UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

COMMISSION FILE NUMBER: 333-117362

IASIS HEALTHCARE LLC

(Exact name of registrant as specified in its charter)

DELAWARE	20-1150104
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
DOVER CENTRE 117 SEABOARD LANE, BUILDING E FRANKLIN, TENNESSEE	37067
(Address of principal executive offices)	(Zip Code)

(615) 844-2747

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

As of August 14, 2013, 100% of the registrant’s common interests outstanding (all of which are privately owned and are not traded on any public market) were owned by IASIS Healthcare Corporation, its sole member.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			3
	Item 1. Financial Statements		3
		Condensed Consolidated Balance Sheets — June 30, 2013 (Unaudited) and September 30, 2012	3
		Condensed Consolidated Statements of Operations (Unaudited) — Quarters and Nine Months Ended June 30, 2013 and 2012	4
		Condensed Consolidated Statements of Comprehensive Income (Unaudited) — Quarters and Nine Months Ended June 30, 2013 and 2012	5
		Condensed Consolidated Statement of Equity (Unaudited) — Nine Months Ended June 30, 2013	6
		Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended June 30, 2013 and 2012	7
		Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		34
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		49
	Item 4. Controls and Procedures		50
PART II. OTHER INFORMATION			50
	Item 1. Legal Proceedings		50
	Item 1A. Risk Factors		50
	Item 6. Exhibits		50

2

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

IASIS HEALTHCARE LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

	June 30,		September 30,
	2013		2012
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	17,856	$	48,882
Accounts receivable, net		383,363		356,618
Inventories		56,304		67,650
Deferred income taxes		15,709		19,744
Prepaid expenses and other current assets		137,328		117,851
Assets held for sale		119,132		—
Total current assets		729,692		610,745
Property and equipment, net		1,067,551		1,171,657
Goodwill		816,726		818,424
Other intangible assets, net		26,701		29,161
Other assets, net		66,436		68,498
Total assets	$	2,707,106	$	2,698,485
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	112,722	$	111,928
Salaries and benefits payable		53,192		65,390
Accrued interest payable		10,056		28,034
Medical claims payable		53,801		61,142
Other accrued expenses and other current liabilities		66,442		89,890
Current portion of long-term debt and capital lease obligations		12,710		13,387
Liabilities held for sale		2,963		—
Total current liabilities		311,886		369,771
Long-term debt and capital lease obligations		1,900,144		1,853,107
Deferred income taxes		138,286		120,961
Other long-term liabilities		99,594		104,110
Non-controlling interests with redemption rights		105,657		99,164
Equity
Member’s equity		141,789		141,589
Non-controlling interests		9,750		9,783
Total equity		151,539		151,372
Total liabilities and equity	$	2,707,106	$	2,698,485

See accompanying notes.

3

IASIS HEALTHCARE LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In Thousands)

	Quarter Ended						Nine Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net revenue
Acute care revenue before provision for bad debts	$	555,413		$	504,047		$	1,636,836		$	1,514,986
Less: Provision for bad debts		(96,090	)		(68,744	)		(267,014	)		(199,952	)
Acute care revenue		459,323			435,303			1,369,822			1,315,034
Premium revenue		139,804			142,323			422,059			430,229
Net revenue		599,127			577,626			1,791,881			1,745,263
Costs and expenses
Salaries and benefits (includes stock-based compensation of $947, $2,022, $2,946 and $3,964, respectively)		219,896			204,314			670,286			610,179
Supplies		79,462			75,350			240,724			227,070
Medical claims		116,640			116,366			348,556			349,290
Rentals and leases		13,992			11,857			40,635			34,112
Other operating expenses		106,456			105,484			309,987			317,843
Medicare and Medicaid EHR incentives		(4,827	)		—			(11,209	)		(8,036	)
Interest expense, net		32,771			33,606			99,987			104,076
Depreciation and amortization		24,492			26,345			72,606			78,884
Management fees		1,250			1,250			3,750			3,750
Total costs and expenses		590,132			574,572			1,775,322			1,717,168
Earnings from continuing operations before gain (loss) on disposal of assets and income taxes		8,995			3,054			16,559			28,095
Gain (loss) on disposal of assets, net		481			(240	)		649			414
Earnings from continuing operations before income taxes		9,476			2,814			17,208			28,509
Income tax expense (benefit)		3,850			(8,035	)		8,016			3,332
Net earnings from continuing operations		5,626			10,849			9,192			25,177
Earnings (loss) from discontinued operations, net of income taxes		(531	)		1,012			849			3,436
Net earnings		5,095			11,861			10,041			28,613
Net earnings attributable to non-controlling interests		(1,941	)		(1,082	)		(3,189	)		(5,324	)
Net earnings attributable to IASIS Healthcare LLC	$	3,154		$	10,779		$	6,852		$	23,289

See accompanying notes.

4

IASIS HEALTHCARE LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In Thousands)

	Quarter Ended						Nine Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net earnings	$	5,095		$	11,861		$	10,041		$	28,613
Other comprehensive income (loss)
Change in fair value of highly effective interest rate hedges		1,753			(2,655	)		1,643			(4,819	)
Amortization of other comprehensive income related to ineffective interest rate hedges		—			—			—			2,057
Other comprehensive income (loss) before income taxes		1,753			(2,655	)		1,643			(2,762	)
Change in income tax benefit (expense)		(651	)		987			(611	)		1,026
Other comprehensive income (loss), net of income taxes		1,102			(1,668	)		1,032			(1,736	)
Comprehensive income		6,197			10,193			11,073			26,877
Net earnings attributable to non-controlling interests		(1,941	)		(1,082	)		(3,189	)		(5,324	)
Comprehensive income attributable to IASIS Healthcare LLC	$	4,256		$	9,111		$	7,884		$	21,553

See accompanying notes.

5

IASIS HEALTHCARE LLC

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)

(In Thousands)

	Non-controlling Interests with Redemption Rights			Member’s Equity			Non-controlling Interests			Total Equity
Balance at September 30, 2012	$	99,164		$	141,589		$	9,783		$	151,372
Net earnings		3,161			6,852			28			6,880
Distributions to non-controlling interests		(5,443	)		—			(61	)		(61	)
Repurchase of non-controlling interests		(1,079	)		—			—			—
Sale of non-controlling interests		1,262			—			—			—
Other		(2,533	)		12			—			12
Stock-based compensation		—			2,946			—			2,946
Other comprehensive income		—			1,032			—			1,032
Acquisition related adjustments to redemption value of non-controlling interests with redemption rights		364			—			—			—
Income tax benefit from exercised employee stock options		—			16			—			16
Adjustments related to tax benefit from parent company tax deductions		—			103			—			103
Adjustment to redemption value of non-controlling interests with redemption rights		10,761			(10,761	)		—			(10,761	)
Balance at June 30, 2013	$	105,657		$	141,789		$	9,750		$	151,539

See accompanying notes.

6

IASIS HEALTHCARE LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)

	Nine Months Ended
	June 30,
	2013			2012
Cash flows from operating activities
Net earnings	$	10,041		$	28,613
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		72,606			78,884
Amortization of loan costs		5,760			5,495
Stock-based compensation		2,946			3,964
Deferred income taxes		16,338			13,264
Income tax benefit from stock-based compensation		16			6
Income tax benefit from parent company		103			427
Fair value change in interest rate hedges		—			(1,410	)
Amortization of other comprehensive loss		—			2,057
Gain on disposal of assets, net		(649	)		(414	)
Earnings from discontinued operations, net		(849	)		(3,436	)
Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable, net		(22,880	)		(54,357	)
Inventories, prepaid expenses and other current assets		(21,628	)		(14,294	)
Accounts payable, other accrued expenses and other accrued liabilities		(55,578	)		(46,944	)
Net cash provided by operating activities — continuing operations		6,226			11,855
Net cash provided by operating activities — discontinued operations		3,967			6,960
Net cash provided by operating activities		10,193			18,815
Cash flows from investing activities
Purchases of property and equipment		(79,369	)		(73,317	)
Cash received for acquisitions, net		3,584			215
Proceeds from sale of assets		83			24
Change in other assets, net		251			2,488
Net cash used in investing activities — continuing operations		(75,451	)		(70,590	)
Net cash used in investing activities — discontinued operations		(4,318	)		(12,310	)
Net cash used in investing activities		(79,769	)		(82,900	)
Cash flows from financing activities
Payment of debt and capital lease obligations		(101,765	)		(10,734	)
Proceeds from revolving credit facilities		147,000			—
Debt financing costs incurred		(1,024	)		(998	)
Distributions to non-controlling interests		(5,504	)		(6,802	)
Cash received for the sale of non-controlling interests		849			—
Cash paid for the repurchase of non-controlling interests		(1,018	)		(341	)
Other		12			—
Net cash provided by (used in) financing activities		38,550			(18,875	)
Change in cash and cash equivalents		(31,026	)		(82,960	)
Cash and cash equivalents at beginning of period		48,882			147,327
Cash and cash equivalents at end of period	$	17,856		$	64,367
Supplemental disclosure of cash flow information:
Cash paid for interest	$	111,687		$	117,960
Cash paid (received) for income taxes, net	$	2,122		$	(10,111	)

See accompanying notes.

7

IASIS HEALTHCARE LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements as of and for the quarters and nine months ended June 30, 2013 and 2012 reflect the financial position, results of operations and cash flows of IASIS Healthcare LLC (“IASIS” or the “Company”). The Company’s sole member and parent company is IASIS Healthcare Corporation (“Holdings” or “IAS”).

IASIS owns and operates acute care hospitals primarily located in high-growth urban and suburban markets. At June 30, 2013, the Company owned or leased 19 acute care hospital facilities (three of which are currently under contract to be sold) and one behavioral health hospital, with a total of 4,505 licensed beds, several outpatient service facilities and more than 160 physician clinics. The Company operates in various regions, including:

• Salt Lake City, Utah;

• Phoenix, Arizona;

• Tampa-St. Petersburg, Florida;

• five cities in Texas, including Houston and San Antonio; and

• West Monroe, Louisiana.

The Company also owns and operates Health Choice Arizona, Inc. (“Health Choice” or the “Plan”), a Medicaid and Medicare managed health plan headquartered in Phoenix that serves over 176,000 members in Arizona and Utah.

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet of the Company at September 30, 2012, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, which was filed with the U.S. Securities and Exchange Commission on December 21, 2012.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments (consisting of normal recurring items) necessary for a fair presentation of results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year or any other future periods.

Discontinued Operations

On July 17, 2013, the Company entered into a definitive agreement to sell its Florida operations, which primarily include three hospitals in the Tampa-St. Petersburg area and all related physician operations. The transaction is expected to close by the end of fiscal year 2013, assuming receipt of the required regulatory approval and satisfaction of other customary closing conditions. Accordingly, operating results of the Florida operations are reported as discontinued operations for all periods presented. In addition, the assets and liabilities to be sold are classified as assets and liabilities held for sale.

The following table provides the components of discontinued operations related to the Company’s Florida operations (in thousands):

	Quarter Ended June 30,					Nine Months Ended June 30,
	2013			2012		2013		2012
Net revenues	$	51,396		$	53,684	$	153,692	$	157,349
Earnings (loss) before income taxes		(1,494	)		1,046		516		3,098

8

The following table provides the components of assets and liabilities held for sale (in thousands):

	June 30, 2013
Inventories	$	7,494
Prepaid expenses and other current assets		2,426
Property and equipment, net		109,095
Other assets, net		117
Assets held for sale	$	119,132
Salaries and benefits payable	$	2,194
Other accrued expenses and other current liabilities		769
Liabilities held for sale	$	2,963

Principles of Consolidation

The unaudited condensed consolidated financial statements include all subsidiaries and entities under common control of the Company. Control is generally defined by the Company as ownership of a majority of the voting interest of an entity. In addition, control is demonstrated in most instances when the Company is the sole general partner in a limited partnership. Significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and notes. Actual results could differ materially from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no impact on the Company’s results of operations or financial position.

General and Administrative

The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as “general and administrative” by the Company would include the IASIS corporate office costs, which were $9.7 million and $12.4 million for the quarters ended June 30, 2013 and 2012, respectively, and $29.5 million and $32.0 million for the nine months ended June 30, 2013 and 2012, respectively.

Fair Value of Financial Instruments

The Company applies the provisions of Financial Accounting Standards Board (“FASB”) authoritative guidance regarding fair value measurements, which provides a single definition of fair value, establishes a framework for measuring fair value, and expands disclosures concerning fair value measurements. The Company applies these provisions to the valuation and disclosure of certain financial instruments. This authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: (i) Level 1, which is defined as quoted prices in active markets that can be accessed at the measurement date; (ii) Level 2, which is defined as inputs other than quoted prices in active markets that are observable, either directly or indirectly; and (iii) Level 3, which is defined as unobservable inputs resulting from the existence of little or no market data, therefore potentially requiring an entity to develop its own assumptions.

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are reflected in the accompanying unaudited condensed consolidated financial statements at amounts that approximate fair value because of the short-term nature of these instruments. The fair value of the Company’s capital lease obligations also approximate carrying value as they bear interest at current market rates. The estimated fair values of the Company’s 8.375% senior notes due 2019 and senior secured credit facilities were $862.8 million and $1.002 billion, respectively, at June 30, 2013, based on the average of the bid and ask price as determined using published rates at that date and are categorized as Level 2 within the fair value hierarchy.

The Company determines the fair value of its interest rate hedges in a manner consistent with that used by market participants in pricing hedging instruments, which includes using a discounted cash flow analysis based upon the terms of the agreements, the impact of the forward LIBOR curve and an evaluation of credit risk. Given the use of observable market assumptions and the consideration of credit risk, the Company has categorized the valuation of its interest rate hedges as Level 2.

9

Recent Accounting Pronouncements

Newly Adopted

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income” (Topic 220): Presentation of Comprehensive Income. This ASU eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. Instead, ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, “Comprehensive Income” (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income. This ASU amends ASU 2011-05 to defer the requirement to measure and present reclassification adjustments from accumulated other comprehensive income to net income by income statement line item in net income and also in other comprehensive income. ASU 2011-05, as amended by ASU 2011-12, is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2011. The Company has adopted this authoritative guidance effective October 1, 2012, and the change in presentation is included in the Company’s unaudited condensed consolidated statements of comprehensive income.

Recently Issued

In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. ASU 2013-02 requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 is required to be applied prospectively and is effective for fiscal years beginning after December 15, 2012, and interim periods within those years. The Company will adopt ASU 2013-02 in the first quarter of its fiscal year 2014. The adoption of ASU 2013-02 is not expected to significantly impact the Company’s financial statements.

2. ACUTE CARE REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Acute Care Revenue

The Company’s healthcare facilities have entered into agreements with third-party payors, including government programs and managed care health plans, under which the facilities are paid based upon established charges, the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from established charges. Additionally, the Company offers discounts through its uninsured discount program to all uninsured patients receiving healthcare services who do not qualify for assistance under state Medicaid, other federal or state assistance plans, or charity care.

Acute care revenue is reported at the estimated net realizable amounts from third-party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and are adjusted, if necessary, in future periods when final settlements are determined. The Company also records a provision for bad debts related to uninsured accounts to reflect its self-pay accounts receivable at the estimated amounts expected to be collected. The sources of the Company’s hospital net patient revenue before its provision for bad debts by payor are summarized as follows:

	Quarter Ended June 30,						Nine Months Ended June 30,
	2013			2012			2013			2012
Medicare		20.5	%		22.6	%		21.3	%		23.5	%
Managed Medicare		9.8	%		9.7	%		10.0	%		9.1	%
Medicaid and managed Medicaid		12.0	%		13.3	%		12.2	%		13.7	%
Managed care and other		38.4	%		37.1	%		37.9	%		38.1	%
Self-pay		19.3	%		17.3	%		18.6	%		15.6	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Reimbursement Settlements

During fiscal 2012, a settlement agreement (the “Rural Floor Settlement”) was signed between the Centers for Medicare and Medicaid Services (“CMS”) and a large number of healthcare service providers, including the Company’s hospitals. The Rural Floor Settlement is intended to resolve all claims that have been brought or could have been brought relating to CMS’ calculation of the rural floor budget neutrality adjustment that was created by the Balanced Budget Act of 1997 for federal fiscal year 1998 through and including federal fiscal year 2011. As a result of the Rural Floor Settlement, the Company recognized $12.8 million of additional acute care revenue during the nine months ended June 30, 2012.

During the nine months ended June 30, 2012, acute care revenue included an unfavorable adjustment of $3.1 million related to the newly issued Supplemental Security Income (“SSI”) ratios utilized for calculating Medicare Disproportionate Share Hospital reimbursement for federal fiscal years 2006 through 2009.

10

Allowance For Doubtful Accounts

The provision for bad debts and the associated allowance for doubtful accounts relate primarily to amounts due directly from patients. The Company’s estimation of its allowance for doubtful accounts is based primarily upon the type and age of the patient accounts receivable and the effectiveness of collection efforts. The Company’s policy is to reserve a portion of all self-pay receivables, including amounts due from the uninsured and amounts related to co-payments and deductibles, as these charges are recorded. The Company monitors accounts receivable balances and the effectiveness of reserve policies on a monthly basis and reviews various analytics to support the basis for its estimates. These efforts primarily consist of reviewing the following:

• Historical write-off and collection experience using a hindsight or look-back approach;

• Revenue and volume trends by payor, particularly the self-pay components;

• Changes in the aging and payor mix of accounts receivable, including increased focus on amounts due from the uninsured and accounts that represent co-payments and deductibles due from patients;

• Cash collections as a percentage of net patient revenue less bad debts;

• Trending of days revenue in accounts receivable; and

• Various allowance coverage statistics.

The Company regularly performs hindsight procedures to evaluate historical write-off and collection experience throughout the year to assist in determining the reasonableness of the process for estimating the allowance for doubtful accounts. The Company does not pursue collection of amounts related to patients who qualify for charity care under the Company’s guidelines. Charity care accounts are deducted from gross revenue and do not affect the provision for bad debts.

At June 30, 2013 and September 30, 2012, the Company’s self-pay receivables, including amounts due from uninsured patients and co-payment and deductible amounts due from insured patients, were $348.8 million and $328.5 million, respectively. At June 30, 2013 and September 30, 2012, the Company’s allowance for doubtful accounts was $254.3 million and $235.2 million, respectively.

3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consist of the following (in thousands):

	June 30, 2013		September 30, 2012
Senior secured term loan facility	$	998,488	$	1,005,537
Senior secured revolving credit facility		55,000		—
8.375% senior notes due 2019		845,519		844,943
Capital leases and other obligations		13,847		16,014
		1,912,854		1,866,494
Less current maturities		12,710		13,387
	$	1,900,144	$	1,853,107

As of June 30, 2013, the senior secured term loan facility balance reflects an original issue discount (“OID”) of $3.5 million, which is net of accumulated amortization of $1.6 million. The 8.375% senior notes due 2019 (the “Senior Notes”) balance reflects an OID of $4.5 million, which is net of accumulated amortization of $1.7 million.

$1.325 Billion Senior Secured Credit Facilities

The Company is party to a senior credit agreement, which was amended on February 20, 2013 (the “Repricing Amendment”) as part of a repricing that lowered the interest rate, (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement provides for senior secured financing of up to $1.325 billion consisting of (1) a $1.025 billion senior secured term loan facility with a seven-year maturity and (2) a $300.0 million senior secured revolving credit facility with a five-year maturity, of which up to $150.0 million may be utilized for the issuance of letters of credit (together, the “Senior Secured Credit Facilities”). Principal under the senior secured term loan facility is due in consecutive equal quarterly installments in an aggregate annual amount equal to 1% of the principal amount of $1.007 billion outstanding as of the effective date of the Repricing Amendment, with the remaining balance due upon maturity of the senior secured term loan facility. The senior secured revolving credit facility does not require installment payments.

Borrowings under the senior secured term loan facility (giving effect to the Repricing Amendment) bear interest at a rate per annum equal to, at the Company’s option, either (1) a base rate (the “base rate”) determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) a one-month LIBOR rate, subject to a floor of 1.25%, plus 1.00%, in each case, plus a margin of 2.25% per annum or (2) the LIBOR rate for the interest period relevant to such borrowing, subject to a floor of 1.25%, plus a margin of 3.25% per annum. Borrowings under the senior secured revolving credit facility generally bear interest at a rate per annum equal to, at the Company’s option, either (1) the base rate plus a margin of 2.50% per annum, or (2) the LIBOR rate for the interest period

11

relevant to such borrowing plus a margin of 3.50% per annum. In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee on the unutilized commitments under the senior secured revolving credit facility, as well as pay customary letter of credit fees and agency fees.

The Senior Secured Credit Facilities are unconditionally guaranteed by IAS and certain subsidiaries of the Company (collectively, the “Credit Facility Guarantors”) and are required to be guaranteed by all future material wholly-owned subsidiaries of the Company, subject to certain exceptions. All obligations under the Amended and Restated Credit Agreement are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Credit Facility Guarantors, including (1) a pledge of 100% of the equity interests of the Company and the Credit Facility Guarantors, (2) mortgage liens on all of the Company’s material real property and that of the Credit Facility Guarantors, and (3) all proceeds of the foregoing.

The Amended and Restated Credit Agreement requires the Company to mandatorily prepay borrowings under the senior secured term loan facility with net cash proceeds of certain asset dispositions, following certain casualty events, following certain borrowings or debt issuances, and from a percentage of annual excess cash flow.

The Amended and Restated Credit Agreement contains certain restrictive covenants, including, among other things: (1) limitations on the incurrence of debt and liens; (2) limitations on investments other than, among other exceptions, certain acquisitions that meet certain conditions; (3) limitations on the sale of assets outside of the ordinary course of business; (4) limitations on dividends and distributions; and (5) limitations on transactions with affiliates, in each case, subject to certain exceptions. The Amended and Restated Credit Agreement also contains certain customary events of default, including, without limitation, a failure to make payments under the Senior Secured Credit Facilities, cross-defaults, certain bankruptcy events and certain change of control events.

8.375% Senior Notes due 2019

The Company, together with its wholly owned subsidiary IASIS Capital Corporation (“IASIS Capital”) (together, the “Issuers”), have issued an $850.0 million aggregate principal amount of Senior Notes, which mature on May 15, 2019, pursuant to an indenture, dated as of May 3, 2011, among the Issuers and certain of the Issuers’ wholly owned domestic subsidiaries that guarantee the Senior Secured Credit Facilities (the “Notes Guarantors”) (the “Indenture”). The Indenture provides that the Senior Notes are general unsecured, senior obligations of the Issuers, and initially will be unconditionally guaranteed on a senior unsecured basis.

The Senior Notes bear interest at a rate of 8.375% per annum, payable semi-annually, in cash in arrears, on May 15 and November 15 of each year, and commenced on November 15, 2011.

The Company may redeem the Senior Notes, in whole or in part, at any time prior to May 15, 2014, at a price equal to 100% of the aggregate principal amount of the Senior Notes plus a “make-whole” premium and accrued and unpaid interest and special interest, if any, to but excluding the redemption date. In addition, the Company may redeem up to 35% of the Senior Notes before May 15, 2014, with the net cash proceeds from certain equity offerings at a redemption price equal to 108.375% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest and special interest, if any, to but excluding the redemption date, subject to compliance with certain conditions.

The Indenture contains covenants that limit the Company’s (and its restricted subsidiaries’) ability to, among other things: (1) incur additional indebtedness or liens or issue disqualified stock or preferred stock; (2) pay dividends or make other distributions on, redeem or repurchase the Company’s capital stock; (3) sell certain assets; (4) make certain loans and investments; (5) enter into certain transactions with affiliates; (6) impose restrictions on the ability of a subsidiary to pay dividends or make payments or distributions to the Company and its restricted subsidiaries; and (7) consolidate, merge or sell all or substantially all of the Company’s assets. These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately. If the Company experiences certain kinds of changes of control, it must offer to purchase the Senior Notes at 101% of their principal amount, plus accrued and unpaid interest and special interest, if any, to but excluding the repurchase date. Under certain circumstances, the Company will have the ability to make certain payments to facilitate a change of control transaction and to provide for the assumption of the Senior Notes by a new parent company resulting from such change of control transaction. If such change of control transaction is facilitated, the Issuers will be released from all obligations under the Indenture and the Issuers and the trustee will execute a supplemental indenture effectuating such assumption and release.

4. INTEREST RATE SWAPS

In August 2011, the Company executed forward starting interest rate swaps with Citibank, N.A. and Barclays Bank PLC, as counterparties, with notional amounts totaling $350.0 million, each agreement effective March 28, 2013 and expiring between

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September 30, 2014 and September 30, 2016. Under these agreements, the Company is required to make quarterly fixed rate payments at annual rates ranging from 1.6% to 2.2%. The counterparties are obligated to make quarterly floating rate payments to the Company based on the three-month LIBOR rate, each subject to a floor of 1.25%. The Company completed an assessment of these cash flow hedges during the quarter and nine months ended June 30, 2013, and determined that these hedges were highly effective. Accordingly, no gain or loss related to these hedges has been reflected in the accompanying unaudited condensed consolidated statements of operations, and the change in fair value has been included in accumulated other comprehensive loss as a component of member’s equity.

Effective Dates	Total Notional Amounts
	(in thousands)
Effective from March 28, 2013 to September 30, 2014	$	50,000
Effective from March 28, 2013 to September 30, 2015		100,000
Effective from March 28, 2013 to September 30, 2016		200,000

The fair value of the Company’s interest rate hedges at June 30, 2013 and September 30, 2012, reflect liability balances of $5.9 million and $7.6 million, respectively, and are included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. The fair value of the Company’s interest rate hedges reflects a liability because the effect of the forward LIBOR curve on future interest payments results in less interest due to the Company under the variable rate component included in the interest rate hedging agreements, as compared to the amount due the Company’s counterparties under the fixed interest rate component.

5. GOODWILL

The following table presents the changes in the carrying amount of goodwill (in thousands):

	Acute Care			Health Choice		Total
Balance at September 30, 2012	$	812,667		$	5,757	$	818,424
Adjustments related to acquisitions		(1,698	)		—		(1,698	)
Balance at June 30, 2013	$	810,969		$	5,757	$	816,726

6. INCOME TAXES

For the quarter ended June 30, 2013, the Company recorded income tax expense of $3.9 million, for an effective tax rate of 40.6%, compared to an income tax benefit of $8.0 million, for an effective tax rate of (285.5%) in the prior year quarter. For the nine months ended June 30, 2013, the Company recorded income tax expense of $8.0 million, for an effective tax rate of 46.6%, compared to income tax expense of $3.3 million, for an effective tax rate of 11.7% in the prior year period. The increase in the Company’s effective tax rate for both the quarter and nine months ended June 30, 2013, compared to the prior year periods, is the result of a change in certain state tax filing positions in the prior year, which resulted in a tax benefit totaling $4.0 million, and the elimination of a reserve for an uncertain tax position totaling $5.0 million during the prior year quarter, of which $1.4 million was established in the nine months ended June 30, 2012.

7. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss, net of income taxes, are as follows (in thousands):

	June 30, 2013			September 30, 2012
Fair value of interest rate hedges	$	(5,937	)	$	(7,580	)
Income tax benefit		2,077			2,688
Accumulated other comprehensive loss	$	(3,860	)	$	(4,892	)

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8. COMMITMENTS AND CONTINGENCIES

Net Revenue

The calculation of appropriate payments from the Medicare and Medicaid programs, as well as terms governing agreements with other third-party payors, is complex and subject to interpretation. Final determination of amounts earned under the Medicare and Medicaid programs often occurs subsequent to the year in which services are rendered because of audits by the programs, rights of appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for adjustments that may result from such routine audits and appeals.

Professional, General and Workers’ Compensation Liability Risks

The Company is subject to claims and legal actions in the ordinary course of business, including but not limited to claims relating to patient treatment and personal injuries. To cover these types of claims, the Company maintains professional and general liability insurance in excess of self-insured retentions through a commercial insurance carrier in amounts that the Company believes to be sufficient for its operations, although, potentially, some claims may exceed the scope of coverage in effect. Plaintiffs in these matters may request punitive or other damages that may not be covered by insurance. The Company is currently not a party to any such proceedings that, in the Company’s opinion, would have a material adverse effect on the Company’s business, financial condition or results of operations. The Company expenses an estimate of the costs it expects to incur under the self-insured retention exposure for professional and general liability claims using historical claims data, demographic factors, severity factors, current incident logs and other actuarial analysis. At June 30, 2013 and September 30, 2012, the Company’s professional and general liability accrual for asserted and unasserted claims totaled $77.2 million and $76.9 million, respectively.

The Company is subject to claims and legal actions in the ordinary course of business relative to workers’ compensation matters. To cover these types of claims, the Company maintains workers’ compensation insurance coverage with a self-insured retention. The Company accrues the costs of workers’ compensation claims based upon estimates derived from its claims experience.

Health Choice

Health Choice has entered into capitated contracts whereby the Plan provides managed healthcare services in exchange for fixed periodic and supplemental payments from the Arizona Health Care Cost Containment System (“AHCCCS”) and CMS. These services are provided regardless of the actual costs incurred to provide these services. The Company receives reinsurance and other supplemental payments from AHCCCS to cover certain costs of healthcare services that exceed certain thresholds. The Company believes that current capitated payments received, together with reinsurance and other supplemental payments, are sufficient to pay for the services Health Choice is obligated to deliver. As of June 30, 2013, the Company has provided a performance guaranty in the form of a letter of credit totaling $33.7 million for the benefit of AHCCCS to support Health Choice’s obligations under its contract to provide and pay for the healthcare services. The amount of the performance guaranty is generally based, in part, upon the membership in the Plan and the related capitation revenue paid to Health Choice.

On March 25, 2013, Health Choice was awarded a new contract by AHCCCS. On April 5, 2013, the Plan executed and delivered to AHCCCS the award letter with respect to the new contract. Under AHCCCS’ contract bid procedures, execution of the award letter represents Health Choice’s initial commitment to the terms of the new contract, which will be finalized before and become effective October 1, 2013. The new contract will have an initial term of three years, and includes two one-year renewal options at the discretion of AHCCCS.

Acquisitions

The Company has acquired and in the future may choose to acquire businesses with prior operating histories. Such businesses may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company has procedures designed to conform business practices to its policies following the completion of any acquisition, there can be no assurance that the Company will not become liable for previous activities of prior owners that may later be asserted to be improper by private plaintiffs or government agencies. Although the Company generally seeks to obtain indemnification from prospective sellers covering such matters, there can be no assurance that any such matter will be covered by indemnification, or if covered, that such indemnification will be adequate to cover potential losses and fines.

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Other

In November 2010, the U.S. Department of Justice (“DOJ”) sent a letter to IAS requesting a 12-month tolling agreement in connection with an investigation into Medicare claims submitted by our hospitals in connection with the implantation of implantable cardioverter defibrillators (“ICDs”) during the period 2003 to the present. At that time, neither the precise number of procedures, number of claims, nor the hospitals involved were identified by the DOJ. The Company understands that the government is conducting a national initiative with respect to ICD procedures involving a number of healthcare providers and is seeking information in order to determine if ICD implantation procedures were performed in accordance with Medicare coverage requirements. On January 11, 2011, IAS entered into the tolling agreement with the DOJ and, subsequently, the DOJ has provided IAS with a list of 194 procedures involving ICDs at 14 hospitals which are the subject of further medical necessity review by the DOJ. The Company is cooperating fully with the government and, to date, the DOJ has not asserted any claim against the Company’s hospitals. The Company believes that 125 of these procedure claims were properly documented for medical necessity and billed appropriately. On June 29, 2013, the Company’s outside counsel submitted to the DOJ summary justifications and supporting evidence relating to the medical claims at four Company hospitals. The Company continues to search for and develop the documentary support for the remaining 69 of these cases that could have some likelihood of enforcement by the DOJ. If the Company is unable to place these claims in the no enforcement or lesser enforcement category, the government may require repayment, which could impose a multiplier. The government has not pressed IASIS for its response, however, IASIS will likely use its extensive training and compliance policies and awareness of the ICD national coverage determination to demonstrate intent to comply with Medicare’s coverage guidelines and commitment to compliance with federal and state authority. In April 2013, the government proposed to extend the tolling agreement through September 2013, which has been accepted by IASIS. IASIS will continue to use the tolling period to locate additional medical records for the 69 records potentially falling within a potential enforcement category, in an attempt to provide documentation to the DOJ of the medical necessity of the procedures. At this time, additional analysis is being completed and, based on information available to date, the Company is unable to quantify an estimate for any potential repayment obligation related to this ICD investigation.

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9. SEGMENT INFORMATION

The Company’s reportable operating segments consist of (1) acute care hospitals and related healthcare businesses, collectively “Acute Care”, and (2) Health Choice. The following is a financial summary by business segment for the periods indicated (in thousands):

	For the Quarter Ended June 30, 2013
	Acute Care			Health Choice		Eliminations			Consolidated
Acute care revenue before provision for bad debts	$	555,413		$	—	$	—		$	555,413
Less: Provision for bad debts		(96,090	)		—		—			(96,090	)
Acute care revenue		459,323			—		—			459,323
Premium revenue		—			139,804		—			139,804
Revenue between segments		1,940			—		(1,940	)		—
Net revenue		461,263			139,804		(1,940	)		599,127
Salaries and benefits (excludes stock-based compensation)		212,859			6,090		—			218,949
Supplies		79,422			40		—			79,462
Medical claims		—			118,580		(1,940	)		116,640
Rentals and leases		13,597			395		—			13,992
Other operating expenses		100,463			5,993		—			106,456
Medicare and Medicaid EHR incentives		(4,827	)		—		—			(4,827	)
Adjusted EBITDA(1)		59,749			8,706		—			68,455
Interest expense, net		32,771			—		—			32,771
Depreciation and amortization		23,463			1,029		—			24,492
Stock-based compensation		947			—		—			947
Management fees		1,250			—		—			1,250
Earnings from continuing operations before gain on disposal of assets and income taxes		1,318			7,677		—			8,995
Gain on disposal of assets, net		481			—		—			481
Earnings from continuing operations before income taxes	$	1,799		$	7,677	$	—		$	9,476

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	For the Quarter Ended June 30, 2012
	Acute Care			Health Choice		Eliminations			Consolidated
Acute care revenue before provision for bad debts	$	504,047		$	—	$	—		$	504,047
Less: Provision for bad debts		(68,744	)		—		—			(68,744	)
Acute care revenue		435,303			—		—			435,303
Premium revenue		—			142,323		—			142,323
Revenue between segments		1,764			—		(1,764	)		—
Net revenue		437,067			142,323		(1,764	)		577,626
Salaries and benefits (excludes stock-based compensation)		196,929			5,363		—			202,292
Supplies		75,278			72		—			75,350
Medical claims		—			118,130		(1,764	)		116,366
Rentals and leases		11,507			350		—			11,857
Other operating expenses		100,229			5,255		—			105,484
Adjusted EBITDA(1)		53,124			13,153		—			66,277
Interest expense, net		33,606			—		—			33,606
Depreciation and amortization		25,469			876		—			26,345
Stock-based compensation		2,022			—		—			2,022
Management fees		1,250			—		—			1,250
Earnings (loss) from continuing operations before loss on disposal of assets and income taxes		(9,223	)		12,277		—			3,054
Loss on disposal of assets, net		(240	)		—		—			(240	)
Earnings (loss) from continuing operations before income taxes	$	(9,463	)	$	12,277	$	—		$	2,814

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	For the Nine Months Ended June 30, 2013
	Acute Care			Health Choice		Eliminations			Consolidated
Acute care revenue before provision for bad debts	$	1,636,836		$	—	$	—		$	1,636,836
Less: Provision for bad debts		(267,014	)		—		—			(267,014	)
Acute care revenue		1,369,822			—		—			1,369,822
Premium revenue		—			422,059		—			422,059
Revenue between segments		5,334			—		(5,334	)		—
Net revenue		1,375,156			422,059		(5,334	)		1,791,881
Salaries and benefits (excludes stock-based compensation)		649,720			17,620		—			667,340
Supplies		240,582			142		—			240,724
Medical claims		—			353,890		(5,334	)		348,556
Rentals and leases		39,443			1,192		—			40,635
Other operating expenses		292,488			17,499		—			309,987
Medicare and Medicaid EHR incentives		(11,209	)		—		—			(11,209	)
Adjusted EBITDA(1)		164,132			31,716		—			195,848
Interest expense, net		99,987			—		—			99,987
Depreciation and amortization		69,510			3,096		—			72,606
Stock-based compensation		2,946			—		—			2,946
Management fees		3,750			—		—			3,750
Earnings (loss) from continuing operations before gain on disposal of assets and income taxes		(12,061	)		28,620		—			16,559
Gain on disposal of assets, net		649			—		—			649
Earnings (loss) from continuing operations before income taxes	$	(11,412	)	$	28,620	$	—		$	17,208
Segment assets	$	2,387,601		$	319,505				$	2,707,106
Capital expenditures	$	78,830		$	539				$	79,369
Goodwill	$	810,969		$	5,757				$	816,726

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	For the Nine Months Ended June 30, 2012
	Acute Care			Health Choice		Eliminations			Consolidated
Acute care revenue before provision for bad debts	$	1,514,986		$	—	$	—		$	1,514,986
Less: Provision for bad debts		(199,952	)		—		—			(199,952	)
Acute care revenue		1,315,034			—		—			1,315,034
Premium revenue		—			430,229		—			430,229
Revenue between segments		5,213			—		(5,213	)		—
Net revenue		1,320,247			430,229		(5,213	)		1,745,263
Salaries and benefits (excludes stock-based compensation)		589,768			16,447		—			606,215
Supplies		226,885			185		—			227,070
Medical claims		—			354,503		(5,213	)		349,290
Rentals and leases		32,981			1,131		—			34,112
Other operating expenses		300,741			17,102		—			317,843
Medicare and Medicaid EHR incentives		(8,036	)		—		—			(8,036	)
Adjusted EBITDA(1)		177,908			40,861		—			218,769
Interest expense, net		104,076			—		—			104,076
Depreciation and amortization		76,208			2,676		—			78,884
Stock-based compensation		3,964			—		—			3,964
Management fees		3,750			—		—			3,750
Earnings (loss) from continuing operations before gain on disposal of assets and income taxes		(10,090	)		38,185		—			28,095
Gain on disposal of assets, net		414			—		—			414
Earnings (loss) from continuing operations before income taxes	$	(9,676	)	$	38,185	$	—		$	28,509
Segment assets	$	2,348,709		$	303,579				$	2,652,288
Capital expenditures	$	83,110		$	1,941				$	73,317
Goodwill	$	803,897		$	5,757				$	809,654

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(1) Adjusted EBITDA represents net earnings from continuing operations before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation, gain (loss) on disposal of assets and management fees. Management fees represent monitoring and advisory fees paid to TPG, the Company’s majority financial sponsor, and certain other members of IASIS Investment LLC, majority shareholder of IAS. Management routinely calculates and communicates adjusted EBITDA and believes that it is useful to investors because it is commonly used as an analytical indicator within the healthcare industry to evaluate hospital performance, allocate resources and measure leverage capacity and debt service ability. In addition, the Company uses adjusted EBITDA as a measure of performance for its business segments and for incentive compensation purposes. Adjusted EBITDA should not be considered as a measure of financial performance under GAAP, and the items excluded from adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to net earnings, cash flows generated by operating, investing, or financing activities or other financial statement data presented in the unaudited condensed consolidated financial statements as an indicator of financial performance or liquidity. Adjusted EBITDA, as presented, differs from what is defined under the Company’s senior secured credit facilities and may not be comparable to similarly titled measures of other companies.

10. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Senior Notes described in Note 3 are fully and unconditionally guaranteed on a joint and several basis by all of the Company’s existing domestic subsidiaries, other than non-guarantor subsidiaries, which include Health Choice and the Company’s non-wholly owned subsidiaries. The guarantees are subject to customary release provisions set forth in the Indenture for the Senior Notes.

Summarized unaudited condensed consolidating balance sheets at June 30, 2013 and September 30, 2012, unaudited condensed consolidating statements of operations for the quarters and nine months ended June 30, 2013 and 2012, unaudited condensed consolidating statements of comprehensive income for the quarters and nine months ended June 30, 2013 and 2012, and unaudited condensed consolidating statements of cash flows for the nine months ended June 30, 2013 and 2012, for the Company, segregating the parent company issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, are found below. Prior year amounts have been reclassified to conform to the current year presentation.

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IASIS Healthcare LLC

Condensed Consolidating Balance Sheet (unaudited)

June 30, 2013

(in thousands)

			Subsidiary			Subsidiary					Condensed
	Parent Issuer		Guarantors			Non-Guarantors		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	—	$	12,766		$	5,090	$	—		$	17,856
Accounts receivable, net		—		132,589			250,774		—			383,363
Inventories		—		15,753			40,551		—			56,304
Deferred income taxes		15,709		—			—		—			15,709
Prepaid expenses and other current assets		—		52,742			84,586		—			137,328
Assets held for sale		—		119,132			—		—			119,132
Total current assets		15,709		332,982			381,001		—			729,692
Property and equipment, net		—		280,128			787,423		—			1,067,551
Intercompany		—		(120,601	)		120,601		—			—
Net investment in and advances to subsidiaries		2,143,195		—			—		(2,143,195	)		—
Goodwill		7,407		74,649			734,670		—			816,726
Other intangible assets, net		—		7,951			18,750		—			26,701
Other assets, net		28,765		14,220			23,451		—			66,436
Total assets	$	2,195,076	$	589,329		$	2,065,896	$	(2,143,195	)	$	2,707,106
Liabilities and Equity
Current liabilities
Accounts payable	$	—	$	40,916		$	71,806	$	—		$	112,722
Salaries and benefits payable		—		24,268			28,924		—			53,192
Accrued interest payable		10,056		(3,221	)		3,221		—			10,056
Medical claims payable		—		—			53,801		—			53,801
Other accrued expenses and other current liabilities		—		35,222			31,220		—			66,442
Current portion of long-term debt and capital lease obligations		10,071		2,639			63,419		(63,419	)		12,710
Liabilities held for sale		—		2,963			—		—			2,963
Total current liabilities		20,127		102,787			252,391		(63,419	)		311,886
Long-term debt and capital lease obligations		1,888,937		11,207			615,081		(615,081	)		1,900,144
Deferred income taxes		138,286		—			—		—			138,286
Other long-term liabilities		5,937		93,054			603		—			99,594
Total liabilities		2,053,287		207,048			868,075		(678,500	)		2,449,910
Non-controlling interests with redemption rights		—		105,657			—		—			105,657
Equity
Member’s equity		141,789		266,874			1,197,821		(1,464,695	)		141,789
Non-controlling interests		—		9,750			—		—			9,750
Total equity		141,789		276,624			1,197,821		(1,464,695	)		151,539
Total liabilities and equity	$	2,195,076	$	589,329		$	2,065,896	$	(2,143,195	)	$	2,707,106

21

IASIS Healthcare LLC

Condensed Consolidating Balance Sheet (unaudited)

September 30, 2012

(in thousands)

			Subsidiary			Subsidiary					Condensed
	Parent Issuer		Guarantors			Non-Guarantors		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	—	$	39,219		$	9,663	$	—		$	48,882
Accounts receivable, net		—		144,545			212,073		—			356,618
Inventories		—		24,848			42,802		—			67,650
Deferred income taxes		19,744		—			—		—			19,744
Prepaid expenses and other current assets		—		35,417			82,434		—			117,851
Total current assets		19,744		244,029			346,972		—			610,745
Property and equipment, net		—		377,021			794,636		—			1,171,657
Intercompany		—		(189,824	)		189,824		—			—
Net investment in and advances to subsidiaries		2,089,306		—			—		(2,089,306	)		—
Goodwill		7,407		73,357			737,660		—			818,424
Other intangible assets, net		—		8,161			21,000		—			29,161
Other assets, net		32,302		16,001			20,195		—			68,498
Total assets	$	2,148,759	$	528,745		$	2,110,287	$	(2,089,306	)	$	2,698,485
Liabilities and Equity
Current liabilities
Accounts payable	$	—	$	42,113		$	69,815	$	—		$	111,928
Salaries and benefits payable		—		32,267			33,123		—			65,390
Accrued interest payable		28,034		(3,231	)		3,231		—			28,034
Medical claims payable		—		—			61,142		—			61,142
Other accrued expenses and other current liabilities		—		56,821			33,069		—			89,890
Current portion of long-term debt and capital lease obligations		10,250		3,137			63,920		(63,920	)		13,387
Total current liabilities		38,284		131,107			264,300		(63,920	)		369,771
Long-term debt and capital lease obligations		1,840,345		12,762			634,077		(634,077	)		1,853,107
Deferred income taxes		120,961		—			—		—			120,961
Other long-term liabilities		7,580		95,919			611		—			104,110
Total liabilities		2,007,170		239,788			898,988		(697,997	)		2,447,949
Non-controlling interests with redemption rights		—		99,164			—		—			99,164
Equity
Member’s equity		141,589		180,010			1,211,299		(1,391,309	)		141,589
Non-controlling interests		—		9,783			—		—			9,783
Total equity		141,589		189,793			1,211,299		(1,391,309	)		151,372
Total liabilities and equity	$	2,148,759	$	528,745		$	2,110,287	$	(2,089,306	)	$	2,698,485

22

IASIS Healthcare LLC

Condensed Consolidating Statement of Operations

For the Quarter Ended June 30, 2013 (unaudited)

(in thousands)

				Subsidiary			Subsidiary						Condensed
	Parent Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net revenue
Acute care revenue before provision for bad debts	$	—		$	165,618		$	391,735		$	(1,940	)	$	555,413
Less: Provision for bad debts		—			(33,440	)		(62,650	)		—			(96,090	)
Acute care revenue		—			132,178			329,085			(1,940	)		459,323
Premium revenue		—			—			139,804			—			139,804
Net revenue		—			132,178			468,889			(1,940	)		599,127
Costs and expenses
Salaries and benefits		947			80,889			138,060			—			219,896
Supplies		—			23,624			55,838			—			79,462
Medical claims		—			—			118,580			(1,940	)		116,640
Rentals and leases		—			5,083			8,909			—			13,992
Other operating expenses		—			28,031			78,425			—			106,456
Medicare and Medicaid EHR incentives		—			(973	)		(3,854	)		—			(4,827	)
Interest expense, net		32,771			—			14,702			(14,702	)		32,771
Depreciation and amortization		—			8,452			16,040			—			24,492
Management fees		1,250			(8,245	)		8,245			—			1,250
Equity in earnings of affiliates		(24,927	)		—			—			24,927			—
Total costs and expenses		10,041			136,861			434,945			8,285			590,132
Earnings (loss) from continuing operations before gain on disposal of assets and income taxes		(10,041	)		(4,683	)		33,944			(10,225	)		8,995
Gain on disposal of assets, net		—			415			66			—			481
Earnings (loss) from continuing operations before income taxes		(10,041	)		(4,268	)		34,010			(10,225	)		9,476
Income tax expense		2,179			—			1,671			—			3,850
Net earnings (loss) from continuing operations		(12,220	)		(4,268	)		32,339			(10,225	)		5,626
Earnings (loss) from discontinued operations, net of income taxes		672			(1,203	)		—			—			(531	)
Net earnings (loss)		(11,548	)		(5,471	)		32,339			(10,225	)		5,095
Net earnings attributable to non-controlling interests		—			(1,941	)		—			—			(1,941	)
Net earnings (loss) attributable to IASIS Healthcare LLC	$	(11,548	)	$	(7,412	)	$	32,339		$	(10,225	)	$	3,154

23

IASIS Healthcare LLC

Condensed Consolidating Statement of Operations

For the Quarter Ended June 30, 2012 (unaudited)

(in thousands)

				Subsidiary			Subsidiary						Condensed
	Parent Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net revenue
Acute care revenue before provision for bad debts	$	—		$	148,912		$	356,899		$	(1,764	)	$	504,047
Less: Provision for bad debts		—			(26,676	)		(42,068	)		—			(68,744	)
Acute care revenue		—			122,236			314,831			(1,764	)		435,303
Premium revenue		—			—			142,323			—			142,323
Net revenue		—			122,236			457,154			(1,764	)		577,626
Costs and expenses
Salaries and benefits		2,022			75,674			126,618			—			204,314
Supplies		—			21,719			53,631			—			75,350
Medical claims		—			—			118,130			(1,764	)		116,366
Rentals and leases		—			4,247			7,610			—			11,857
Other operating expenses		—			23,883			81,601			—			105,484
Interest expense, net		33,606			—			15,248			(15,248	)		33,606
Depreciation and amortization		—			8,593			17,752			—			26,345
Management fees		1,250			(7,566	)		7,566			—			1,250
Equity in earnings of affiliates		(24,907	)		—			—			24,907			—
Total costs and expenses		11,971			126,550			428,156			7,895			574,572
Earnings (loss) from continuing operations before gain (loss) on disposal of assets and income taxes		(11,971	)		(4,314	)		28,998			(9,659	)		3,054
Gain (loss) on disposal of assets, net		—			(256	)		16			—			(240	)
Earnings (loss) from continuing operations before income taxes		(11,971	)		(4,570	)		29,014			(9,659	)		2,814
Income tax benefit		(8,035	)		—			—			—			(8,035	)
Net earnings (loss) from continuing operations		(3,936	)		(4,570	)		29,014			(9,659	)		10,849
Earnings (loss) from discontinued operations, net of income taxes		(533	)		1,485			60			—			1,012
Net earnings (loss)		(4,469	)		(3,085	)		29,074			(9,659	)		11,861
Net earnings attributable to non-controlling interests		—			(1,082	)		—			—			(1,082	)
Net earnings (loss) attributable to IASIS Healthcare LLC	$	(4,469	)	$	(4,167	)	$	29,074		$	(9,659	)	$	10,779

24

IASIS Healthcare LLC

Condensed Consolidating Statement of Operations

For the Nine Months Ended June 30, 2013 (unaudited)

(in thousands)

				Subsidiary			Subsidiary						Condensed
	Parent Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net revenue
Acute care revenue before provision for bad debts	$	—		$	479,303		$	1,162,867		$	(5,334	)	$	1,636,836
Less: Provision for bad debts		—			(89,398	)		(177,616	)		—			(267,014	)
Acute care revenue		—			389,905			985,251			(5,334	)		1,369,822
Premium revenue		—			—			422,059			—			422,059
Net revenue		—			389,905			1,407,310			(5,334	)		1,791,881
Costs and expenses
Salaries and benefits		2,946			244,352			422,988			—			670,286
Supplies		—			70,284			170,440			—			240,724
Medical claims		—			—			353,890			(5,334	)		348,556
Rentals and leases		—			14,646			25,989			—			40,635
Other operating expenses		—			71,881			238,106			—			309,987
Medicare and Medicaid EHR incentives		—			(5,505	)		(5,704	)		—			(11,209	)
Interest expense, net		99,987			—			47,057			(47,057	)		99,987
Depreciation and amortization		—			25,230			47,376			—			72,606
Management fees		3,750			(24,494	)		24,494			—			3,750
Equity in earnings of affiliates		(73,311	)		—			—			73,311			—
Total costs and expenses		33,372			396,394			1,324,636			20,920			1,775,322
Earnings (loss) from continuing operations before gain on disposal of assets and income taxes		(33,372	)		(6,489	)		82,674			(26,254	)		16,559
Gain on disposal of assets, net		—			570			79			—			649
Earnings (loss) from continuing operations before income taxes		(33,372	)		(5,919	)		82,753			(26,254	)		17,208
Income tax expense		6,345			—			1,671			—			8,016
Net earnings (loss) from continuing operations		(39,717	)		(5,919	)		81,082			(26,254	)		9,192
Earnings (loss) from discontinued operations, net of income taxes		(488	)		1,338			(1	)		—			849
Net earnings (loss)		(40,205	)		(4,581	)		81,081			(26,254	)		10,041
Net earnings attributable to non-controlling interests		—			(3,189	)		—			—			(3,189	)
Net earnings (loss) attributable to IASIS Healthcare LLC	$	(40,205	)	$	(7,770	)	$	81,081		$	(26,254	)	$	6,852

25

IASIS Healthcare LLC

Condensed Consolidating Statement of Operations

For the Nine Months Ended June 30, 2012 (unaudited)

(in thousands)

				Subsidiary			Subsidiary						Condensed
	Parent Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net revenue
Acute care revenue before provision for bad debts	$	—		$	431,384		$	1,088,815		$	(5,213	)	$	1,514,986
Less: Provision for bad debts		—			(74,024	)		(125,928	)		—			(199,952	)
Acute care revenue		—			357,360			962,887			(5,213	)		1,315,034
Premium revenue		—			—			430,229			—			430,229
Net revenue		—			357,360			1,393,116			(5,213	)		1,745,263
Costs and expenses
Salaries and benefits		3,964			223,543			382,672			—			610,179
Supplies		—			64,641			162,429			—			227,070
Medical claims		—			—			354,503			(5,213	)		349,290
Rentals and leases		—			11,900			22,212			—			34,112
Other operating expenses		—			68,058			249,785			—			317,843
Medicare and Medicaid EHR incentives		—			(1,277	)		(6,759	)		—			(8,036	)
Interest expense, net		104,076			—			39,656			(39,656	)		104,076
Depreciation and amortization		—			25,656			53,228			—			78,884
Management fees		3,750			(23,215	)		23,215			—			3,750
Equity in earnings of affiliates		(99,031	)		—			—			99,031			—
Total costs and expenses		12,759			369,306			1,280,941			54,162			1,717,168
Earnings (loss) from continuing operations before gain on disposal of assets and income taxes		(12,759	)		(11,946	)		112,175			(59,375	)		28,095
Gain on disposal of assets, net		—			391			23			—			414
Earnings (loss) from continuing operations before income taxes		(12,759	)		(11,555	)		112,198			(59,375	)		28,509
Income tax expense		1,436			—			1,896			—			3,332
Net earnings (loss) from continuing operations		(14,195	)		(11,555	)		110,302			(59,375	)		25,177
Earnings (loss) from discontinued operations, net of income taxes		(2,172	)		5,605			3			—			3,436
Net earnings (loss)		(16,367	)		(5,950	)		110,305			(59,375	)		28,613
Net earnings attributable to non-controlling interests		—			(5,324	)		—			—			(5,324	)
Net earnings (loss) attributable to IASIS Healthcare LLC	$	(16,367	)	$	(11,274	)	$	110,305		$	(59,375	)	$	23,289

26

IASIS Healthcare LLC

Condensed Consolidating Statement of Comprehensive Income

For the Quarter Ended June 30, 2013 (unaudited)

(in thousands)

				Subsidiary			Subsidiary					Condensed
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated
Net earnings (loss)	$	(11,548	)	$	(5,471	)	$	32,339	$	(10,225	)	$	5,095
Other comprehensive income
Change in fair value of highly effective interest rate hedges		1,753			—			—		—			1,753
Other comprehensive income before income taxes		1,753			—			—		—			1,753
Change in income tax expense		(651	)		—			—		—			(651	)
Other comprehensive income, net of income taxes		1,102			—			—		—			1,102
Comprehensive income (loss)		(10,446	)		(5,471	)		32,339		(10,225	)		6,197
Net earnings attributable to non-controlling interests		—			(1,941	)		—		—			(1,941	)
Comprehensive income (loss) attributable to IASIS Healthcare LLC	$	(10,446	)	$	(7,412	)	$	32,339	$	(10,225	)	$	4,256

27

IASIS Healthcare LLC

Condensed Consolidating Statement of Comprehensive Income

For the Quarter Ended June 30, 2012 (unaudited)

(in thousands)

				Subsidiary			Subsidiary					Condensed
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated
Net earnings (loss)	$	(4,469	)	$	(3,085	)	$	29,074	$	(9,659	)	$	11,861
Other comprehensive loss
Change in fair value of highly effective interest rate hedges		(2,655	)		—			—		—			(2,655	)
Other comprehensive loss before income taxes		(2,655	)		—			—		—			(2,655	)
Change in income tax benefit		987			—			—		—			987
Other comprehensive loss, net of income taxes		(1,668	)		—			—		—			(1,668	)
Comprehensive income (loss)		(6,137	)		(3,085	)		29,074		(9,659	)		10,193
Net earnings attributable to non-controlling interests		—			(1,082	)		—		—			(1,082	)
Comprehensive income (loss) attributable to IASIS Healthcare LLC	$	(6,137	)	$	(4,167	)	$	29,074	$	(9,659	)	$	9,111

28

IASIS Healthcare LLC

Condensed Consolidating Statement of Comprehensive Income

For the Nine Months Ended June 30, 2013 (unaudited)

(in thousands)

				Subsidiary			Subsidiary					Condensed
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated
Net earnings (loss)	$	(40,205	)	$	(4,581	)	$	81,081	$	(26,254	)	$	10,041
Other comprehensive income
Change in fair value of highly effective interest rate hedges		1,643			—			—		—			1,643
Other comprehensive income before income taxes		1,643			—			—		—			1,643
Change in income tax benefit		(611	)		—			—		—			(611	)
Other comprehensive income, net of income taxes		1,032			—			—		—			1,032
Comprehensive income (loss)		(39,173	)		(4,581	)		81,081		(26,254	)		11,073
Net earnings attributable to non-controlling interests		—			(3,189	)		—		—			(3,189	)
Comprehensive income (loss) attributable to IASIS Healthcare LLC	$	(39,173	)	$	(7,770	)	$	81,081	$	(26,254	)	$	7,884

29

IASIS Healthcare LLC

Condensed Consolidating Statement of Comprehensive Income

For the Nine Months Ended June 30, 2012 (unaudited)

(in thousands)

				Subsidiary			Subsidiary					Condensed
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated
Net earnings (loss)	$	(16,367	)	$	(5,950	)	$	110,305	$	(59,375	)	$	28,613
Other comprehensive loss
Change in fair value of highly effective interest rate hedges		(4,819	)		—			—		—			(4,819	)
Amortization of other comprehensive income related to ineffective interest rate hedges		2,057			—			—		—			2,057
Other comprehensive loss before income taxes		(2,762	)		—			—		—			(2,762	)
Change in income tax benefit		1,026			—			—		—			1,026
Other comprehensive loss, net of income taxes		(1,736	)		—			—		—			(1,736	)
Comprehensive income (loss)		(18,103	)		(5,950	)		110,305		(59,375	)		26,877
Net earnings attributable to non-controlling interests		—			(5,324	)		—		—			(5,324	)
Comprehensive income (loss) attributable to IASIS Healthcare LLC	$	(18,103	)	$	(11,274	)	$	110,305	$	(59,375	)	$	21,553

30

IASIS Healthcare LLC

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended June 30, 2013 (unaudited)

(in thousands)

	Parent Issuer			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Condensed Consolidated
Cash flows from operating activities
Net earnings (loss)	$	(40,205	)	$	(4,581	)	$	81,081		$	(26,254	)	$	10,041
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		—			25,230			47,376			—			72,606
Amortization of loan costs		5,760			—			—			—			5,760
Stock-based compensation		2,946			—			—			—			2,946
Deferred income taxes		16,338			—			—			—			16,338
Income tax benefit from stock-based compensation		16			—			—			—			16
Income tax benefit from parent company		103			—			—			—			103
Gain on disposal of assets, net		—			(570	)		(79	)		—			(649	)
Loss (earnings) from discontinued operations, net		488			(1,338	)		1			—			(849	)
Equity in earnings of affiliates		(73,311	)		—			—			73,311			—
Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable, net		—			9,557			(32,437	)		—			(22,880	)
Inventories, prepaid expenses and other current assets		—			(20,254	)		(1,374	)		—			(21,628	)
Accounts payable, other accrued expenses and other accrued liabilities		(19,621	)		(13,375	)		(22,582	)		—			(55,578	)
Net cash provided by (used in) operating activities — continuing operations		(107,486	)		(5,331	)		71,986			47,057			6,226
Net cash provided by operating activities — discontinued operations		—			3,967			—			—			3,967
Net cash provided by (used in) operating activities		(107,486	)		(1,364	)		71,986			47,057			10,193
Cash flows from investing activities
Purchases of property and equipment		—			(41,596	)		(37,773	)		—			(79,369	)
Cash received (paid) for acquisitions, net		—			(849	)		4,433			—			3,584
Proceeds from sale of assets		—			6			77			—			83
Change in other assets, net		—			3,508			(3,257	)		—			251
Net cash used in investing activities — continuing operations		—			(38,931	)		(36,520	)		—			(75,451	)
Net cash used in investing activities — discontinued operations		—			(4,318	)		—			—			(4,318	)
Net cash used in investing activities		—			(43,249	)		(36,520	)		—			(79,769	)
Cash flows from financing activities
Payment of debt and capital lease obligations		(94,598	)		(4,689	)		(2,478	)		—			(101,765	)
Proceeds from revolving credit facilities		147,000			—			—			—			147,000
Debt financing costs incurred		(1,024	)		—			—			—			(1,024	)
Distributions to non-controlling interests		—			(5,504	)		—			—			(5,504	)
Cash received for the sale of non-controlling interests		—			849			—			—			849
Cash paid for the repurchase of non-controlling interests		—			(1,018	)		—			—			(1,018	)
Other		—			1,065			(1,053	)		—			12
Change in intercompany balances with affiliates, net		56,108			27,457			(36,508	)		(47,057	)		—
Net cash provided by (used in) financing activities		107,486			18,160			(40,039	)		(47,057	)		38,550
Change in cash and cash equivalents		—			(26,453	)		(4,573	)		—			(31,026	)
Cash and cash equivalents at beginning of period		—			39,219			9,663			—			48,882
Cash and cash equivalents at end of period	$	—		$	12,766		$	5,090		$	—		$	17,856

31

IASIS Healthcare LLC

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended June 30, 2012 (unaudited)

(in thousands)

	Parent Issuer			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Condensed Consolidated
Cash flows from operating activities
Net earnings (loss)	$	(16,367	)	$	(5,950	)	$	110,305		$	(59,375	)	$	28,613
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		—			25,656			53,228			—			78,884
Amortization of loan costs		5,495			—			—			—			5,495
Stock-based compensation		3,964			—			—			—			3,964
Deferred income taxes		13,264			—			—			—			13,264
Income tax benefit from stock-based compensation		6			—			—			—			6
Income tax benefit from parent company		427			—			—			—			427
Fair value change in interest rate hedges		(1,410	)		—			—			—			(1,410	)
Amortization of other comprehensive loss		2,057			—			—			—			2,057
Gain on disposal of assets, net		—			(391	)		(23	)		—			(414	)
Loss (earnings) from discontinued operations, net		2,172			(5,605	)		(3	)		—			(3,436	)
Equity in earnings of affiliates		(99,031	)		—			—			99,031			—
Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable, net		—			(12,486	)		(41,871	)		—			(54,357	)
Inventories, prepaid expenses and other current assets		—			(12,434	)		(1,860	)		—			(14,294	)
Accounts payable, other accrued expenses and other accrued liabilities		(19,960	)		43,714			(70,698	)		—			(46,944	)
Net cash provided by (used in) operating activities — continuing operations		(109,383	)		32,504			49,078			39,656			11,855
Net cash provided by (used in) operating activities — discontinued operations		(28	)		6,988			—			—			6,960
Net cash provided by (used in) operating activities		(109,411	)		39,492			49,078			39,656			18,815
Cash flows from investing activities
Purchases of property and equipment		—			(35,661	)		(37,656	)		—			(73,317	)
Cash received (paid) for acquisitions, net		—			12,972			(12,757	)		—			215
Proceeds from sale of assets		—			1			23			—			24
Change in other assets, net		—			1,218			1,270			—			2,488
Net cash used in investing activities — continuing operations		—			(21,470	)		(49,120	)		—			(70,590	)
Net cash used in investing activities — discontinued operations		—			(12,310	)		—			—			(12,310	)
Net cash used in investing activities		—			(33,780	)		(49,120	)		—			(82,900	)
Cash flows from financing activities
Payment of debt and capital lease obligations		(7,688	)		(284	)		(2,762	)		—			(10,734	)
Debt financing costs incurred		(998	)		—			—			—			(998	)
Distributions to non-controlling interests		—			(6,802	)		—			—			(6,802	)
Cash paid for the repurchase of non-controlling interest		—			(341	)		—			—			(341	)
Change in intercompany balances with affiliates, net		118,097			(77,830	)		(611	)		(39,656	)		—
Net cash provided by (used in) financing activities		109,411			(85,257	)		(3,373	)		(39,656	)		(18,875	)
Change in cash and cash equivalents		—			(79,545	)		(3,415	)		—			(82,960	)
Cash and cash equivalents at beginning of period		—			140,062			7,265			—			147,327
Cash and cash equivalents at end of period	$	—		$	60,517		$	3,850		$	—		$	64,367

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11. SUBSEQUENT EVENT

On August 8, 2013, the Company entered into a definitive agreement to sell the real estate associated with the following three facilities, and thereafter lease the land and buildings from the acquirer:

• Glenwood Regional Medical Center located in West Monroe, Louisiana

• Mountain Vista Medical Center located in Mesa, Arizona; and

• The Medical Center of Southeast Texas located in Port Arthur, Texas.

The estimated aggregate proceeds from sale is approximately $281.3 million. The initial term of the related lease agreements is 15 years with various renewal options. The sale-leaseback transaction is expected to close during the Company’s fiscal fourth quarter, subject to the satisfaction of customary real estate, regulatory and other closing conditions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements, the notes to our unaudited condensed consolidated financial statements and the other financial information appearing elsewhere in this report. Data for the quarters and nine months ended June 30, 2013 and 2012, has been derived from our unaudited condensed consolidated financial statements. References herein to “we,” “our” and “us” are to IASIS Healthcare LLC and its subsidiaries. References herein to “IAS” are to IASIS Healthcare Corporation, our parent company.

FORWARD LOOKING STATEMENTS

Some of the statements we make in this report are forward-looking within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations including, but not limited to, the discussions of our operating and growth strategy (including possible acquisitions and dispositions), financing needs, projections of revenue, income or loss, capital expenditures and future operations. Those risks and uncertainties include, among others, changes in governmental healthcare programs that could reduce our revenues; the uncertain impact of federal health reform; the possibility of Health Choice Arizona, Inc.’s (“Health Choice” or the “Plan”) contract with the Arizona Health Care Cost Containment System (“AHCCCS”) being discontinued and changes in the payment structure under that contract, as well as an inability to control costs at Health Choice; shifts in payor mix from commercial and managed care payors to Medicaid and managed Medicaid; our ability to retain and negotiate reasonable contracts with managed care plans; a growth in the level of uncompensated care at our hospitals; our ability to recruit and retain quality physicians and medical professionals; competition from other hospitals and healthcare providers impacting our patient volume; our failure to continually enhance our hospitals with the most recent technological advances in diagnostic and surgical equipment; the federal health reform law’s significant restrictions on hospitals that have physician owners; a failure of our information systems that would adversely affect our ability to properly manage our operations; failure to effectively and timely implement electronic health record systems; claims brought against our facilities for malpractice, product liability and other legal grounds; difficulties with the integration of acquisitions that may disrupt our ongoing operations; our dependence on key management personnel; potential responsibilities and costs under environmental laws; the possibility of a decline in the fair value of our reporting units that could result in a material non-cash charge to earnings; the risks and uncertainties related to our ability to generate sufficient cash to service our existing indebtedness; our substantial level of indebtedness; the possibility of an increase in interest rates, which would increase the cost of servicing our debt; and the risks associated with us being owned by equity sponsors who have the ability to control our financial decisions. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results in future periods to differ materially from those anticipated in the forward-looking statements. Those risks and uncertainties, among others discussed in this report, are detailed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, and in our subsequent filings with the Securities and Exchange Commission (the “SEC”).

Although we believe that the assumptions underlying the forward-looking statements contained in this report are reasonable, any of these assumptions could prove to be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included in this report, you should not regard the inclusion of such information as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

EXECUTIVE OVERVIEW

We are a leading provider of high quality, affordable healthcare services primarily in high-growth urban and suburban markets. As of June 30, 2013, we owned or leased 19 acute care hospital facilities (three of which are currently under contract to be sold) and one behavioral health hospital, with a total of 4,505 licensed beds, several outpatient service facilities, and more than 160 physician clinics. We operate our hospitals with a strong community focus by offering and developing healthcare services targeted to the needs of the markets we serve, promoting strong relationships with physicians and working with local managed care plans. We operate in various regions, including:

• Salt Lake City, Utah;

• Phoenix, Arizona;

• Tampa-St. Petersburg, Florida;

• five cities in Texas, including Houston and San Antonio; and

• West Monroe, Louisiana.

We also own and operate Health Choice, a Medicaid and Medicare managed health plan headquartered in Phoenix that serves over 176,000 members in Arizona and Utah.

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On August 8, 2013, we entered into a definitive agreement to sell the real estate associated with the following three facilities, and thereafter lease the land and buildings from the acquirer: (1) Glenwood Regional Medical Center in West Monroe, Lousiana; (2) Mountain Vista Medical Center, in Mesa, Arizona; and (3) The Medical Center of Southeast Texas in Port Arthur, Texas. The estimated aggregate proceeds from the sale is approximately $281.3 million. The initial term of the related lease agreements is 15 years with varying renewal options. This sale-leaseback transaction is expected to close during our fiscal fourth quarter, subject to the satisfaction of customary real estate, regulatory and other closing conditions.

On July 17, 2013, we entered into a definitive agreement to sell our Florida operations, which primarily include three hospitals in the Tampa-St. Petersburg area and all related physician operations. The transaction is expected to close by the end of fiscal year 2013, assuming receipt of required regulatory approvals and satisfaction of other customary closing conditions. The divestiture of the Florida operations provides us with increased ability to make strategic investments in our other markets, as further growth opportunities in our Florida operations were limited by a restrictive state certificate of need process. As we continue to look for ways to diversify and invest in delivery models which produce higher-quality more efficient care in the rapidly evolving healthcare landscape, we determined the best option for our Florida operations’ long-term, growth opportunities was to transition them to a larger scale health care system. Upon completing the divestiture of our Florida operations, we will be able to focus more intently on and invest more significantly in our other markets better positioned for our future growth plans.

On March 25, 2013, we announced that Health Choice has been awarded a new contract by AHCCCS, the state agency that administers Arizona’s state Medicaid program. The contract, which commences on October 1, 2013, has an initial term of three years and includes two additional one-year renewal options that can be exercised at the discretion of AHCCCS. The new contract allows Health Choice to serve Medicaid members in the following Arizona counties: Apache, Coconino, Gila, Maricopa, Mohave, Navajo, Pima and Pinal.

Significant Industry Trends

The following sections discuss recent trends that we believe are significant factors in our current and/or future operating results and cash flows. Certain of these trends apply to the entire acute care hospital industry, while others may apply to us more specifically. These trends could be short-term in nature or could require long-term attention and resources. While these trends may involve certain factors that are outside of our control, the extent to which these trends affect our hospitals and our ability to manage the impact of these trends play vital roles in our current and future success. In many cases, we are unable to predict what impact, if any, these trends will have on us.

The Impact of Health Reform

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”) changes how healthcare services are covered, delivered, and reimbursed. The law expands coverage of previously uninsured individuals, largely through expansion of Medicaid coverage and establishment of state insurance exchanges (“Exchanges”) where individuals may purchase coverage. The Health Reform Law also contains an “individual mandate” that imposes financial penalties on individuals who fail to carry insurance coverage and employers that do not provide health insurance coverage. In addition, the Health Reform Law reforms certain aspects of health insurance, reduces government reimbursement rates, expands existing efforts to tie Medicare and Medicaid payments to performance and quality, places restrictions on physician-owned hospitals and contains provisions intended to strengthen fraud and abuse enforcement.

The provisions of the Health Reform Law that seek to decrease the number of uninsured individuals mostly will become effective January 1, 2014. However, the employer mandate which requires companies with 50 or more employees to provide health insurance or pay fines, as well as insurer reporting requirements, has been delayed until January 1, 2015. In addition, states may choose not to implement the Medicaid expansion provisions of the Health Reform Law without losing existing federal Medicaid funding. In those states that choose not to participate in the Medicaid expansion program, the penalty for not carrying insurance will be waived for low-income residents. A number of state governors and legislatures, including Texas and Louisiana, have chosen not to participate in the expanded Medicaid program. Some states, such as Arkansas, have chosen to participate or are considering participating through “private option” programs that would provide funds to low-income individuals to purchase private insurance. These “private option” programs are subject to federal approval.

Because of the many variables involved, including the law’s complexity, the lack of implementing regulations or interpretive guidance, gradual and partially delayed implementation, possible amendment, repeal or further implementation delays, success of health insurance exchanges enrolling uninsured individuals, possible reductions in funding by the U.S. Congress and future reductions in Medicare and Medicaid reimbursement, the impact of the Health Reform Law, including how individuals and businesses will respond to the new choices and obligations under the law, is not yet fully known. We believe, however, that trends toward pay-for-performance reimbursement models focused on quality, cost control and clinically integrated healthcare delivery, which are encouraged by the Health Reform Law, are taking hold among private health insurers and will continue to do so.

Budget Control Act and Sequestration

On August 2, 2011, the U.S. Congress enacted the Budget Control Act of 2011. This law increased the nation’s borrowing authority and takes steps to reduce federal spending and the deficit. The deficit reduction portion of the Budget Control Act of 2011 imposes caps that reduce discretionary spending by more than $900 billion over ten years, beginning in federal fiscal year 2012. The Budget Control Act of 2011 also requires automatic spending reductions of $1.2 trillion for federal fiscal years 2013 through 2021, minus any deficit reductions enacted by Congress and debt service costs. These automatic spending reductions are commonly referred to as “sequestration”. The spending reductions are to be split evenly between defense and non-defense discretionary spending, although certain programs (including the Medicaid and Children’s Health Insurance Programs (“CHIP”)), are exempt from these automatic spending reductions, and Medicare expenditures cannot be reduced by more than two percent. Sequestration began on March 1, 2013, with the Centers for Medicare and Medicaid Services (“CMS”) imposing a two percent reduction on Medicare claims on April 1, 2013. Unless the U.S. Congress and the President take action and reach an agreement to change the law, federal spending will be subject to sequestration over ten years. We are unable to predict what other deficit reduction initiatives may be proposed by the President or the U.S. Congress or whether the President and the U.S. Congress will restructure or suspend sequestration. It is possible that negotiations to end or restructure sequestration will result in greater spending reductions than required by the Budget Control Act of 2011.

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State Medicaid Budgets

Over recent years, the states in which we operate have experienced budget constraints as a result of increased costs and lower than expected tax collections. Many states have experienced or project near term shortfalls in their budgets, and economic conditions have increased these budget pressures. Health and human services programs, including Medicaid and similar programs, represent a significant portion of state budgets. The states in which we operate have responded to these budget concerns, by decreasing funding for Medicaid and other healthcare programs or by making structural changes that have resulted in a reduction in hospital reimbursement. In addition, many states have received waivers from CMS in order to implement or expand managed Medicaid programs.

Texas

The Texas legislature and the Texas Health and Human Services Commission (“THHSC”) recommended expanding Medicaid managed care enrollment in the state, and in December 2011, CMS approved a five-year Medicaid waiver that: (1) allows Texas to expand its Medicaid managed care program while preserving hospital funding; (2) provides incentive payments for improvements in healthcare delivery; and (3) directs more funding to hospitals that serve large numbers of uninsured patients. Certain of our acute care hospitals currently receive supplemental Medicaid reimbursement, including reimbursement from programs for participating private hospitals that enter into indigent care affiliation agreements with public hospitals or county governments in the state of Texas. Under the CMS-approved programs, affiliated hospitals, including our Texas hospitals, have expanded the community healthcare safety net by providing indigent healthcare services. Revenue recognized under these Texas private supplemental Medicaid reimbursement programs for the quarter and nine months ended June 30, 2013, was $16.5 million and $45.7 million, respectively, compared to $21.6 million and $63.9 million in the prior year periods. Under the Medicaid waiver, which will change the funding structure of Texas’ current supplemental Medicaid reimbursement programs, funds will be distributed to participating hospitals based upon both the costs associated with providing care to individuals without third party coverage and the investment made to support coordinating care and quality improvements that transform the local communities’ care delivery systems. The responsibility to coordinate and develop plans that address the concerns of the local delivery care systems, including improved access, quality, cost effectiveness and coordination will be controlled primarily by government-owned public hospitals that serve the surrounding geographic areas. Along with delays in funding for the state’s Medicaid supplemental reimbursement programs, the expansion of the managed Medicaid program has also resulted in delays in processing and payment of related patient accounts receivable by many of the managed care payors.

The THHSC has released proposed rules to change the Texas Medicaid Disproportionate Share Hospital (“Texas Medicaid DSH”) methodology for the state’s fiscal year 2014 and 2015. While changes to the Texas Medicaid DSH methodology have been proposed, details regarding its computation for the state’s upcoming fiscal year have not yet been finalized. Because deliberations regarding the Texas Medicaid DSH program are ongoing, we are unable to estimate the financial impact, if any, that proposed program changes may have on our results of operations. Texas has appropriated $160.0 million for fiscal year 2014 and $140.0 million for fiscal year 2015 to stabilize and improve the Texas Medicaid DSH program, including providing rate adjustments to recognize improvements in quality of patient care, the most appropriate use of care, and patient outcomes. These appropriations provide that the funding is contingent on “measurable progress” by THHSC toward a long-term plan. Funds appropriated for in 2015 may not be spent before the plan is finalized.

The THHSC continues to examine the allocation method for the Texas Medicaid DSH program for fiscal year 2013. During the quarter and nine months ended June 30, 2013, we recognized $7.1 million and $21.4 million, respectively, in Texas Medicaid DSH revenues, compared to $6.2 million and $18.7 million in the prior year periods.

Arizona

Beginning in July 2011, in an effort to control its budgeted expenditures and balance its budget, the state of Arizona implemented a plan to reduce its eligible Medicaid beneficiaries. This plan has resulted in a reduction of approximately 9.5% of the total Medicaid enrollment in the state and includes approximately 167,000 childless adults. Since implementation of this plan by the state of Arizona, Health Choice has experienced a significant decline in its enrollees, premium revenue and earnings. While Health Choice’s enrollment has continued to decline during the quarter and nine months ended June 30, 2013, the rate of decline has moderated compared to the same prior year periods. Additionally, on June 17, 2013, the governor of Arizona signed into law the expansion of its Medicaid program under the Health Reform Law, which includes increased eligibility for adults, children and pregnant women, and the restoration of eligibility to childless adults that was previously eliminated. The expansion of the state’s Medicaid program under the Health Reform Law could potentially result in the addition of approximately 370,000 people to its Medicaid rolls. The law may face opposition from groups who are considering lawsuits challenging the passage of the law. The law will go into effect January 1, 2014.

If additional Medicaid program changes are implemented in the future in Arizona or other states in which we operate, our revenue and earnings could be significantly impacted.

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Physician Alignment and Clinical Integration

In an effort to meet community needs and address coverage issues, we have made significant investments in order to align with physicians through various recruitment and employment strategies, as well as alternative means of alignment such as our formation of provider networks in certain markets. We believe that physician alignment promotes clinical integration, enhances quality of care and makes us more efficient and competitive in a healthcare environment trending toward value-based purchasing and pay-for-performance.

As we continue to focus on our physician alignment and integration strategies, we face significant competition for skilled physicians in certain of our markets as more hospital providers adopt a physician staffing model approach, coupled with a general shortage of physicians across most specialties. This increased competition has resulted in efforts by managed care organizations to align with certain provider networks in the markets in which we operate. In response, we have formed our own provider networks in certain markets that include both employed and non-affiliated physicians, providing the infrastructure through which we are able to contract more efficiently with commercial payors, position ourselves for value based reimbursement and promote clinical integration. While we expect that employing physicians should provide relief on cost pressures associated with on-call coverage and other professional fees, we anticipate incurring additional labor and other start-up related costs as we continue the integration of recently employed physicians and their related support staff.

We also face risk from competition for outpatient business. We expect to mitigate this risk through continued focus on our physician employment strategy, the development of new access points of care, our commitment to capital investment in our hospitals, including updated technology and equipment, and our commitment to our quality of care initiatives that some competitors, including individual physicians or physician groups, may not be equipped to implement.

Uncompensated Care

Like others in the hospital industry, we continue to experience high levels of uncompensated care, including discounts to the uninsured, bad debts and charity care. These elevated levels are driven by the number of uninsured and under-insured patients seeking care at our hospitals, which has been significantly impacted by the efforts of the state of Arizona to reduce its Medicaid enrollees, as well as a general increase in uninsured volume in our Texas market where the state exercises stringent Medicaid eligibility requirements. Given the rate of unemployment and its impact on the economy, particularly in the markets we serve, we believe our hospitals may continue to experience these elevated levels of uncompensated care until the U.S. economy experiences an economic recovery that includes significant sustained job growth and a meaningful decline in unemployment. During the quarter ended June 30, 2013, our self-pay admissions represented 8.0% of our total admissions, which was consistent with the prior year quarter. During the nine months ended June 30, 2013, our self-pay admissions represented 7.9% of our total admissions, compared to 7.7% in the prior year period. During the quarter ended June 30, 2013, our uncompensated care, which includes bad debts, charity care and uninsured discounts, as a percentage of acute care revenue was 23.5%, compared to 21.9% in the prior year quarter. During the nine months ended June 30, 2013, our uncompensated care as a percentage of acute care revenue was 23.9%, compared to 20.8% in the prior year period. The increased levels of uncompensated care has resulted in pressures on pricing and operating margins created from providing the same level of healthcare service, but for less reimbursement. The cost of our uncompensated care is also impacted by the higher acuity levels at which these patients are presenting for treatment in our emergency rooms, which is primarily resulting from economic pressures and their related decisions to defer care.

We continue to monitor our uninsured admissions on a daily basis and continue to focus on the efficiency of our emergency rooms, point-of-service cash collections, Medicaid eligibility automation and process-flow improvements. While we continue to be successful at qualifying many uninsured patients for Medicaid or other third-party coverage, which has helped to alleviate some of the pressure created from the growth in our uncompensated care, we continue to experience delays associated with the administrative functions of the Medicaid qualification process at the state levels. These delays are not indicative of eligibility issues, but rather staffing cut-backs as states continue to address their budgetary issues.

We anticipate that if we experience further growth in uninsured volume and revenue over the near-term, including increased acuity levels and continued increases in co-payments and deductibles for insured patients, our uncompensated care will increase and our results of operations could be adversely affected.

Starting January 1, 2014, we expect uninsured volumes to begin decreasing due to the impact of the Health Reform Law, which includes the implementation of health insurance exchanges and the expansion of Medicaid programs in certain of the states in which we operate.

The percentages of our insured and uninsured net hospital receivables are summarized as follows:

	June 30, 2013			September 30, 2012
Insured receivables		74.7	%		72.2	%
Uninsured receivables		25.3	%		27.8	%
Total		100.0	%		100.0	%

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The percentages of hospital receivables in summarized aging categories are as follows:

	June 30, 2013			September 30, 2012
0 to 90 days		60.5	%		63.4	%
91 to 180 days		20.6	%		19.2	%
Over 180 days		18.9	%		17.4	%
Total		100.0	%		100.0	%

Adoption of Electronic Health Records (“EHR”)

The American Recovery and Reinvestment Act of 2009 (“ARRA”) included approximately $26.0 billion in funding for various healthcare information technology (“IT”) initiatives, including Medicare and Medicaid incentives for eligible hospitals and professionals to adopt and meaningfully use certified EHR technology (“EHR Incentive Programs”). In addition, eligible providers that fail to demonstrate meaningful use of certified EHR technology will be subject to reduced payments from Medicare, beginning in federal fiscal year 2015 for eligible hospitals and calendar year 2015 for eligible professionals. Implementation of the EHR Incentive Programs has been divided into three stages with increasing requirements for participation. Stage 1 requires providers to meet meaningful use objectives specified by CMS, which include electronically capturing health information in a structured format, tracking key clinical conditions for coordination of care purposes, implementing clinical decision support tools to facilitate disease and medication management, using EHRs to engage patients and families, and reporting clinical quality measures and public health information. Our hospitals, as well as a number of our physician clinics, substantially met the Stage 1 requirements in our fiscal 2012. Stage 2 introduces several new meaningful use measures, as well as imposes stricter requirements on certain existing Stage 1 measures. Providers must achieve meaningful use under the Stage 1 criteria before advancing to Stage 2 and are required to meet the criteria for the applicable stage based on their first year of attesting to meaningful use. Our hospitals and physician clinics whose first payment year was 2011 or 2012 are required to meet Stage 2 criteria beginning in 2014. Though we expect to continue to incur certain non-productive and other operating costs, as well as additional investments in hardware and software, we believe our historical investments in advanced clinical and other information systems, as well as quality of care programs, provides a solid platform to build upon for timely compliance with the healthcare IT initiatives and requirements of ARRA.

Revenue and Volume Trends

Net revenue for the quarter ended June 30, 2013, increased 3.7% to $599.1 million, compared to $577.6 million in the prior year quarter. Net revenue for the nine months ended June 30, 2013, increased 2.7% to $1.79 billion, compared to $1.75 billion in the prior year period. Net revenue is comprised of acute care revenue, which is recorded net of the provision for bad debts, and premium revenue. Acute care revenue increased $24.0 million and $54.8 million for the quarter and nine months ended June 30, 2013, respectively. Premium revenue at Health Choice decreased $2.5 million and $8.2 million for the quarter and nine months ended June 30, 2013, respectively.

The nine months ended June 30, 2012 included the net impact of certain prior period Medicare related adjustments that increased acute care revenue by $9.7 million. These adjustments were the result of a settlement agreement (the “Rural Floor Settlement”) signed between CMS and a large number of healthcare service providers, including our hospitals, and newly issued Supplemental Security Income (“SSI”) ratios utilized for calculating Medicare Disproportionate Share Hospital reimbursement for federal fiscal years 2006 through 2009. The Rural Floor Settlement is intended to resolve all claims that have been brought or could have been brought relating to CMS’ calculation of the rural floor budget neutrality adjustment that was created by the Balanced Budget Act of 1997 for federal fiscal year 1998 through and including federal fiscal year 2011. As a result of the Rural Floor Settlement, we recognized $12.8 million of additional acute care revenue during the nine months ended June 30, 2012, while the same prior year period included an unfavorable adjustment of $3.1 million as a result of the new SSI ratios.

Acute Care Revenue

Acute care revenue is comprised of net patient revenue and other revenue. A large percentage of our hospitals’ net patient revenue consists of fixed payment, discounted sources, including Medicare, Medicaid and managed care organizations. Reimbursement for Medicare and Medicaid services are often fixed regardless of the cost incurred or the level of services provided. Similarly, the majority of managed care companies we contract with reimburse providers on a fixed payment basis regardless of the costs incurred or the level of services provided. Net patient revenue is reported net of discounts and contractual adjustments. These contractual adjustments principally result from differences between the hospitals’ established charges and payment rates under Medicare, Medicaid and various managed care plans. Additionally, discounts and contractual adjustments result from our uninsured discount and charity care programs. Acute care revenue is reported net of the provision for doubtful accounts. Other revenue includes medical office building rental income and other miscellaneous revenue.

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Admissions increased 0.9% and 0.1% for the quarter and nine months ended June 30, 2013, respectively, compared to the same prior year periods. Admissions have benefited from recent capital investments and our physician alignment strategies. These benefits have been partially offset by an increase in observation cases, primarily resulting from the adoption of new InterQual criteria changes that focus on certain diagnoses presenting for emergency services. Observation cases represent the number of patients classified as outpatient, during which time medical necessity is being evaluated prior to the patient being transferred to an inpatient status or being released from care. Adjusted admissions increased 5.0% and 3.4% for the quarter and nine months ended June 30, 2013, respectively, compared to the same prior year periods. Our outpatient volume for the quarter and nine months ended June 30, 2013, has benefited from an 18.8% and 14.3% increase in outpatient surgeries, respectively, resulting from our investment in the expansion of access points of care and the continued expansion of our physician alignment strategies to meet the growing need for outpatient services in the communities we serve. In addition, we experienced a 5.3% and 8.8% increase in emergency room visits for the quarter and nine months ended June 30, 2013, respectively.

We believe our volumes over the long-term will grow as a result of our business strategies, including the strategic deployment of capital, the continued investment in our physician alignment strategies, the development of increased access points of care, including physician clinics, free-standing emergency rooms, urgent care centers, outpatient imaging centers, ambulatory surgery centers, our increased marketing efforts to promote our commitment to quality and patient satisfaction, and the general aging of the population.

The following table provides the sources of our hospitals’ net patient revenue before the provision for bad debts by payor:

	Quarter Ended June 30,						Nine Months Ended June 30,
	2013			2012			2013			2012
Medicare		20.5	%		22.6	%		21.3	%		23.5	%
Managed Medicare		9.8	%		9.7	%		10.0	%		9.1	%
Medicaid and managed Medicaid		12.0	%		13.3	%		12.2	%		13.7	%
Managed care and other		38.4	%		37.1	%		37.9	%		38.1	%
Self-pay		19.3	%		17.3	%		18.6	%		15.6	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The increase in our self-pay revenue as a percentage of total net patient revenue is the result of growth in our uninsured volumes, revenue and related acuity levels which have increased for the quarter and nine months ended June 30, 2013, compared to the same prior year periods. These increases are significantly impacted by the efforts of the state of Arizona to reduce its Medicaid enrollment, which has conversely contributed to a reduction in Medicaid and managed Medicaid revenue as a percentage of total net patient revenue. Additionally, the decline in Medicaid and managed Medicaid revenue as a percentage of total net patient revenue has been impacted by continued reductions in Medicaid reimbursement, particularly in Texas.

Net patient revenue per adjusted admission, which includes the impact of the provision for bad debts, increased 0.2% for both the quarter and nine months ended June 30, 2013. Excluding the prior year net impact of certain prior period Medicare related adjustments, net patient revenue per adjusted admission increased 1.0% for the nine months ended June 30, 2013. Our pricing metrics for the quarter and nine months ended June 30, 2013, continue to be negatively affected by the impact of high unemployment and other industry pressures, which has resulted in increased uncompensated care and reductions in Medicaid funding, as states address their budgeting issues by implementing rate cuts on providers and reductions in Medicaid eligible beneficiaries. As states continue working through their budgetary issues, any additional cuts to Medicaid funding or structural changes to Medicaid programs that reduce eligibility would negatively impact our future results of operations and cash flows.

See “Item 1 — Business — Sources of Acute Care Revenue” and “Item 1 — Business — Government Regulation and Other Factors” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, filed with the SEC on December 21, 2012, for a description of the types of payments we receive for services provided to patients enrolled in the traditional Medicare plan, managed Medicare plans, Medicaid plans, managed Medicaid plans and managed care plans. In those sections, we also discussed the unique reimbursement features of the traditional Medicare plan, including the annual Medicare regulatory updates published by CMS that impact reimbursement rates for services provided under the plan. The future potential impact to reimbursement for certain of these payors under the Health Reform Law is also addressed in such Annual Report on Form 10-K.

Premium Revenue

Health Choice contracts with state Medicaid programs in Arizona and Utah to provide specified health services to qualified Medicaid enrollees through contracted providers. Most of its premium revenue is derived through a contract with AHCCCS, the state

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agency that administers Arizona’s Medicaid program. The contract requires Health Choice to arrange for healthcare services for enrolled Medicaid patients in exchange for fixed monthly premiums, based upon negotiated per capita member rates, and supplemental payments from AHCCCS. Health Choice also contracts with CMS to provide coverage as a Medicare Advantage Prescription Drug (“MAPD”) Special Needs Plan (“SNP”). This contract allows Health Choice to offer Medicare and Part D drug benefit coverage to new and existing dual-eligible members (i.e., those that are eligible for Medicare and Medicaid). In accordance with CMS regulations, SNPs are now expected to meet additional requirements, including requirements relating to model of care, cost-sharing, disclosure of information and reporting of quality measures.

Premium revenue generated by Health Choice represented 23.3% and 23.6% of our consolidated net revenue for the quarter and nine months ended June 30, 2013, respectively, compared to 24.6% and 24.7% in the same prior year periods. This decline has been impacted by the efforts of the state of Arizona to reduce its Medicaid enrollment. If AHCCCS were to take further actions in the near term, including reimbursement rate reductions, enrollment reductions, capitation payment deferrals, covered services reductions or limitations or other steps to reduce program expenditures, it could have a material adverse impact on our operating results and cash flows.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of significant accounting policies is disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. Our critical accounting policies are further described under the caption “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. There have been no changes in the nature of our critical accounting policies or the application of those policies since September 30, 2012.

SELECTED OPERATING DATA

The following table sets forth certain unaudited operating data for each of the periods presented.

	Quarter Ended June 30,						Nine Months Ended June 30,
	2013			2012			2013			2012
Acute Care (1)
Number of acute care hospital facilities at end of period		16			15			16			15
Licensed beds at end of period (2)		3,804			3,704			3,804			3,704
Average length of stay (days) (3)		5.09			4.99			5.10			4.93
Occupancy rates (average beds in service)		49.7	%		50.1	%		50.6	%		50.5	%
Admissions (4)		27,155			26,920			82,643			82,597
Adjusted admissions (5)		48,175			45,871			143,750			139,071
Patient days (6)		138,108			134,251			421,159			407,102
Adjusted patient days (5)		245,015			228,761			732,569			685,447
Net patient revenue per adjusted admission (7)	$	9,031		$	9,018		$	9,031		$	9,012
Health Choice
Medicaid covered lives		171,979			173,645			171,979			173,645
Dual-eligible lives (8)		4,310			4,096			4,310			4,096
Medical loss ratio (9)		84.8	%		83.0	%		83.8	%		82.4	%

(1) Excludes the impact of our Florida operations, which are now reflected in discontinued operations.

(2) Includes St. Luke’s Behavioral Hospital.

(3) Represents the average number of days that a patient stayed in our hospitals.

(4) Represents the total number of patients admitted to our hospitals for stays in excess of 23 hours. Management and investors use this number as a general measure of inpatient volume.

(5) Adjusted admissions and adjusted patient days are general measures of combined inpatient and outpatient volume. We compute adjusted admissions/patient days by multiplying admissions/patient days by gross patient revenue and then dividing that number by gross inpatient revenue.

(6) Represents the number of days our beds were occupied by inpatients over the period.

(7) Includes the impact of the provision for bad debts as a component of revenue.

(8) Represents members eligible for Medicare and Medicaid benefits under Health Choice’s contract with CMS to provide coverage as a MAPD SNP.

(9) Represents medical claims expense as a percentage of premium revenue, including claims paid to our hospitals.

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RESULTS OF OPERATIONS SUMMARY

Consolidated

The following table sets forth, for the periods presented, our results of consolidated operations expressed in dollar terms and as a percentage of net revenue. Such information has been derived from our unaudited condensed consolidated statements of operations.

	Quarter Ended						Quarter Ended						Nine Months Ended						Nine Months Ended
	June 30, 2013						June 30, 2012						June 30, 2013						June 30, 2012
($ in thousands):	Amount			Percentage			Amount			Percentage			Amount			Percentage			Amount			Percentage
Net revenue
Acute care revenue before provision for bad debts	$	555,413					$	504,047					$	1,636,836					$	1,514,986
Less: Provision for bad debts		(96,090	)					(68,744	)					(267,014	)					(199,952	)
Acute care revenue		459,323			76.7	%		435,303			75.4	%		1,369,822			76.4	%		1,315,034			75.3	%
Premium revenue		139,804			23.3	%		142,323			24.6	%		422,059			23.6	%		430,229			24.7	%
Net revenue		599,127			100.0	%		577,626			100.0	%		1,791,881			100.0	%		1,745,263			100.0	%
Costs and expenses
Salaries and benefits		219,896			36.7	%		204,314			35.4	%		670,286			37.4	%		610,179			35.0	%
Supplies		79,462			13.3	%		75,350			13.0	%		240,724			13.4	%		227,070			13.0	%
Medical claims		116,640			19.5	%		116,366			20.1	%		348,556			19.5	%		349,290			20.0	%
Rentals and leases		13,992			2.3	%		11,857			2.1	%		40,635			2.3	%		34,112			2.0	%
Other operating expenses		106,456			17.8	%		105,484			18.3	%		309,987			17.3	%		317,843			18.2	%
Medicare and Medicaid EHR incentives		(4,827	)		(0.8	%)		—			—			(11,209	)		(0.6	%)		(8,036	)		(0.5	%)
Interest expense, net		32,771			5.4	%		33,606			5.8	%		99,987			5.5	%		104,076			6.0	%
Depreciation and amortization		24,492			4.1	%		26,345			4.6	%		72,606			4.1	%		78,884			4.5	%
Management fees		1,250			0.2	%		1,250			0.2	%		3,750			0.2	%		3,750			0.2	%
Total costs and expenses		590,132			98.5	%		574,572			99.5	%		1,775,322			99.1	%		1,717,168			98.4	%
Earnings from continuing operations before gain (loss) on disposal of assets and income taxes		8,995			1.5	%		3,054			0.5	%		16,559			0.9	%		28,095			1.6	%
Gain (loss) on disposal of assets, net		481			0.1	%		(240	)		(0.0	%)		649			0.1	%		414			0.0	%
Earnings from continuing operations before income taxes		9,476			1.6	%		2,814			0.5	%		17,208			1.0	%		28,509			1.6	%
Income tax expense (benefit)		3,850			0.7	%		(8,035	)		(1.4	%)		8,016			0.5	%		3,332			0.2	%
Net earnings from continuing operations		5,626			0.9	%		10,849			1.9	%		9,192			0.5	%		25,177			1.4	%
Earnings (loss) from discontinued operations, net of income taxes		(531	)		(0.1	%)		1,012			0.2	%		849			0.1	%		3,436			0.2	%
Net earnings		5,095			0.8	%		11,861			2.1	%		10,041			0.6	%		28,613			1.6	%
Net earnings attributable to non-controlling interests		(1,941	)		(0.3	%)		(1,082	)		(0.2	%)		(3,189	)		(0.2	%)		(5,324	)		(0.3	%)
Net earnings attributable to IASIS Healthcare LLC	$	3,154			0.5	%	$	10,779			1.9	%	$	6,852			0.4	%	$	23,289			1.3	%

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Acute Care

The following table and discussion sets forth, for the periods presented, the results of our acute care operations expressed in dollar terms and as a percentage of acute care revenue. Such information has been derived from our unaudited condensed consolidated statements of operations.

	Quarter Ended						Quarter Ended						Nine Months Ended						Nine Months Ended
	June 30, 2013						June 30, 2012						June 30, 2013						June 30, 2012
($ in thousands):	Amount			Percentage			Amount			Percentage			Amount			Percentage			Amount			Percentage
Acute care revenue
Acute care revenue before provision for bad debts	$	555,413					$	504,047					$	1,636,836					$	1,514,986
Less: Provision for bad debts		(96,090	)					(68,744	)					(267,014	)					(199,952	)
Acute care revenue		459,323			99.6	%		435,303			99.6	%		1,369,822			99.6	%		1,315,034			99.6	%
Revenue between segments (1)		1,940			0.4	%		1,764			0.4	%		5,334			0.4	%		5,213			0.4	%
Total acute care revenue		461,263			100.0	%		437,067			100.0	%		1,375,156			100.0	%		1,320,247			100.0	%
Costs and expenses
Salaries and benefits		213,806			46.4	%		198,951			45.5	%		652,666			47.5	%		593,732			45.0	%
Supplies		79,422			17.2	%		75,278			17.2	%		240,582			17.5	%		226,885			17.2	%
Rentals and leases		13,597			2.9	%		11,507			2.7	%		39,443			2.9	%		32,981			2.5	%
Other operating expenses		100,463			21.8	%		100,229			22.9	%		292,488			21.3	%		300,741			22.8	%
Medicare and Medicaid EHR incentives		(4,827	)		(1.0	%)		—			—			(11,209	)		(0.8	%)		(8,036	)		(0.6	%)
Interest expense, net		32,771			7.1	%		33,606			7.7	%		99,987			7.2	%		104,076			7.9	%
Depreciation and amortization		23,463			5.0	%		25,469			5.8	%		69,510			5.0	%		76,208			5.7	%
Management fees		1,250			0.3	%		1,250			0.3	%		3,750			0.3	%		3,750			0.3	%
Total costs and expenses		459,945			99.7	%		446,290			102.1	%		1,387,217			100.9	%		1,330,337			100.8	%
Earnings (loss) from continuing operations before gain (loss) on disposal of assets and income taxes		1,318			0.3	%		(9,223	)		(2.1	%)		(12,061	)		(0.9	%)		(10,090	)		(0.8	%)
Gain (loss) on disposal of assets, net		481			0.1	%		(240	)		(0.1	%)		649			0.1	%		414			0.1	%
Earnings (loss) from continuing operations before income taxes	$	1,799			0.4	%	$	(9,463	)		(2.2	%)	$	(11,412	)		(0.8	%)	$	(9,676	)		(0.7	%)

(1) Revenue between segments is eliminated in our consolidated results.

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Quarters Ended June 30, 2013 and 2012

Acute care revenue — Total acute care revenue for the quarter ended June 30, 2013, was $461.3 million, an increase of $24.2 million or 5.5% compared to $437.1 million in the prior year quarter. This increase in total acute care revenue is comprised of an increase in adjusted admissions of 5.0%, and an increase in net patient revenue per adjusted admission of 0.2%. The provision for bad debts for the quarter ended June 30, 2013, was $96.1 million, an increase of $27.3 million or 39.8% compared to $68.7 million in the prior year quarter. The increase in the provision for bad debts continues to be impacted by recent increases in uninsured volume, revenue and acuity levels. For the quarter ended June 30, 2013, our total uncompensated care as a percentage of total acute care revenue, which includes bad debts, charity care and uninsured discounts, increased to 23.5%, compared to 21.9% in the prior year quarter.

Net adjustments to estimated third-party payor settlements, also known as prior year contractuals, resulted in an increase in total acute care revenue of $3.1 million and $2.2 million for the quarters ended June 30, 2013 and 2012, respectively.

Salaries and benefits — Salaries and benefits expense for the quarter ended June 30, 2013, was $213.8 million, compared to $199.0 million in the prior year quarter. Salaries and benefits expense as a percentage of total acute care revenue was 46.4% for the quarter ended June 30, 2013, compared to 45.5% in the prior year quarter. This increase has been primarily impacted by the expansion of our employed physician base in recent quarters, which requires additional investments in labor and practice related costs, including infrastructure and physician support staff.

Other operating expenses — Other operating expenses for the quarter ended June 30, 2013, were $100.5 million, compared to $100.2 million in the prior year quarter. Other operating expenses as a percentage of total acute care revenue for the quarter ended June 30, 2013, decreased to 21.8%, compared to 22.9% in the prior year quarter. This decline is primarily due to a reduction in professional fees associated with our supplemental Medicaid reimbursement programs in Texas.

Medicare and Medicaid EHR incentives — Medicare and Medicaid EHR incentives for the quarter ended June 30, 2013 totaled $4.8 million, compared to none in the prior year quarter. The increase in our Medicare and Medicaid EHR incentives is due to the timing of EHR implementation and meeting meaningful use requirements by our facilities.

Nine Months Ended June 30, 2013 and 2012

Acute care revenue — Total acute care revenue for the nine months ended June 30, 2013, was $1.38 billion, an increase of $54.9 million or 4.2% compared to $1.32 billion in the prior year period. This increase in total acute care revenue is comprised of an increase in adjusted admissions of 3.4% and an increase in net patient revenue per adjusted admissions of 0.2%. Excluding the prior year net impact of certain prior period Medicare related adjustments, total acute care revenue for the nine months ended June 30, 2013, increased $64.6 million or 4.9%. The provision for bad debts for the nine months ended June 30, 2013, was $267.0 million, an increase of $67.1 million or 33.5% compared to $200.0 million in the prior year period. The increase in the provision for bad debts is the result of increased uninsured volume, revenue and acuity levels. For the nine months ended June 30, 2013, self-pay admissions as a percentage of total admissions increased to 7.9%, compared to 7.7% in the prior year period. For the nine months ended June 30, 2013, excluding the prior year net impact of certain prior period Medicare related adjustments, our total uncompensated care as a percentage of total acute care revenue, which includes bad debts, charity care an uninsured discounts, increased to 23.9%, compared to 20.8% in the prior year period.

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Net adjustments to estimated third-party payor settlements, also known as prior year contractuals, resulted in an increase in total acute care revenue of $6.6 million and $14.3 million for the nine months ended June 30, 2013 and 2012, respectively. Net adjustments to estimated third-party payor settlements in the nine months ended June 30, 2012, includes the net impact of certain prior period Medicare related adjustments totaling $9.7 million.

Salaries and benefits — Salaries and benefits expense for the nine months ended June 30, 2013, was $652.7 million, compared to $593.7 million in the prior year period. Excluding the prior year net impact of certain prior period Medicare related adjustments, salaries and benefits expense as a percentage of total acute care revenue for the nine months ended June 30, 2013, increased to 47.5%, compared to 45.3% in the prior year period. The expansion of our employed physician base in recent periods, which requires additional investments in labor and practice related costs, including infrastructure and physician support staff, has contributed 1.4% of this increase. Contract labor costs for the nine months ended June 30, 2013, increased 0.6% when compared to the prior year period. Additionally, we have incurred increased costs associated with our recent acquisitions and investments in other access points of care.

Supplies — Supplies expense for the nine months ended June 30, 2013, was $240.6 million, compared to $226.9 million in the prior year period. Excluding the prior year net impact of certain prior period Medicare related adjustments, supplies expense as a percentage of total acute care revenue for the nine months ended June 30, 2013, increased to 17.5%, compared to 17.3% in the prior year period.

Other operating expenses — Other operating expenses for the nine months ended June 30, 2013, were $292.5 million, compared to $300.7 million in the prior year period. Excluding the prior year net impact of certain prior period Medicare related adjustments, other operating expenses as a percentage of total acute care revenue for the nine months ended June 30, 2013, decreased to 21.3%, compared to 22.9% in the prior year period. This decline is primarily due to a reduction in professional fees associated with our supplemental Medicaid reimbursement programs in Texas.

Medicare and Medicaid EHR incentives — Medicare and Medicaid EHR incentives for the nine months ended June 30, 2013, totaled $11.2 million, compared to $8.0 million in the prior year period. The increase in our Medicare and Medicaid EHR incentives is due to the timing of EHR implementation and meeting meaningful use requirements by our facilities.

Rentals and leases — Rentals and leases expense for the nine months ended June 30, 2013, was $39.4 million, compared to $33.0 million in the prior year period. Excluding the prior year net impact of certain prior period Medicare related adjustments, rentals and leases expense as a percentage of total acute care revenue for the nine months ended June 30, 2013, increased to 2.9%, compared to 2.5% in the prior year period. The increase in rentals and leases expense is primarily associated with additional real estate leases supporting our physician operations, along with our new St. Joseph campus in the Heights.

Health Choice

The following table and discussion sets forth, for the periods presented, the results of our Health Choice operations expressed in dollar terms and as a percentage of premium revenue. Such information has been derived from our unaudited condensed consolidated statements of operations.

	Quarter Ended					Quarter Ended					Nine Months Ended					Nine Months Ended
	June 30, 2013					June 30, 2012					June 30, 2013					June 30, 2012
($ in thousands):	Amount		Percentage			Amount		Percentage			Amount		Percentage			Amount		Percentage
Premium revenue
Premium revenue	$	139,804		100.0	%	$	142,323		100.0	%	$	422,059		100.0	%	$	430,229		100.0	%
Costs and expenses
Salaries and benefits		6,090		4.4	%		5,363		3.8	%		17,620		4.2	%		16,447		3.8	%
Supplies		40		0.0	%		72		0.1	%		142		0.0	%		185		0.0	%
Medical claims (1)		118,580		84.8	%		118,130		83.0	%		353,890		83.8	%		354,503		82.4	%
Other operating expenses		5,993		4.3	%		5,255		3.7	%		17,499		4.1	%		17,102		4.0	%
Rentals and leases		395		0.3	%		350		0.2	%		1,192		0.3	%		1,131		0.3	%
Depreciation and amortization		1,029		0.7	%		876		0.6	%		3,096		0.8	%		2,676		0.6	%
Total costs and expenses		132,127		94.5	%		130,046		91.4	%		393,439		93.2	%		392,044		91.1	%
Earnings before income taxes	$	7,677		5.5	%	$	12,277		8.6	%	$	28,620		6.8	%	$	38,185		8.9	%

(1) Medical claims paid to our hospitals of $1.9 million and $1.8 million for the quarters ended June 30, 2013 and 2012, respectively, and $5.3 million and $5.2 million for the nine months ended June 30, 2013 and 2012, respectively, are eliminated in our consolidated results.

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Quarters Ended June 30, 2013 and 2012

Premium revenue — Premium revenue was $139.8 million for the quarter ended June 30, 2013, a decrease of $2.5 million or 1.8% compared to $142.3 million in the prior year quarter. Member months declined 2.1% in the quarter ended June 30, 2013, compared to the prior year quarter. The decline in member months is primarily impacted by the state of Arizona’s efforts to reduce Medicaid enrollment, particularly related to childless adults.

Medical claims — Prior to eliminations, medical claims expense was $118.6 million for the quarter ended June 30, 2013, compared to $118.1 million in the prior year quarter. Medical claims expense as a percentage of premium revenue was 84.8% for the quarter ended June 30, 2013, compared to 83.0% in the prior year quarter. The increase in medical claims expense as a percentage of premium revenue is primarily due to increased costs and utilization that impacted the quarter ended June 30, 2013.

Nine Months Ended June 30, 2013 and 2012

Premium revenue — Premium revenue was $422.1 million for the nine months ended June 30, 2013, a decrease of $8.2 million or 1.9% compared to $430.2 million in the prior year period. Member months declined 4.2% in the nine months ended June 30, 2013, compared to the prior year period. The decline in member months is primarily impacted by the state of Arizona’s efforts to reduce Medicaid enrollment, particularly related to childless adults.

Medical claims — Prior to eliminations, medical claims expense was $353.9 million for the nine months ended June 30, 2013, compared to $354.5 million in the prior year period. Medical claims expense as a percentage of premium revenue was 83.8% for the nine months ended June 30, 2013, compared to 82.4% in the prior year period. The increase in medical claims expense as a percentage of premium revenue is primarily due to changes in prior period development that have impacted both the current and prior year periods, and increased costs and utilization that impacted the nine months ended June 30, 2013.

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LIQUIDITY AND CAPITAL RESOURCES

Overview of Cash Flow Activities for the Nine Months Ended June 30, 2013 and 2012

Our cash flows are summarized as follows (in thousands):

	Nine Months Ended Ended June 30,
	2013			2012
Cash flows from operating activities	$	10,193		$	18,815
Cash flows from investing activities	$	(79,769	)	$	(82,900	)
Cash flows from financing activities	$	38,550		$	(18,875	)

Operating Activities

Operating cash flows decreased $8.6 million for the nine months ended June 30, 2013, compared to the prior year period. Our operating cash flows for the nine months ended June 30, 2013, have been impacted by delays in Medicaid supplemental reimbursement in Texas, specifically related to amounts earned in fiscal year 2013 under the programs for disproportionate share payments totaling $21.4 million and the state’s new uncompensated care waiver pool totaling $42.8 million. Additionally, our working capital has also been impacted by the continued delays in accounts receivable collections resulting from the expansion of managed Medicaid in certain of the states in which we operate, particularly in Texas.

At June 30, 2013, excluding the impact of assets and liabilities held for sale, we had $301.6 million in net working capital, compared to $241.0 million at September 30, 2012. Net accounts receivable increased $26.8 million to $383.4 million at June 30, 2013, from $356.6 million at September 30, 2012. Our days revenue in accounts receivable at June 30, 2013, were 59, compared to 59 at September 30, 2012 and 57 at June 30, 2012.

Investing Activities

Cash flows used in investing decreased $3.1 million for the nine months ended June 30, 2013, compared to the prior year period. The decrease is comprised primarily of a decrease in capital expenditures of $1.9 million.

Financing Activities

Cash flows provided by financing activities increased $57.4 million to $38.6 million for the nine months ended June 30, 2013, compared to cash used in financing activities of $18.9 million in the prior year period. The increase is due to $55.0 million of borrowings outstanding under our senior secured revolving credit facility at June 30, 2013.

Capital Resources

As of June 30, 2013, we had the following debt arrangements:

• $1.325 billion senior secured credit facilities; and

• $850.0 million in 8.375% senior notes due 2019.

At June 30, 2013, amounts outstanding under the Company’s senior secured credit facilities consisted of a $1.002 billion term loan and $55.0 million under the revolving credit facility. In addition, we had $64.9 million in letters of credit outstanding under the revolving credit facility. The weighted average interest rate of outstanding borrowings under the senior secured credit facilities were 4.5% and 4.8% for the quarter and nine months ended June 30, 2013, respectively.

$1.325 Billion Senior Secured Credit Facilities

We are party to a senior credit agreement, which was amended on February 20, 2013 (the “Repricing Amendment”) as part of a repricing that lowered the interest rate, (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement provides for senior secured financing of up to $1.325 billion consisting of (1) a $1.025 billion senior secured term loan facility with a seven-year maturity and (2) a $300.0 million senior secured revolving credit facility with a five-year maturity, of which up to $150.0 million may be utilized for the issuance of letters of credit (together, the “Senior Secured Credit Facilities”). Principal under the senior secured term loan facility is due in consecutive equal quarterly installments in an aggregate annual amount equal to 1% of the principal amount of $1.007 billion outstanding as of the effective date of the Repricing Amendment, with the remaining balance due upon maturity of the senior secured term loan facility. The senior secured revolving credit facility does not require installment payments.

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Borrowings under the senior secured term loan facility (giving effect to the Repricing Amendment) bear interest at a rate per annum equal to, at our option, either (1) a base rate (the “base rate”) determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) a one-month LIBOR rate, subject to a floor of 1.25%, plus 1.00%, in each case, plus a margin of 2.25% per annum or (2) the LIBOR rate for the interest period relevant to such borrowing, subject to a floor of 1.25%, plus a margin of 3.25% per annum. Borrowings under the senior secured revolving credit facility generally bear interest at a rate per annum equal to, at our option, either (1) the base rate plus a margin of 2.50% per annum, or (2) the LIBOR rate for the interest period relevant to such borrowing plus a margin of 3.50% per annum. In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, we are required to pay a commitment fee on the unutilized commitments under the senior secured revolving credit facility, as well as pay customary letter of credit fees and agency fees.

The Senior Secured Credit Facilities are unconditionally guaranteed by IAS and certain of our subsidiaries (collectively, the “Credit Facility Guarantors”) and are required to be guaranteed by all of our future material wholly owned subsidiaries, subject to certain exceptions. All obligations under the Amended and Restated Credit Agreement are secured, subject to certain exceptions, by substantially all of our assets and the assets of the Credit Facility Guarantors, including (1) a pledge of 100% of our equity interests and that of the Credit Facility Guarantors, (2) mortgage liens on all of our material real property and that of the Credit Facility Guarantors, and (3) all proceeds of the foregoing.

The Amended and Restated Credit Agreement requires us to mandatorily prepay borrowings under the senior secured term loan facility with net cash proceeds of certain asset dispositions, following certain casualty events, following certain borrowings or debt issuances, and from a percentage of annual excess cash flow.

The Amended and Restated Credit Agreement contains certain restrictive covenants, including, among other things: (1) limitations on the incurrence of debt and liens; (2) limitations on investments other than, among other exceptions, certain acquisitions that meet certain conditions; (3) limitations on the sale of assets outside of the ordinary course of business; (4) limitations on dividends and distributions; and (5) limitations on transactions with affiliates, in each case, subject to certain exceptions. The Amended and Restated Credit Agreement also contains certain customary events of default, including, without limitation, a failure to make payments under the Senior Secured Credit Facilities, cross-defaults, certain bankruptcy events and certain change of control events.

8.375% Senior Notes due 2019

We and IASIS Capital Corporation (together, the “Issuers”) issued an $850.0 million aggregate principal amount of 8.375% senior notes due 2019 (the “Senior Notes”), which mature on May 15, 2019, pursuant to an indenture, dated as of May 3, 2011, among the Issuers and certain of the Issuers’ wholly owned domestic subsidiaries that guarantee the Senior Secured Credit Facilities (the “Notes Guarantors”) (the “Indenture”). The Indenture provides that the Senior Notes are general unsecured, senior obligations of the Issuers, and initially will be unconditionally guaranteed on a senior unsecured basis.

The Senior Notes bear interest at a rate of 8.375% per annum, payable semi-annually, in cash in arrears, on May 15 and November 15 of each year.

We may redeem the Senior Notes, in whole or in part, at any time prior to May 15, 2014, at a price equal to 100% of the aggregate principal amount of the Senior Notes plus a “make-whole” premium and accrued and unpaid interest and special interest, if any, to but excluding the redemption date. In addition, we may redeem up to 35% of the Senior Notes before May 15, 2014, with the net cash proceeds from certain equity offerings at a redemption price equal to 108.375% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest and special interest, if any, to but excluding the redemption date, subject to compliance with certain conditions.

The Indenture contains covenants that limit our (and our restricted subsidiaries’) ability to, among other things: (1) incur additional indebtedness or liens or issue disqualified stock or preferred stock; (2) pay dividends or make other distributions on, redeem or repurchase our capital stock; (3) sell certain assets; (4) make certain loans and investments; (5) enter into certain transactions with affiliates; (6) impose restrictions on the ability of a subsidiary to pay dividends or make payments or distributions to us and our restricted subsidiaries; and (7) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately. If we experience certain kinds of changes of control, we must offer to purchase the Senior Notes at 101% of their principal amount, plus accrued and unpaid interest and special interest, if any, to but excluding the repurchase date. Under certain circumstances, we will have the ability to make certain payments to facilitate a change of control transaction and to provide for the assumption of the Senior Notes by a new parent company resulting from such change of control transaction. If such change of control transaction is facilitated, the Issuers will be released from all obligations under the Indenture and the Issuers and the trustee will execute a supplemental indenture effectuating such assumption and release.

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Credit Ratings

The table below summarizes our corporate rating, as well as our credit ratings for the Senior Secured Credit Facilities and Senior Notes as of the date of this filing:

	Moody’s	Standard & Poor’s
Corporate credit	B2	B
Senior secured term loan facility	Ba3	B
Senior secured revolving credit facility	Ba3	BB-
8.375% senior notes due 2019	Caa1	CCC+
Outlook	Stable	Stable

Other

We executed interest rate swaps with Citibank, N.A. (“Citibank”) and Barclays Bank PLC (“Barclays”), as counterparties, with notional amounts totaling $350.0 million, each agreement effective March 28, 2013 and expiring between September 30, 2014 and September 30, 2016. Under these agreements, we are required to make quarterly fixed rate payments to the counterparties at annual rates ranging from 1.6% to 2.2%. The counterparties are obligated to make quarterly floating rate payments to us based on the three-month LIBOR rate, each subject to a floor of 1.25%.

Capital Expenditures

We plan to finance our proposed capital expenditures with cash generated from operations, borrowings under our Senior Secured Credit Facilities and other capital sources that may become available. We expect our capital expenditures for fiscal 2013 to be $105.0 million to $110.0 million, including the following significant expenditures:

• $35.0 million for growth and new business projects;

• $35.0 million to $40.0 million in replacement or maintenance related projects at our hospitals; and

• $35.0 million in hardware and software costs related to information systems projects, including healthcare IT stimulus initiatives.

Liquidity

We rely on cash generated from our operations as our primary source of liquidity, as well as available credit facilities, project and bank financings and the issuance of long-term debt. From time to time, we have also utilized operating lease transactions that are sometimes referred to as off-balance sheet arrangements. We expect that our future funding for working capital needs, capital expenditures, long-term debt repayments and other financing activities will continue to be provided from some or all of these sources. Each of our existing and projected sources of cash is impacted by operational and financial risks that influence the overall amount of cash generated and the capital available to us. For example, cash generated by our business operations may be impacted by, among other things, economic downturns, federal and state budget initiatives, weather-related catastrophes and adverse industry conditions. Our future liquidity will be impacted by our ability to access capital markets, which may be restricted due to our credit ratings, general market conditions, leverage capacity and by existing or future debt agreements. For a further discussion of risks that can impact our liquidity, see our risk factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

Including available cash at June 30, 2013, we have available liquidity as follows (in millions):

Cash and cash equivalents	$	17.9
Available capacity under our senior secured revolving credit facility		180.1
Net available liquidity at June 30, 2013	$	198.0

Net available liquidity assumes 100% participation from all lenders currently participating in our senior secured revolving credit facility. In addition to our available liquidity, we expect to generate significant operating cash flows in fiscal 2013. We will also utilize proceeds from our financing activities as needed.

Based upon our current cash flow generated by operations and anticipated growth, we believe we have sufficient liquidity to meet our cash requirements over the short-term (next 12 months) and over the next three years. In evaluating the sufficiency of our liquidity for both the short-term and long-term, we considered the expected cash flow to be generated by our operations, cash on hand and the available borrowings under our Senior Secured Credit Facilities, compared to our anticipated cash requirements for debt service, working capital, capital expenditures and the payment of taxes, as well as funding requirements for long-term liabilities.

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We are unable at this time to extend our evaluation of the sufficiency of our liquidity beyond three years. We cannot assure you, however, that our operating performance will generate sufficient cash flow from operations or that future borrowings will be available under our Senior Secured Credit Facilities, or otherwise, to enable us to grow our business, service our indebtedness, or make anticipated capital expenditures and tax payments. For further discussion of risks that can impact our liquidity, see our risk factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

One element of our business strategy is to selectively pursue acquisitions and strategic alliances in existing and new markets. Any acquisitions or strategic alliances may result in the incurrence, or assumption by us, of additional indebtedness. We continually assess our capital needs and may seek additional financing, including debt or equity as considered necessary to fund capital expenditures and potential acquisitions or for other corporate purposes. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. For more information, see our risk factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

SEASONALITY

The patient volumes and acute care revenue of our healthcare operations are subject to seasonal variations and generally are greater during the quarter ended March 31 than other quarters. These seasonal variations are caused by a number of factors, including seasonal cycles of illness, climate and weather conditions in our markets, vacation patterns of both patients and physicians and other factors relating to the timing of elective procedures.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. At June 30, 2013, the following components of our Senior Secured Credit Facilities bear interest at variable rates at specified margins above either the agent bank’s alternate base rate or the LIBOR rate: (i) a $1.025 billion, seven-year term loan; and (ii) a $300.0 million, five-year revolving credit facility. As of June 30, 2013, we had outstanding variable rate debt of $1.057 billion.

We have managed our market exposure to changes in interest rates by implementing a comprehensive interest rate hedging strategy that includes converting variable rate debt to fixed rate debt. We have executed interest rate swaps with Citibank and Barclays, as counterparties, with notional amounts totaling $350.0 million, each agreement effective March 28, 2013, and expiring between September 30, 2014 and September 30, 2016, at rates ranging from 1.6% to 2.2%. Our interest rate hedging agreements expose us to credit risk in the event of non-performance by our counterparties, Citibank and Barclays. However, we do not anticipate non-performance by either of our counterparties.

Although changes in the alternate base rate or the LIBOR rate would affect the cost of funds borrowed in the future, we believe the effect, if any, of reasonably possible near-term changes in interest rates on our remaining variable rate debt or our consolidated financial position, results of operations or cash flows would not be material. Holding other variables constant, including levels of indebtedness, a 0.125% increase in current interest rates would have no estimated impact on pre-tax earnings and cash flows for the next twelve month period given that interest rates would not exceed the 1.25% LIBOR floor that exists in our senior secured term loan facility.

We currently believe we have adequate liquidity to fund operations during the near term through the generation of operating cash flows and access to our senior secured revolving credit facility. Our ability to borrow funds under our senior secured revolving credit facility is subject to the financial viability of the participating financial institutions. While we do not anticipate any of our current lenders defaulting on their obligations, we are unable to provide assurance that any particular lender will not default at a future date.

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Item 4. Controls and Procedures

Evaluations of Disclosure Controls and Procedures

Under the supervision and with the participation of our management team, including our principal executive officer and principal accounting officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of June 30, 2013. Based on this evaluation, the principal executive officer and principal accounting officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In November 2010, the U.S. Department of Justice (“DOJ”) sent a letter to IAS requesting a 12-month tolling agreement in connection with an investigation into Medicare claims submitted by our hospitals in connection with the implantation of implantable cardioverter defibrillators (“ICDs”) during the period 2003 to the present. At that time, neither the precise number of procedures, number of claims, nor the hospitals involved were identified by the DOJ. The Company understands that the government is conducting a national initiative with respect to ICD procedures involving a number of healthcare providers and is seeking information in order to determine if ICD implantation procedures were performed in accordance with Medicare coverage requirements. On January 11, 2011, IAS entered into the tolling agreement with the DOJ and, subsequently, the DOJ has provided IAS with a list of 194 procedures involving ICDs at 14 hospitals which are the subject of further medical necessity review by the DOJ. We are cooperating fully with the government and, to date, the DOJ has not asserted any claim against our hospitals. We believes that 125 of these procedure claims were properly documented for medical necessity and billed appropriately. On June 29, 2013, our outside counsel submitted to the DOJ summary justifications and supporting evidence relating to the medical claims at four of our hospitals. We continue to search for and develop the documentary support for the remaining 69 of these cases that could have some likelihood of enforcement by the DOJ. If we are unable to place these claims in the no enforcement or lesser enforcement category, the government may require repayment, which could impose a multiplier. The government has not pressed IAS for its response, however, IAS will likely use its extensive training and compliance policies and awareness of the ICD national coverage determination to demonstrate intent to comply with Medicare’s coverage guidelines and commitment to compliance with federal and state authority. In April 2013, the government proposed to extend the tolling agreement through September 2013, which has been accepted by IAS. IAS will continue to use the tolling period to locate additional medical records for the 69 records potentially falling within a potential enforcement category, in an attempt to provide documentation to the DOJ of the medical necessity of the procedures. At this time, additional analysis is being completed and, based on information available to date, we are unable to quantify an estimate for any potential repayment obligation related to this ICD investigation.

Item 1A. Risk Factors

Reference is made to the factors set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and other risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, which are incorporated herein by reference. There have not been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

PART II. OTHER INFORMATION

Item 6. Exhibits

(a) List of Exhibits:

Exhibits: See the Index to Exhibits at the end of this report, which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	IASIS HEALTHCARE LLC
Date: August 14, 2013	By:	/s/ John M. Doyle
		John M. Doyle Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of Principal Executive Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from our quarterly report on Form 10-Q for the quarter and nine months ended June 30, 2013, filed with the SEC on August 14, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the condensed consolidated balance sheets at June 30, 2013 and September 30, 2012, (ii) the condensed consolidated statements of operations for the quarters and nine months ended June 30, 2013 and 2012, (iii) the condensed consolidated statements of comprehensive income for the quarters and nine months ended June 30, 2013 and 2012, (iv) the condensed consolidated statement of equity for the nine months ended June 30, 2013, (v) the condensed consolidated statements of cash flows for the nine months ended June 30, 2013 and 2012, and (vi) the notes to the condensed consolidated financial statements. (1)

(1) The XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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