages qualified independent compensation advisors to provide objective and impartial comparative data and to express opinions on total compensation reasonableness. The Executive Compensation Committee may request its independent advisors to: monitor comparability data and marketplace trends; make appropriate recommendations regarding salary ranges; and periodically review the market competitiveness of Essentia executive compensation packages. Prior to establishing or adjusting executive compensation, the Executive Compensation Committee will obtain and rely upon appropriate data as to comparability of the proposed compensation or adjustments. The Executive Compensation Committee will adequately document the basis for its determination concurrently with making those determinations. The Executive Compensation Committee minutes will include: the terms of the approved compensation and the date approved; the Executive Compensation Committee members present during the review, discussion and approval of the proposed compensation and those who voted on the proposed compensation; identification of the comparability data obtained and relied upon by the Executive Compensation Committee and how the data was obtained; any actions by a member of the Executive Compensation Committee having a conflict of interest; and documentation of the basis for the determination. The year this process was last undertaken for Essentia HEALTH DULUTH'S ADMINISTRATOR, CHIEF FINANCIAL OFFICER, EVP CLINICAL OPERATIONS, VP SURGICAL SERVICES, VP MEDICAL SPECIALTIES, VP HOSPITAL OPERATIONS, CHIEF NURSING OFFICER, AND VP MEDICAL AFFAIRS WAS 2012.

FORM 990, PART VI, LINE 19

Availability of governing documents, conflict of interest policy, and financial statements to the public: ESSENTIA HEALTH DULUTH makes its governing documents, conflict of interest policy, and financial statements available to the public upon request. ESSENTIA HEALTH DULUTH is part of Essentia Health's consolidated financial statements which are included in Essentia Health's annual report posted on Essentia Health's web site.

FORM 990, PART IX, LINE 24E

Essentia Health Duluth allocates out certain revenue and expenses to Essentia Health St. Mary's Medical Center, The Duluth Clinic, Ltd, Essentia Health Polinsky Medical Rehabilitation Center, and Essentia Health St. Mary's Hospital-Superior, related organizations. Net affiliate revenue and expense allocation of ($33,998,495) includes the following: GRANTS ($41), PROGRAM SERVICE REVENUE $20,137, INVESTMENT INCOME $376,989, REALIZED GAIN $926,352, MISCELLANEOUS REVENUE ($703,837), CONTRIBUTIONS ($791,173), COMPENSATION ($18,465,230), PAYROLL TAXES ($1,100,243), PENSION PLAN CONTRIBUTIONS ($1,053,224), ACCOUNTING FEES ($1,330), LEGAL FEES ($279,411), INVESTMENT MANAGEMENT FEES ($144,577), INTEREST $3,469,649, OTHER PURCHASED SERVICES ($3,371,810) ADVERTISING ($403,573), CONFERENCE/CONVENTIONS/MEETINGS ($285,187), DEPRECIATION & AMORTIZATION $896,951, INFORMATION TECHNOLOGY ($6,103,517), MEDICAL SUPPLIES $49,171, OCCUPANCY $168,572, OFFICE EXPENSES ($2,960,121), TRAVEL ($315,573), UNRELATED BUSINESS INCOME TAXES ($137,545), GAIN/LOSS ON REFINANCING $69,666, OTHER EXPENSES ($280,984), AND OTHER EMPLOYEE BENEFITS ($3,578,609).

FORM 990, PART XI, LINE 9

Other Changes in Net Assets: The total amount of other changes in net assets includes: Change in discount on City of Virginia Payable $4,111,296 Essentia Health Virginia Gain on affiliation $226,689 NET ASSET TRANSFER WITH RELATED ORGANIZATION; REALLOCATED BALANCE SHEET ITEM TRANSFERRED TO ALIGN WITH ORGANIZATIONAL STRUCTURE $3,046,304 NET ASSET TRANSFERS WITH RELATED ORGANIZATIONS; REALLOCATED INCOME STATEMENT ITEMS TRANSFERRED TO ALIGN WITH ORGANIZATIONAL STRUCTURE ($1,762,947) Uncollectible Pledges ($62,766) Pension and other post retirement liability $2,473,174 Prior Year Reversal of Grant Expense $175,000 Other Changes in Net Assets $107 Total $3,206,857

FORM 990, PART XII, LINE 3

Consolidated A-133: ESSENTIA HEALTH DULUTH, as part of Essentia Health's consolidated financial statements, was required and underwent a consolidated audit set forth in the Single Audit Act and OMB Circular A-133. The consolidated audit is reviewed by the Essentia Health Audit Committee.

For Paperwork Reduction Act Notice, see the Instructions for Form 990 or 990-EZ.

Cat. No. 51056K

Schedule O (Form 990 or 990-EZ) 2012

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