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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)).

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Definitive Proxy Statement.

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Definitive Additional Materials.

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Soliciting Material Pursuant to §240.14a-12.

 

LIFEPOINT HEALTH, INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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2018 PROXY
STATEMENT
Notice of Annual
Meeting of Shareholders

LIFEPOINT HEALTH, INC.


to be held on June 5, 2018

GRAPHIC

LOGO


Table of Contents

GRAPHIC


Table of Contents

LOGO

April 25, 2018

GRAPHIC

Dear Fellow Shareholders,

The healthcare industry is in the midst of what is arguably one of the most challenging operating environments that we have experienced. We are navigating a shifting payer mix, uncertainty in Washington, increasing consolidation of existing providers, a movement toward consumerism, in which our patients are exercising more choice in where and how they receive their care, and the entry of non-traditional providers into the healthcare environment. 2017 was a difficult year for healthcare providers. LifePoint was no exception and we did not achieve our financial performance expectations.

During 2017, the hospitals that we acquired in 2014 and 2015 performed according to plan, with incremental year over year EBITDA improvements. The hospitals we acquired in 2016, however, did not improve at the pace we had expected, and this negatively impacted the financial performance of the Company overall. We paused on acquisitions during 2017 in order to focus on the integration of these hospitals and we were pleased that in the fourth quarter we began to see both margin and EBITDA improvement for these hospitals. We expect this trajectory to continue.

As part of our commitment to operational excellence, we continually seek to optimize our portfolio. As a result, we sold our hospital in Conyers, Georgia in 2017 and have signed definitive agreements to transition ownership of certain of our Louisiana hospitals in 2018. We believe that the transition of ownership of these hospitals will position them more effectively to service their local communities as well as benefit the Company and its shareholders in the long term.

In addition, in 2017 we completed over $70 million in share repurchases, providing direct shareholder return. We believe that our continued focus on effective cost control, integration of recently acquired assets, and meaningful targeted investments will also contribute to increased shareholder value.

As we navigate these industry-wide challenges and opportunities, we remain sharply focused on what we believe is our strategic edge, providing high quality care close to home. We believe providing high quality care will lead to long-term shareholder value as we reduce costly readmissions, focus on preventing harmful and resource-intensive errors, coordinate with community resources to care for the whole patient and position the organization to thrive in a pay-for-performance environment.

The evolution of our innovative partnership with Duke University Health System, Duke LifePoint Healthcare, has led to the development of the LifePoint National Quality Program, which is a truly groundbreaking and nationally acclaimed program that recognizes LifePoint hospitals that have achieved measurable and sustainable enhancements in patient safety and culture. In early 2018, the National Quality Forum and The Joint Commission awarded us the John M. Eisenberg Award for Innovation and Patient Safety at the Local Level for our work with the National Quality Program. LifePoint is the first investor-owned health system to receive this award and joins a list of esteemed leaders that includes the Mayo Clinic, Harvard Medical School and Kaiser Permanente. I believe this recognition of our quality efforts is a testament to our thousands of clinicians, administrators and other employees who have played an important role in elevating quality and patient safety at LifePoint through our National Quality Program.

In addition to being disciplined operators and advocates of quality care close to home, we take our role as the voice of rural healthcare very seriously. I am proud of the leadership role LifePoint took working with leaders in Washington, DC, to ensure that the recently passed federal budget included a five-year extension on funding for

LifePoint Health, Inc.   |  2018 Proxy Statement

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Medicare-dependent hospitals and low volume adjustment extenders. This funding for rural and non-urban hospitals across the country will help to provide critical financial support and protect access to healthcare for millions of Americans who live in communities like those in which we operate.

We remain committed to our mission of Making Communities Healthier® and to an unwavering focus on quality, growth, operations excellence and talent as the key drivers for stock appreciation and shareholder value. We appreciate the feedback we received from our shareholders in 2017. In 2018, we will continue our practice of maintaining open and transparent dialog with our investors and we look forward to sharing details as we work to update our operating strategies to capitalize on evolving industry trends and the changing healthcare environment over the next several years.

Thank you for your investment in LifePoint.

  Sincerely yours,

 


GRAPHIC

 


WILLIAM F. CARPENTER III
Chairman and Chief Executive Officer

GRAPHIC

    Pictured above receiving the John M. Eisenberg Award for Innovation in Patient Safety: David M. Dill, President and Chief Operating Officer; Cindy Chamness, VP Quality Operations and Care Management; Rusty Holman, M.D., Chief Medical Officer; Harry Phillips, M.D., Duke LifePoint Chief Medical Officer; Barbara Olson, VP, Clinical Improvement Healthcare Safety

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2018 Proxy Statement   |  LifePoint Health, Inc.

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GRAPHIC

April 25, 2018


Report from Independent Directors to Shareholders

As independent directors, we strive to govern LifePoint in a prudent and transparent manner that helps the Company achieve sustainable operating and financial performance and deliver long-term value for our shareholders. Accountability to shareholders is not only a mark of good governance, but an important component of our success. LifePoint has a history of proactively reaching out to our shareholders to discuss a variety of trends and issues affecting the Company. In 2017, the Company met over 200 times with investors and shareholders. The feedback received from these stakeholders was evaluated by the Board and taken into consideration as we made decisions throughout the year. Below is a summary of the major areas of our focus in 2017. These topics are also discussed in greater detail throughout the proxy statement.

Corporate Governance

Our primary responsibility is to provide effective corporate governance for, and oversight of, the Company and its operations in order to ensure that the long-term interests of the Company's shareholders are being advanced. In doing so, we consider the interests of other stakeholders of the Company, including employees, physicians and other healthcare professionals at the Company's facilities, the patients and family members who receive care at our facilities and the communities in which those facilities are located. Over the last several years, in response to our shareholders, we have eliminated our poison pill and implemented a majority voting standard in uncontested elections for directors and director resignation policy for directors who do not receive the requisite re-election vote.

In 2017, our Corporate Governance and Nominating Committee completed its annual review of the Company's corporate governance documents, including the Company's By-Laws, Certificate of Incorporation, Corporate Governance Standards and the charter of each of the Board's standing committees. In completing this review, the Corporate Governance and Nominating Committee, with advice from outside counsel, considered current governance trends, changes in laws and regulations, and the Company's specific needs. As a result of the annual review in 2017, we increased the stock ownership requirement for our CEO to six times his base salary and for non-management directors to five times our annual retainer. We believe this demonstrates our commitment to aligning our interests with those of our shareholders.

Over the past several years, we have focused on enhancing the disclosure in our annual proxy statements to provide more transparency about our governance processes, executive compensation and other matters. We were pleased that our 2017 proxy statement was nominated by Corporate Secretary magazine as proxy statement of the year (small to mid-cap companies). We are committed to continuous improvement in this area. New or enhanced disclosures in this year's proxy statement include those related to our independence, our Board evaluation process, the evaluation of our independent auditor, our 2017 shareholder engagement and the process and rationale for our 2017 executive compensation decisions.

Strategy and Business Performance

We have been and continue to be vigilant in the oversight of the Company's long-term strategy. At each Board meeting and during our annual strategy planning session, we engage in robust discussions with management about the Company's overall strategy, priorities and long-term growth opportunities. In 2017, we focused on overseeing management's performance in the Company's increasingly challenging operating environment. In addition, we spent considerable time discussing the Company's strategic options.

In addition to increasing our stock ownership guidelines as described above, we continued to make strategic decisions in 2017 designed to keep the interests of our shareholders and other stakeholders at the forefront, as outlined in the following table:

LifePoint Health, Inc.   |  2018 Proxy Statement

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Theme
Company Actions
Divest hospitals The Company routinely seeks to optimize its portfolio, which, at times, includes the divestiture of hospitals. We sold our Conyers, Georgia hospital in 2017. We also began negotiations in 2017 for the sale of our four Louisiana hospitals and in March 2018 announced that we have signed definitive agreements to transition ownership of three of these hospitals.
Buy back shares The Company completed over $70 million in share repurchases in 2017 and as of December 31, 2017 had remaining authorization to purchase approximately $230 million under its share repurchase plans.
Reduce costs We continue to receive significant benefit and cost savings from our participation in a group purchasing organization, as well as from the centralization and standardization of our revenue, payroll and accounts payable functions. In addition, we took a proactive step to further manage costs going forward, and in the fourth quarter of 2017, recognized approximately $5 million in severance costs associated with a reduction in force at our Health Support Center.
Pause on acquisitions In 2017, the Company remained sharply focused on the continued integration of recently acquired facilities. Maintaining its disciplined approach when considering acquisitions, the Company determined there were no strategic and compelling opportunities during the year.

Executive Compensation

The Compensation Committee and the Board spend a significant amount of time on executive compensation and succession planning. Our executive compensation programs are built upon a strong governance foundation and market best practices. They are designed, with the assistance of an independent compensation consultant, to be aligned with our strategy, key performance metrics and long-term shareholder value.

In 2017, in response to feedback from our shareholders, we eliminated excise tax gross-up provisions for employees hired on or after February 28, 2017. In addition, consistent with our pay for performance philosophy, we held base salaries for our executives at 2016 levels, except with respect to two executive officers who received increases in connection with either a promotion or an increase in responsibilities. In addition, we increased the vesting term for options and performance-based RSU awards granted under our long-term incentive program from three to four years.

For 2017, the Company exceeded its goals for quality performance, but was not as successful at achieving all of its challenging revenue and EBITDA performance goals. As a result, the payouts from our incentive plans were below target: the payout for our annual cash incentives was 68% of target; and the payout for our 2015 performance-based RSUs, which was determined based on the Company's relative TSR percentile ranking as of December 31, 2017, was 92% of target. These below-target payouts are consistent with our performance and demonstrate the Compensation Committee's and the Company's commitment to our pay-for-performance philosophy.

Social Responsibility

As a leading healthcare company, we are committed to being a socially responsible organization. One of the ways we accomplish this is by adequately supporting and investing in our hospitals so that they can continue to serve their communities and fulfill our mission of Making Communities Healthier®. In 2017, we invested more than $474 million in our communities. We were proud that LifePoint's commitment to mission was acknowledged through our recognition as one of only 35 healthcare companies on Fortune's 2017 list of the World's Most Admired Companies. We believe it is this commitment that makes us successful now and will make us successful in the future.

Thank you for your continued support of LifePoint Health.

Richard H. Evans, Lead Independent Director
Kermit R. Crawford
Michael P. Haley, Audit Committee Chair
Marguerite W. Kondracke, Corporate Governance and Nominating Committee Chair
John E. Maupin, Jr., Compensation Committee Chair
Jana R. Schreuder
Reed V. Tuckson, Quality Committee Chair

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2018 Proxy Statement   |  LifePoint Health, Inc.

 

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Table of Contents

NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS

7

PROXY SUMMARY


8

KEY TERMS


12

PROXY STATEMENT


14

BOARD OF DIRECTORS


15

Meet our Board of Directors

15

Director Biographies

16

Board Independence

20

Director Qualifications, Tenure and Diversity

21

Board Meetings and Committees

22

Board Governance

24

Board Leadership Structure

26

Director Nomination Process

27

Board Terms

27

DIRECTOR COMPENSATION


27

PROPOSAL 1: ELECTION OF DIRECTORS


30

OUR COMPANY


31

Executive Officers of the Company

31

Corporate Governance

34

Corporate Controls

35

Board Oversight of Risk

35

Section 16(a) Beneficial Ownership Reporting Compliance

37

Social Responsibility

38

PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


39

Fees and Services of the Independent Registered Public Accounting Firm

39

Audit Committee Pre-Approval Policies and Procedures

39

Independent Auditor Evaluation

40

AUDIT AND COMPLIANCE COMMITTEE REPORT


41

COMPENSATION DISCUSSION AND ANALYSIS


42

2017 Pay-for-Performance Results

42

Compensation Philosophy and Objectives

42

Our Compensation Processes

42

Pay Practices — How We Pay What We Pay

43

Compensation Design

44

2017 Compensation Decisions and Rationale

46

Shareholder Outreach on Compensation Matters

47

Market for Talent and Peer Group Selection

48

2017 Compensation

50

Compensation Committee and Consultant Responsibilities

53

Other Compensation Policies and Information

54

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COMPENSATION COMMITTEE REPORT

57

EXECUTIVE COMPENSATION


58

Summary Compensation Table

58

Grants of Plan-Based Awards

59

Outstanding Equity Awards at Fiscal Year-End

60

Option Exercises and Stock Vested

62

Nonqualified Deferred Compensation

62

Potential Payments upon Termination or Change in Control

63

CEO Pay Ratio

65

PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION


66

Most Recent Say-on-Pay Vote Results

66

Performance and Pay Alignment

66

PROPOSAL 4: AMENDMENT OF THE COMPANY'S 2013 LONG-TERM INCENTIVE PLAN


67

Explanation

67

Required Vote

68

General Description of the 2013 Plan

68

New Plan Benefits

71

OUR SHAREHOLDERS


73

Ownership of Equity Securities of the Company

73

Security Ownership of Certain Beneficial Owners

73

Security Ownership of Management and Directors

74

USER'S GUIDE


75

Shareholder Proposals for Inclusion in the 2019 Proxy Statement

75

Other Shareholder Proposals for Presentation at the 2019 Annual Meeting

75

Shareholder Communication with the Board of Directors

75

Voting Securities

75

Quorum Requirements

75

Vote Required for Election, Approval and Ratification

75

Manner for Voting Proxies

77

Solicitation of Proxies

77

Requesting Copies of the 2017 Annual Report on Form 10-K

77

Delivery of Documents to Shareholders Sharing an Address

77

Electronic Access to Proxy Statement and Annual Report to Shareholders

78

APPENDIX A — NON-GAAP FINANCIAL MEASURES


A-1

APPENDIX B — AMENDMENT TO AMENDED AND RESTATED 2013 LONG-TERM INCENTIVE PLAN


B-1

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2018 Proxy Statement   |  LifePoint Health, Inc.

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LOGO

April 25, 2018

NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS
Date and Time: June 5, 2018 at 9:00 a.m. Central Daylight Time

Place:


LifePoint Health Support Center
330 Seven Springs Way
Brentwood, Tennessee 37027

Items of Business:


Item 1:


Elect two nominees as Class I directors of the Company;

 


Item 2:


Ratify the selection of Ernst & Young LLP as the Company's independent registered public accounting firm for 2018;

 


Item 3:


Approve, on a non-binding advisory basis, compensation of the Company's named executive officers;

 


Item 4:


Approve an amendment to the Company's Amended and Restated 2013 Long-Term Incentive Plan to (i) increase the number of authorized shares reserved for issuance; and (ii) clarify the minimum vesting periods for awards; and

 


Item 5:


Transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.

Record Date:


Friday, April 13, 2018. Only the Company's shareholders of record as of the close of business on April 13, 2018 are entitled to vote at the Annual Meeting and at any adjournments or postponements of the Annual Meeting.

Proxy Voting:


Your vote is very important, regardless of the number of shares you own. We urge you to promptly sign and return the enclosed proxy card or to use telephone or internet voting. Please see the section titled "Proxy Statement" on page 14 for information about voting by telephone or internet, how to revoke a proxy and how to vote shares in person.

 

  By Order of the Board of Directors,

 


GRAPHIC

 


JENNIFER C. PETERS
General Counsel and Corporate Secretary

LifePoint Health, Inc.   |  2018 Proxy Statement

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PROXY SUMMARY

 

    

Proxy Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider and you should read this entire Proxy Statement before voting. For more information about the Company's business and details about the Company's 2017 performance highlights and the financial measures mentioned in this Proxy Statement, please see the 2017 Annual Report on Form 10-K, particularly the sections entitled "Business," "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," available on the Company's website. In addition, please see Appendix A to this Proxy Statement for definitions of and reconciliations of non-GAAP financial measures.

2017 Financial Highlights

 
 
 
 

Key Financial Metrics


FY 2017 Results
FY 2016 Results
% Increase/(Decrease)

Normalized Revenues

$6,364.0 million $6,364.0 million —%

Normalized EBITDA

$745.7 million $746.5 million (0.1)%

Normalized Diluted EPS

$3.63 $3.52 3.1%

Consideration of 2017 Say-on-Pay Vote and Shareholder Engagement

At our annual meeting of shareholders in June 2017, our shareholders approved our executive compensation program with approximately 76% of the votes cast in favor of our "say-on-pay" proposal. Following the meeting, at the Compensation Committee's request, the Company sought additional and more detailed feedback from shareholders owning approximately 44% of the Company's outstanding Common Stock.

During the course of 2017, in addition to our quarterly earnings calls and our fall shareholder outreach specifically related to governance and say-on-pay matters, the Company met with shareholders, investors and other stakeholders over 200 times, including the following:

Attended 8 healthcare conferences hosted by analysts where we met with over 100 investors or potential investors
Hosted 7 analysts' bus tours with over 100 investors or potential investors in attendance
Participated in 14 individual meetings with investors
Engaged in 1 investor road show where we met on an individual basis with 6 investors or potential investors and in a group setting with 7 investors or potential investors.

The strategic decisions we made in 2017, some of which are outlined in the table below, were designed to keep the interests of our shareholders and other stakeholders at the forefront.

Theme
Company Actions
Divest hospitals The Company routinely seeks to optimize its portfolio, which, at times, includes the divestiture of hospitals. We sold our Conyers, Georgia hospital in 2017. We also began negotiations in 2017 for the sale of our four Louisiana hospitals and in March 2018 announced that we have signed definitive agreements to transition ownership of three of these hospitals.
Buy back shares The Company completed over $70 million in share repurchases in 2017 and as of December 31, 2017 had remaining authorization to purchase approximately $230 million under its share repurchase plans.
Reduce costs We continue to receive significant benefit and cost savings from our participation in a group purchasing organization, as well as from the centralization and standardization of our revenue, payroll and accounts payable functions. In addition, we took a proactive step to further manage costs going forward, and in the fourth quarter of 2017, recognized approximately $5 million in severance costs associated with a reduction in force at our Health Support Center.
Pause on acquisitions In 2017, the Company remained sharply focused on the continued integration of recently acquired facilities. Maintaining its disciplined approach when considering acquisitions, the Company determined there were no strategic and compelling opportunities during the year.
Enhance governance policies In 2017, we increased the stock ownership guidelines for our CEO and Board to six times base salary and five times annual retainer, respectively, to strengthen the alignment of our interests with those of our shareholders. In addition, in response to shareholder feedback, we eliminated excise tax gross-ups for employees hired on or after February 28, 2017.

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PROXY SUMMARY

Aligning our Compensation Policies with Shareholders' Interests

    Long-term compensation tied to long-term diluted EPS — The number of shares earned by our NEOs pursuant to performance-based RSUs awarded in 2017, which is a significant portion of the NEOs' long-term compensation, is contingent on achieving established diluted EPS performance targets for the 2017 Performance Period.
    Consideration of performance relative to peers — In addition to the diluted EPS performance targets, the number of shares earned by our NEOs pursuant to performance-based RSUs awarded in 2017 is increased or decreased based on the Company's three-year annualized TSR relative to the S&P GICS Sub-Industry: Healthcare Facilities with over $500 million in revenues, which will be measured as of December 31, 2019.
    At-risk annual cash incentive awards directly tied to annual business strategy — Annual cash incentive plan metrics (Adjusted Normalized Revenues, Adjusted Normalized EBITDA, and Quality) are key to the successful execution of our annual business strategy.
    No overlap of performance targets for annual cash incentive versus long-term incentives — Annual cash incentive awards are based on achievement of annual financial and operational targets while performance-based RSUs are based on the achievement of diluted EPS performance goals for the 2017 Performance Period and the Company's three-year annualized TSR relative to the TSR Peer Index described above.
    Focus on stock price appreciation — A significant portion of the NEOs' long-term compensation is delivered as Company Common Stock in the form of stock options and RSUs to ensure direct alignment to, and focus on, stock price appreciation.

Executive Compensation Practices

The Company's executive compensation program is designed to ensure an appropriate linkage between executive pay, Company performance and shareholder results.

Our pay design aligns with our strategy
We do not use one-off compensation awards (apart from promotions or hiring bonuses)
We cap our incentive compensation opportunities
We use multiple metrics for our performance-based compensation
Our employees do not have employment contracts
We have no supplemental defined benefit retirement plans for our NEOs
Our Compensation Committee uses an independent compensation consultant
We benchmark to peer market data
We have double triggers in our change of control cash severance payments
We have a claw-back policy
We do not reprice stock options
We have anti-hedging and pledging policies
We undertake annual compensation risk analyses
We undertake annual share utilization and dilution analyses

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PROXY SUMMARY

 

    

2017 Executive Compensation Program Highlights (page 50)

In 2017, in response to feedback from our shareholders, we eliminated excise tax gross-up provisions for employees hired on or after February 28, 2017. In addition, consistent with our pay for performance philosophy and in consideration of the challenging healthcare operating environment, we held base salaries for our executives at 2016 levels, except with respect to two executive officers who received increases in connection with either a promotion or an increase in responsibilities. In addition, we increased the vesting term for options and performance-based RSU awards granted under our long-term incentive program from three to four years.

2017 total direct compensation included the following elements:

Base Salary — NEO base salaries remained unchanged from 2016 levels, except that Mr. Coggin's base pay was increased to position him competitively with the Company's Peer Group and Mr. Bumpus' base pay was increased in June 2017 in connection with an increase in his responsibilities.
Annual Cash Incentive Award — NEOs earned only 68% of their target annual cash incentive award because, despite surpassing its goals for quality performance, the Company did not meet all of its challenging 2017 performance targets with respect to revenue and EBITDA.
Performance-Based RSUs — The three-year performance period for the 2015 performance-based RSUs ended on December 31, 2017 and, based on the Company's ranking at the 46th percentile of the TSR Peer Index, the RSUs were paid out at 92% of target, as discussed more fully on page 53. Performance-based RSUs granted in 2016 remain unearned because the three-year performance period for these RSUs ends on December 31, 2018. Performance-based RSUs granted in 2017 remain unearned because the three-year performance period for these RSUs ends on December 31, 2019.
Stock Options — One-fourth of options granted to NEOs in 2017 vested in February 2018.

The charts below illustrate the percentage breakdown of 2017 total direct compensation (consisting of base salary, annual cash incentive award, performance-based RSUs and stock options) for each of our NEOs. Consistent with our pay-for-performance philosophy, approximately 91% of the CEO's target total direct compensation (and an average of approximately 85% of the target total average direct compensation of the other NEOs) was performance-based.



CEO Target Pay Mix
Avg. Other NEOs' Target Pay Mix
(excl. Mr. Gilbert as he did not
serve as an NEO for the full year)
   
GRAPHIC GRAPHIC

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PROXY SUMMARY

    

2017 Governance Highlights (page 24)

We regularly review our corporate governance practices to ensure effective collaboration of management and our Board to yield the best possible value for shareholders. Highlights of our governance approach include:

Recent Updates

    >    Stock ownership guidelines increased to 6x (from 3x) base salary for our CEO and 5x (from 3x) annual retainer for independent directors

    >    Eliminated excise tax gross-ups for employees hired on or after February 28, 2017

    >    Nominated for Best Proxy Statement (Small to Mid-Cap Company) by Corporate Secretary Magazine

Board of Directors

    >    Independent Lead Director

    >    Eight directors, seven are independent

    >    Majority voting standard for directors in uncontested elections

    >    Director resignation policy in place for directors who do not receive requisite re-election vote

    >    Audit and Compliance, Compensation, and Corporate Governance and Nominating Committee members are independent

    >    Our Quality Committee consists of independent directors and our CEO

    >    Executive sessions of independent directors at each regularly-scheduled meeting

    >    All current directors attended over 75% of all Board and committee meetings in 2017

    >    All directors (except Mr. Crawford and Ms. Schreuder, who were appointed to the Board in March 2016 and are on track to meet the requirement within the prescribed three years) own Company stock in excess of the requirements of our stock ownership guidelines

    >    Policy limiting membership on other public company boards

    >    Regular succession planning

    >    Regular Board and Committee self-assessments and individual director evaluations

    >    No former employees serve as directors

    >    Mandatory director retirement policy in place

Director Nominees and Continuing Directors (page 30)

The following table provides summary information about each director nominee and continuing director. Directors are divided into Classes, with each Class serving a three-year term. Shareholders are voting on the Class I directors who, if elected, will serve until the annual meeting in 2021.

Name
Age
Director Since
Primary Occupation
Other Public Company Boards
DIRECTOR NOMINEES — CLASS I — TERM EXPIRES 2018
Marguerite W. Kondracke* 72 2007 Former president and chief executive officer, America's Promise Alliance 1
John E. Maupin, Jr.* 71 1999 Former president and chief executive officer, Morehouse School of Medicine 2
CONTINUING DIRECTORS — CLASS II — TERM EXPIRES 2019
Kermit R. Crawford* 58 2016 President and chief operating officer of Rite-Aid Corporation 1
Jana R. Schreuder* 59 2016 Executive vice president and chief operating officer, Northern Trust Corporation 0
Reed V. Tuckson* 67 2014 Managing Director, Tuckson Health Communications, LLC 1
CONTINUING DIRECTORS — CLASS III — TERM EXPIRES 2020
William F. Carpenter III 63 2006 Chairman and Chief Executive Officer, LifePoint Health, Inc. 0
Richard H Evans*1 73 2000 Chairman, Evans Holdings, LLC 0
Michael P. Haley* 67 2005 Former managing director, Fenway Resources and former advisor, Fenway Partners, LLC 1
*
Independent Director
1
Lead Director

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KEY TERMS

KEY TERMS

  Term
Definition
  2013 Plan   LifePoint Health, Inc. Amended and Restated 2013 Long-Term Incentive Plan  
  2017 Annual Report on Form 10-K   The Company's Annual Report on Form 10-K for the year ended December 31, 2017  
  2017 Performance Period   The three fiscal years 2017, 2018 and 2019  
  Achieved Cash Incentive Award   Base Salary × Target Award Percentage × Total Weighted Payout  
  Adjusted Normalized Revenues, Normalized EBITDA, Adjusted Normalized EBITDA, and Normalized Diluted EPS   See Appendix A for definitions and reconciliation of these non-GAAP financial measures  
  Affordable Care Act   The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010  
  Annual Meeting   The 2018 annual meeting of shareholders of the Company to be held at 9:00 a.m. Central Daylight Time on June 5, 2018 at the LifePoint Health Support Center, 330 Seven Springs Way, Brentwood, Tennessee 37027, or any adjournments or postponements thereof  
  ASC   Accounting Standards Codification  
  ASC 718-10   ASC 718-10, "Compensation — Stock Compensation"  
  By-Laws   Seventh Amended and Restated By-Laws of the Company  
  Board or Board of Directors   The Board of Directors of the Company  
  CLABSI   Central line associated blood stream infections  
  CDIFF   Clostridium Difficile infections  
  CEO   Chief Executive Officer of the Company  
  CFO   Chief Financial Officer of the Company  
  Change in Control Plan   LifePoint Health, Inc. Change in Control Severance Plan, as amended and restated  
  Common Stock   Common stock of the Company  
  Company, we, us, our   LifePoint Health, Inc.  
  Deferred Compensation Plan   LifePoint Health Deferred Compensation Plan Amended and Restated Effective January 1, 2016  
  EBITDA   Earnings before interest, taxes, depreciation and amortization  
  EPIP   LifePoint Health, Inc. Executive Performance Incentive Plan, as amended  
  EPS   Earnings per share  
  GAAP   U.S. generally accepted accounting principals  

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KEY TERMS

    

  Term
Definition
  Health Support Center   The corporate office of the Company, located at 330 Seven Springs Way, Brentwood, Tennessee 37027  
  HCAHPS   Hospital Consumer Assessment of Healthcare Providers & Systems  
  Mercer   Mercer LLC, the independent compensation consultant to the Compensation Committee  
  NASDAQ   The NASDAQ Stock Market LLC  
  NEO   Named Executive Officer  
  Notice of Internet Availability   Notice of Internet Availability of Proxy Materials  
  Peer Group   The Company's peer group for 2017 as listed in the section entitled "Compensation Discussion and Analysis — Peer Group" in this Proxy Statement  
  Performance Metric   Annual performance criteria set by the Compensation Committee at the start of each year. For 2017, the Performance Metrics included Adjusted Normalized Revenues, Adjusted Normalized EBITDA, and Quality.  
  Recoupment Policy   Recoupment Policy Relating to Unearned Incentive Compensation of Executive Officers  
  Retirement Plan   The LifePoint Health, Inc. Retirement Plan  
  RSU(s)   Restricted stock unit(s)  
  SEC   U.S. Securities and Exchange Commission  
  Target Award Percentage   The percentage of base salary that can be earned by the NEO if the target goals are met for all of the Performance Metrics  
  Tax Code   Internal Revenue Code of 1986, as amended  
  Total Weighted Payout   The sum of the weighting percentages given to each of the Performance Metrics based on achievement of Company performance goals as discussed in detail in the section entitled "Compensation Discussion and Analysis — Annual Cash Incentive Awards"  
  TSR   Total shareholder return  
  TSR Peer Index   The S&P GICS Sub-Industry: Healthcare Facilities with over $500 million in revenues  

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PROXY STATEMENT

Proxy Statement

As a holder of Common Stock of LifePoint Health, Inc., this Proxy Statement is available to you on the Internet or, upon your request, will be delivered to you by mail or email in connection with the solicitation of proxies by the Board of Directors of the Company to be voted at the 2018 annual meeting of shareholders to be held on Tuesday, June 5, 2018 at 9:00 a.m. Central Daylight Time at the LifePoint Health Support Center, 330 Seven Springs Way, Brentwood, Tennessee 37027, and at any adjournments or postponements thereof. The Notice of Internet Availability of Proxy Materials is scheduled to be distributed on or about April 25, 2018.

The close of business on April 13, 2018 has been fixed as the record date for the determination of shareholders entitled to vote at the Annual Meeting. On April 13, 2018, there were 38,877,278 shares of Common Stock issued and outstanding.

During normal business hours from May 21, 2018 to June 4, 2018, we will make available a list of shareholders of record as of the close of business on April 13, 2018 for inspection by shareholders for any purpose related to the Annual Meeting at the Company's principal place of business, 330 Seven Springs Way, Brentwood, Tennessee 37027. The list will also be available to shareholders for any such purpose at the Annual Meeting.

You can ensure that your shares are voted at the Annual Meeting by submitting your voting instructions by telephone or by Internet, or, if you requested a hard copy of the proxy materials, by completing, signing, dating and returning the proxy card accompanying the materials in the envelope provided to you. Submitting your voting instructions or proxy by any of these methods will not affect your right to attend and vote at the Annual Meeting. We encourage shareholders to submit proxies in advance of the Annual Meeting. A shareholder who gives a proxy may revoke it at any time before it is exercised by voting in person at the Annual Meeting, by delivering a subsequent proxy or by notifying the inspectors of election in writing of such revocation. If your shares of Common Stock are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in with your ballot in order to be able to vote your shares at the Annual Meeting.

Please refer to the "User's Guide" beginning on page 75 of this Proxy Statement for more information about voting procedures for the Annual Meeting.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 5, 2018

The Notice of Internet Availability, the Proxy Statement and the 2017 Annual Report on Form 10-K are available under the "Investors — Proxy Statements and Annual Reports" section of the Company's website at www.LifePointHealth.net.

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OUR BOARD OF DIRECTORS

    

BOARD OF DIRECTORS

Meet our Board of Directors

Our Board of Directors is a diverse yet cohesive group of individuals with a remarkable breadth of knowledge and experience. Our directors are passionate about the Company's mission of Making Communities Healthier® and strive to exemplify our Company's values. We believe that the commitment of our Board, executive leadership team, and our employees across the country to fulfilling our mission and vision differentiates us from others.

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  Pictured from left to right (standing): Marguerite W. Kondracke, Michael P. Haley, Jana R. Schreuder, John E. Maupin, Jr., Reed V.
Tuckson; (seated): William F. Carpenter III, Kermit R. Crawford, Richard H. Evans
 

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OUR BOARD OF DIRECTORS

 

Director Biographies

Set forth below are biographies of each member of our Board of Directors. Shareholders are voting on the election of the Class I directors at the Annual Meeting.

 

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Chief Executive Officer and Director since 2006

Chairman of the Board since 2010

Qualifications, Skills and Areas of Expertise

Experience as the Company's Chief Executive Officer

Broad perspective gained from serving on the board of directors of the Federation of American Hospitals

Decades of legal, development and corporate governance experience

 

William F. Carpenter III (age 63)

Class III — Term expires 2020

William F. Carpenter III is Chairman and Chief Executive Officer of the Company. Mr. Carpenter is a founding member of the Company, having served in various roles as Executive Vice President, Senior Vice President, General Counsel, Secretary and Corporate Governance Officer.

Mr. Carpenter is secretary and past chairman of the board of directors for the Federation of American Hospitals, the national public policy organization for investor-owned hospitals. He serves on the board of directors of the American Hospital Association. Mr. Carpenter is also a member and past chairman of the Nashville Health Care Council Board of Directors, and serves on the boards of directors of the Nashville Area Chamber of Commerce, NashvilleHealth, the Center for Medical Interoperability, United Way of Nashville, and Nashville Public Radio. A recognized leader in the healthcare industry, he has appeared on Modern Healthcare magazine's annual "100 Most Influential People in Healthcare" list numerous times.

Other Public Boards During Past Five Years

None

 
 

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Director since 2000

Independent Lead Director since 2015

Qualifications, Skills and Areas of Expertise

Executive leadership experience in a variety of business sectors

Extensive public and private company director and committee experience

Expertise in managing employee-intensive businesses, consumer-facing organizations and entities with substantial real estate holdings

"Audit Committee Financial Expert" as defined by SEC rules.

 

Richard H. Evans (age 73), Independent

Class III — Term expires 2020

Richard H. Evans has served as a director of our Company since 2000 and has been our lead independent director since June 2015. Prior to becoming Independent Lead Director, Mr. Evans served as the chair of our Compensation Committee.

Mr. Evans has been the chairman of Evans Holdings, LLC, a real estate investment and real estate services company, since April 1999. Mr. Evans currently serves as a member of the board of directors of each of Engage2Excel Inc. and Tokyo Joe's, Inc. and as a member of the business advisory board of Gridiron Capital, LLC, a private equity fund.

Mr. Evans previously served in executive leadership positions with public and private companies, including Huizenga Holdings, Boca Resorts, Gaylord Entertainment, Paramount Communications, The Rockefeller Group, Marriott Corp. and The Walt Disney Company.

Other Public Boards During Past Five Years

None

 

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OUR BOARD OF DIRECTORS

    

 

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Director since 2016

Qualifications, Skills and Areas of Expertise

Over 30 years of operational experience with the second largest drugstore chain in the United States

Experience in strategic planning and execution

Public company director and committee experience

Extensive operational and strategic expertise relating to key industry areas such as implementation of effective retail strategies, collaboration with third-party payers and providers, and advancement of wellness initiatives.

 

Kermit R. Crawford (age 58), Independent

Class II — Term expires 2019

Kermit R. Crawford has served as a director of our Company since 2016. Mr. Crawford currently serves as the President and chief operating officer of Rite-Aid Corporation, a drugstore chain. He is a member of the board of directors of Allstate, the largest publicly-traded personal lines insurer in the United States, where he serves on both the audit committee and the nominating and governance committee. From 1984 to 2014, Mr. Crawford served with Walgreen Company, including most recently as president of its pharmacy, health and wellness division, where he was responsible for all aspects of strategic, operational and profit and loss management of that division. He has served on the Board of Councilors of the University of Southern California School of Pharmacy and is a board member of several non-profit organizations, including Northwestern Medicine Lake Forest Hospital and the Field Museum of Natural History. In addition, Mr. Crawford served as a retail and healthcare advisor and consultant for Sycamore Partners, a private equity firm, from July 2015 to February 2017.

Other Public Boards During Past Five Years

Allstate (since 2013)

 
 

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Director since 2005

Chair of Audit and Compliance Committee since 2016

Qualifications, Skills and Areas of Expertise

Substantial executive experience and community leadership in markets like those in which the Company operates

Extensive public company director and committee experience, including service as chairman of the board of a publicly-traded company

Extensive financial expertise

"Audit Committee Financial Expert" as defined by SEC rules.

 

Michael P. Haley (age 67), Independent

Class III — Term expires 2020

Michael P. Haley has served as a director of our Company since 2005 and as the chair of our Audit and Compliance Committee since 2016. Mr. Haley is also a member of the board of directors of American National Bankshares, Inc., a bank holding company. From 2005 until April 2018, Mr. Haley served as a director of Ply Gem Holdings, Inc., a producer of window, door and siding products for the residential construction industry. Mr. Haley served as an advisor to Fenway Partners, LLC, a private equity investment firm, from April 2006 to June 2015, and was a managing director of its affiliate, Fenway Resources, from 2008 to June 2015.

Mr. Haley's previous executive leadership experience includes service as executive chairman of Coach America, a transportation services operator, and as chairman, president and chief executive officer of MW Manufacturers, Inc., a subsidiary of Ply Gem Industries, Inc. In addition, Mr. Haley previously served on the board of the Martinsville-Henry County United Way and as chairman of the board of trustees of Memorial Hospital of Martinsville and of the Martinsville-Henry County Economic Development Corporation.

Other Public Boards During Past Five Years

Stanley Furniture Company (from 2003 to December 2017)

American National Bankshares,  Inc. (since 2002)

Ply Gem Holdings, Inc. (from 2005 to April 2018)

 

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OUR BOARD OF DIRECTORS

 

 

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Director since 2007

Chair of Corporate Governance and

Nominating Committee since 2015

Qualifications, Skills and Areas of Expertise

Executive experience in healthcare and other caregiving organizations

Substantial experience with the legislative and executive branches of government, including as special assistant to U.S. Senator Lamar Alexander and as Commissioner of Human Services for the State of Tennessee

 

Marguerite W. Kondracke (age 72), Independent

Class I — Term expires 2018

Marguerite W. Kondracke has served as a director of our Company since 2007 and as the chair of our Corporate Governance and Nominating Committee since 2015. Ms. Kondracke is the co-founder, former chief executive officer and current board member of Bright Horizons Family Solutions, Inc., which provides childcare and other workplace services for employers and families.

Ms. Kondracke previously served as CEO of America's Promise Alliance, a not-for-profit children's advocacy organization, and The Brown Schools, a leading provider of behavioral services for adolescents. In addition, Ms. Kondracke has had an extensive public service career, including service as special assistant to U.S. Senator Lamar Alexander, as staff director of the Senate Subcommittee on Children and Families, Commissioner of Human Services for the State of Tennessee, and various leadership positions with the Tennessee Department of Public Health.

Other Public Boards During Past Five Years

Bright Horizons Family Solutions, Inc. (since 2011)

Rosetta Stone, Inc. (2011-2016)

Saks,  Inc. (1996-2013)

 
 

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Director since 1999

Chair of Compensation Committee since 2015

Qualifications, Skills and Areas of Expertise

Diverse executive experience in academic medicine, public health and ambulatory healthcare

Substantial experience with the legislative and executive branches of government, and agencies within the U.S. Department of Health and Human Services

Significant corporate governance experience, including having served as the chair of the Company's Corporate Governance and Nominating Committee from 2008 to 2015.

 

John E. Maupin, Jr. (age 71), Independent

Class I — Term expires 2018

John E. Maupin, Jr. has served as a director of our Company since 1999. He has served as chair of our Compensation Committee since 2015 and is also a member of the NACD Compensation Committee Chair Advisory Council. Dr. Maupin served as president and chief executive officer of Morehouse School of Medicine from July 2006 until his retirement in June 2014. He currently serves as a director of Encompass Health Corporation, a post-acute healthcare management company; Regions Financial Corporation, a bank holding company, and as a director/trustee for the VALIC family of funds, a group retirement fund complex. He also serves on the board of America's Promise Alliance.

Dr. Maupin previously served as president and chief executive officer of Meharry Medical College and as Deputy Commissioner for Medical Services with the Baltimore City Health Department. In addition, Dr. Maupin has served on numerous health-related advisory councils and scientific panels, including the National Healthcare Workforce Commission, a national advisory resource to the U.S. Congress and President.

Other Public Boards During Past Five Years

Encompass Health Corporation (formerly HealthSouth Corporation) (since 2004)

Regions Financial Corporation (since 2007)

 

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OUR BOARD OF DIRECTORS

    

 

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Director since 2016

Qualifications, Skills and Areas of Expertise

Experience as the chief operating officer of a publicly-traded company within a heavily regulated industry

Technology and risk management experience

Experience engaging and collaborating with public company investors

Extensive financial expertise

"Audit Committee Financial Expert" as defined by SEC rules.

 

Jana R. Schreuder (age 59), Independent

Class II — Term expires 2019

Jana R. Schreuder has served as a director of our Company since 2016. Ms. Schreuder currently serves as executive vice president and chief operating officer of Northern Trust Corporation, a financial holding company, a role she has held since September 2014. Prior to her appointment as chief operating officer, where she is primarily responsible for business operations and enabling Northern Trust's businesses to grow faster, more efficiently and more profitably, Ms. Schreuder has served in various capacities with Northern Trust Corporation for over 30 years, including as president, wealth management; president, operations and technology; and head of corporate risk management. Ms. Schreuder also serves as a board member and chair of the Compensation Committee for Entrust Datacard, a privately held identification and data security technology company, as well as several Chicago-area education and arts organizations.

Other Public Boards During Past Five Years

None

 
 

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Director since 2014

Chair of Quality Committee since 2015

Qualifications, Skills and Areas of Expertise

Extensive experience as a healthcare executive

Substantial experience in creating new systems to improve quality and efficiency in the delivery of healthcare services

 

Reed V. Tuckson (age 67), Independent

Class II — Term expires 2019

Reed V. Tuckson has served as a director of our Company since 2014 and currently serves as the chair of our Quality Committee. Dr. Tuckson is the managing director of Tuckson Health Connections, LLC, a private health and medical care consulting business that brings people and ideas together to promote optimal health outcomes. From December 2006 to March 2014, Dr. Tuckson served as the executive vice president and chief of medical affairs of UnitedHealth Group.

Dr. Tuckson serves on the board of directors of CTI BioPharma Corp., a biopharmaceutical company. In addition, Dr. Tuckson currently serves on the board of directors of Howard University, the Alliance for Health Policy and on several committees for the National Institutes for Health and the National Academy of Medicine.

Other Public Boards During Past Five Years

CTI BioPharma Corp. (since 2011)

Neptune Technologies & Bioresources, Inc. (2013 - 2015)

Acasti Pharma Inc. (2013 - 2015)

 

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OUR BOARD OF DIRECTORS

 

Board Independence

Independence Requirements

Under the listing standards of NASDAQ and the Company's Corporate Governance Standards, the Board of Directors must consist of a majority of independent directors. Under NASDAQ listing standards and the Company's Corporate Governance Standards, to be considered independent:

• The director must not have a disqualifying relationship, as defined in NASDAQ listing standards; and

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• The Board of Directors must affirmatively determine that the director has no material relationship with the Company, directly or as an officer, shareholder or partner of an organization which has a material relationship with the Company, and meets the independence standards established by NASDAQ, and all other applicable laws, rules and regulations regarding director independence in effect from time to time.

Under NASDAQ rules, Audit and Compliance Committee members also must satisfy the separate SEC independence requirement that provides that no member may accept directly or indirectly any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries other than compensation for services as a director.

Additionally, in determining the independence of Compensation Committee members, the Board of Directors must consider all factors specifically relevant to determining whether a director has a relationship to the Company that is material to that director's ability to be independent from management in connection with the duties of a Compensation Committee member, including, but not limited to, the source of such directors' compensation, including any consulting, advisory or other compensatory fee paid by the Company, and whether the director is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company.

Process for Independence Assessment

In making independence determinations, the Board of Directors observes NASDAQ and SEC criteria and considers all relevant facts and circumstances. To assess independence, the Board of Directors, through its Corporate Governance and Nominating Committee, regularly reviews detailed information regarding our independent directors, including employment and public company and not-for-profit directorships as well as information regarding immediate family members and affiliated entities.

Independence Determination

As a result of its review, the Board of Directors has determined that none of the directors, other than Mr. Carpenter, the Company's Chairman and CEO, has a material relationship with the Company which would interfere with the exercise of independent judgment in carrying out the responsibilities of director, and, as a result, all of the directors other than Mr. Carpenter are independent.

In addition, the Board of Directors has determined that all of the members of the Audit and Compliance Committee, the Compensation Committee and the Corporate Governance and Nominating Committee are independent as required by NASDAQ listing standards.

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OUR BOARD OF DIRECTORS

Director Qualifications, Tenure and Diversity

The general experience, qualifications, attributes and skills established by the Corporate Governance and Nominating Committee for directors are included in the Company's Corporate Governance Standards, which may be found under the "Investors — Corporate Governance" section of our website at www.LifePointHealth.net. The Company believes that directors should possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of the shareholders. They must also have an inquisitive and objective perspective, practical wisdom and sound judgment.

Board Tenure

In addition to finding directors with the right individual skills and qualifications, the Company is sensitive to maintaining an appropriate balance between the familiarity with the Company and other Board members that comes from long-serving directors and the fresh perspectives and insights brought by new Board members. Two highly qualified directors have joined the Board in the last three years. One-third of our Board members have served 10 years or less, resulting in an average tenure of approximately ten years.

Board Diversity

While the Company does not have a formal policy on Board diversity, the Board believes that its membership should reflect a diversity of backgrounds, perspectives, experience, gender, race, ethnicity and age. In its succession planning efforts, the Company focuses on identifying candidates with an ability to assimilate with the current Board and provide constructive and valuable contributions to the Board and the Company with an independent and broad view. The current composition of our Board reflects the importance of diversity to the Board.

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Below are some of our current Directors' additional skills, qualifications and areas of expertise:

Ethics, integrity and commitment

Business operations

Financial literacy

Risk management

Technology

Corporate governance

CEO or senior executive officer

Cybersecurity

Government/Public Policy

Human capital management

Involvement in educational, charitable & community organizations

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OUR BOARD OF DIRECTORS

 

Board Meetings and Committees

The table below describes the current members of each of the committees and the number of meetings held during 2017.

The Board of Directors and Committees

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*
Independent Director

Meetings of the Board of Directors and Committees

The Board of Directors sets its own meeting agendas through the Lead Director and committee chairs. Directors are expected to attend all meetings of the Board of Directors, the annual meeting of shareholders and all meetings of the committees on which they serve, with the understanding that on occasion a director may be unable to attend a meeting. The Board of Directors held 10 meetings (including regularly scheduled and special meetings) during 2017. All directors attended the 2017 annual meeting of shareholders. Additionally, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of the committees on which the director served.

At each of its regularly scheduled meetings, the Board of Directors meets in executive sessions in which Mr. Carpenter and other members of management do not participate. The Lead Director presides over these sessions. These executive sessions allow the Lead Director and the other independent directors to discuss issues of importance to the Company, including the business and affairs of the Company, as well as matters concerning management, without any member of management present.

In addition to the executive sessions in which only independent Board members participate, the Board, including Mr. Carpenter, meets in an extended executive session, without any other members of management present, at each of the regularly scheduled meetings. The purpose of these executive sessions is to allow for in-depth discussions of strategy, priorities and other matters of importance to the Board.

Committees of the Board of Directors

We have a Board of Directors with only eight members — consistent with governance best practices. We believe this provides both the diversity and the nimbleness we need.

We also expect each of our independent directors to serve on each of our key committees, something our board size enables. We believe this practice contributes to our Board of Directors' level of expertise, enables more effective collaboration, and avoids the creation of silos.

The Board of Directors has adopted written charters for each of its four standing committees: the Audit and Compliance Committee; the Compensation Committee; the Corporate Governance and Nominating Committee; and the Quality Committee. The committee charters are available on the Company's website under the "Investors — Corporate Governance" section at www.LifePointHealth.net. The Audit and Compliance, Compensation, and Corporate Governance and Nominating committees of the Board of Directors are composed exclusively of independent directors. The Quality Committee is composed of independent directors and our CEO.

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OUR BOARD OF DIRECTORS

    

Audit and Compliance Committee

Audit and compliance committees are often considered to be simply overseers of basic functions and that should never be the case. It definitely is not the case at LifePoint, a company that is in the business of delivering quality healthcare. Having an excellent strategy and business plan is insufficient if controls are not designed and managed to maximize our ability to achieve our goals and avoid inefficient, unnecessary, unethical and illegal behaviors. For more details on these controls, please see the "Corporate Controls" section on page 35.

The Audit and Compliance Committee is primarily responsible for:

selecting and overseeing the services performed by the Company's independent registered public accounting firm;

evaluating the Company's accounting policies and its system of internal controls;

monitoring compliance with the Code of Conduct and the Code of Ethics; and

monitoring and overseeing the internal audit and compliance departments of the Company and their respective work plans and programs.

The Board of Directors has determined that Michael P. Haley, current Chair of the Audit and Compliance Committee, and Mr. Evans and Ms. Schreuder are each qualified as an "audit committee financial expert," as defined by SEC rules, and that each member of the Audit and Compliance Committee is independent in accordance with the applicable rules of NASDAQ. The report of the Audit and Compliance Committee is on page 41.

Compensation Committee

The Compensation Committee is primarily responsible for:

reviewing the compensation policies and practices of the Company;

approving compensation arrangements for the CEO and other senior management of the Company;

administering the Company's compensation plans; and

annually reviewing the Company's Compensation Discussion and Analysis prepared according to SEC requirements and discussing the same with the Company's management.

The Compensation Committee has authority to delegate any of its responsibilities to subcommittees as the Compensation Committee may deem appropriate. The report of the Compensation Committee is on page 57.

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee is primarily responsible for:

identifying persons qualified to become members of the Board of Directors and, when appropriate, recommending such persons to the Board of Directors as proposed nominees for Board membership;

ensuring that a succession plan is in place for the position of CEO and other senior management positions;

leading the Board of Directors in its annual review of the performance of the Board of Directors, its committees and individual directors; and

regularly reviewing and considering evolving governance practices.

Quality Committee

We have a quality committee because quality is at the core of our business strategy. We incorporate challenging quality goals into our compensation plans, business plans and strategy. Our Board of Directors established the Quality Committee to monitor and provide leadership with respect to the quality of care provided at our healthcare facilities. The Quality Committee has the authority and responsibility to:

monitor and evaluate the Company's quality of care and patient safety programs and initiatives;

review and discuss with senior management the adequacy and effectiveness of the Company's quality of care and patient safety programs and initiatives and consider recommendations for improvement thereof;

receive reports from senior management as frequently as appropriate summarizing significant (a) deviations from the Company's quality of care and patient safety standards; (b) corrective and preventative actions and (c) other matters deemed relevant by the Quality Committee;

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OUR BOARD OF DIRECTORS

 

    

receive reports from senior management as frequently as appropriate summarizing significant quality assurance related activities undertaken by the Company and the results of internal quality compliance audits conducted; and

receive summaries of reports prepared by third party consultants or auditors retained to evaluate the Company's quality of care and patient safety programs and initiatives.

Board Governance

Majority Voting for Uncontested Director Elections; Director Resignation Policy

Our By-Laws provide for a majority voting standard so that a nominee for director will be elected to the Board of Directors in an uncontested election if the number of shares voted "for" that director's election exceeds the number of votes cast "against" that director. Directors will continue to be elected by the vote of a plurality of the votes cast if the election is a contested election as defined in the By-Laws. The Board of Directors will only nominate for election or re-election director candidates who agree to tender, promptly following the annual meeting at which they are elected or re-elected as a director, an irrevocable resignation that will be effective upon (i) the failure to receive the required vote at the next meeting at which they face re-election; and (ii) Board acceptance of such resignation. In addition, the Board of Directors will fill director vacancies and new directorships only with candidates who have agreed to tender, promptly following their appointment to the Board, the same form of resignation. If a nominee fails to receive the required number of votes for election, the Board of Directors will determine whether to accept or reject such resignation, or what other action should be taken, within 90 days from the date of the certification of election results, following receipt of a recommendation from the Corporate Governance and Nominating Committee.

Board Evaluations

Our Corporate Governance and Nominating Committee periodically reviews the format of the Board and Committee evaluation process to ensure that actionable feedback is solicited on the operation of the Board and individual director performance. Our Board evaluation process is set forth below:

Comprehensive Multi-Step Board Evaluation Process
Process Initiated

Our Corporate Governance and Nominating Committee initiates the process in the fourth quarter of each year for the upcoming year by reviewing and refining the evaluation process itself.

Written Questionnaires
The questionnaires, which are completed during the first quarter of each year by every director, solicit opinions regarding the performance of our Board, its committees, the Chairman and CEO and the Lead Director (in the performance of their respective roles) and each individual director. Topics include:

Board composition and leadership

Succession planning

Conduct of meetings, including time allocated for candid discussions with management and executive sessions of the Board and Committees

Quality and quantity of materials and information received from management

Strategic planning process

Risk management

Executive compensation programs and policies

Corporate governance practices

Board education

Company culture


Feedback Analysis and Personal Interviews

The results of the written questionnaires are analyzed to identify themes and trends in the results. Following this analysis, personal interviews are conducted with each Director by the Company's General Counsel to encourage the directors to provide additional, specific feedback.

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OUR BOARD OF DIRECTORS

    

Comprehensive Multi-Step Board Evaluation Process

Results Provided and Discussed

A summary of both the written questionnaires and the personal interviews is provided to the Board and these results are discussed in the first quarter Corporate Governance and Nominating Committee meeting. In addition, the results are discussed in executive sessions of the Board and the Corporate Governance and Nominating Committee in conjunction with their first quarter meetings.

Feedback Incorporated

Policies and practices are updated as appropriate as a result of director feedback. For 2018, the Board has asked for more information in the following areas:

Government and public policy issues

Cybersecurity issues

Governance trends

The Company's evolving competitive landscape

Director Education

Our director education starts with our director selection process: we believe our selection of directors, like our hiring of employees, is our most important decision, and by recruiting diversely experienced and skilled directors to our Board, we enable ongoing education via our Board's own interactions at every meeting. In addition, every new director participates in an orientation program and receives materials and presentations by senior management to acquaint him or her with the Company's strategic plans, business, industry, significant financial accounting and risk management issues, compliance programs, internal and independent auditors, management and corporate governance policies and practices. Continuing education is provided for all directors through board materials and presentations, discussions with management and other sources. Additionally, our directors take advantage of the resources and benefits afforded to them through membership in the National Association of Corporate Directors. For 2018, the Company has implemented a quarterly governance update newsletter to the Board that contains timely information and education opportunities (available via in-person education, webinars and podcasts) on a variety of topics, such as risk management, culture, governance, peer information, and other topics of importance to the Board. The newsletter is intended to supplement and expand upon the information and presentations provided at the Board meetings.

Mandatory Retirement Policy

The Company's By-Laws provide that no person will be nominated for a term as director who is age 75 or more before the first day of the proposed term, unless waived for a valid reason by the Corporate Governance and Nominating Committee.

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OUR BOARD OF DIRECTORS

 

    

Board Leadership Structure

The fundamental duties of the Board of Directors are to (i) oversee the CEO in the operation of the Company; (ii) advise and provide oversight for the CEO and senior management with respect to the conduct of the Company's business and its strategic direction; and (iii) protect the long-term interests of the shareholders.

To satisfy these duties, the non-employee directors engage in active and frequent communication with the CEO and other members of senior management, set the correct "tone at the top" and ensure that it permeates the Company's relationships, and define what information the Board of Directors should receive and how.

Also, the Corporate Governance and Nominating Committee periodically reviews the structure of the Board of Directors in order to determine whether the leadership structure is effective in accomplishing the duties of the Board.

Independent Lead Director

Our Board leadership structure is enhanced by the independent leadership provided by our Lead Director and independent committee chairs.

As required by the Company's By-Laws and Corporate Governance Standards when the Chairman and CEO roles are combined, the independent members of the Board of Directors must select a Lead Director. Mr. Evans has served on the Company's Board of Directors since 2000 and as our Lead Director since June 2015. During this time, he has developed good working relationships with our CEO and other members of senior management. Mr. Evans' performance in his role as Lead Director is evaluated annually by the Board. As the Lead Director, Mr. Evans:

ensures that independent directors have adequate opportunities to meet and discuss issues in executive sessions of the Board without management present;

presides at all meetings where the Chairman and CEO is not present (including all executive sessions);

advises and counsels the Chairman and CEO;

leads discussion regarding performance appraisal of the Chairman and CEO;

coordinates with the Chairman and CEO on the agenda and format for meetings of the Board of Directors; and

serves as a primary liaison between the independent directors and the Chairman and CEO.

Combined Chairman and Chief Executive Officer

Mr. Carpenter has served as the Company's combined Chairman and CEO since 2010. Although the Company and the Board are aware of the ongoing public dialogue relating to whether the roles of a company's chairman and chief executive officer should be separated, the Board currently believes that having these positions combined is the most effective and appropriate form of leadership for the Company. The Board considered the following when making its decision to combine these roles:

A combined Chairman-CEO structure provides the Company with clarity of leadership and consistent implementation of the Company's strategic initiatives through a single leader who communicates the Company's strategy to our shareholders, employees and other stakeholders.

Our CEO has extensive knowledge of all aspects of our business, operations and risks, which he brings to Board discussions as Chairman. He is familiar with the day-to-day operations of the business, putting him in a position to serve as a knowledgeable resource for our independent directors both at and between Board meetings.

Our CEO's interests are aligned with our shareholders' interests, since he owns Common Stock in the Company well in excess of the Company's recently increased Stock Ownership Guidelines, cultivating an alignment of his interests with the interests of the shareholders.

Our CEO is uniquely qualified for the combined role with significant experience and understanding in corporate governance.

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OUR BOARD OF DIRECTORS

    

Director Nomination Process

The Corporate Governance and Nominating Committee is responsible for identifying and evaluating nominees for any director position and for recommending to the Board of Directors a slate of nominees for election at each annual meeting of shareholders. Nominees may be suggested by directors, members of management, shareholders or, in some cases, by a third-party firm.

The Corporate Governance and Nominating Committee gives careful consideration to finding, selecting and/or evaluating potential new nominees to the Board of Directors and whether to nominate an existing director for an additional term. The Corporate Governance and Nominating Committee will evaluate all potential nominees in the same manner. The Committee's nomination process includes:

The extensive evaluation process discussed on page 24.

Report to the Corporate Governance and Nominating Committee regarding any matters of concern found through a review of detailed background checks conducted by a third party.

Succession planning and search process that begins approximately one year in advance with respect to directors who will reach the mandatory retirement age set forth in the Company's By-Laws, including the formation of a subcommittee to analyze the skills and qualifications needed to replace a retiring director and the engagement of a third-party consultant to assist in finding candidates with the desired skills and qualifications.

Consideration of a number of subjective, objective, qualitative and quantitative factors, including the mix of tenure of existing directors, diversity, experience, expertise and skills.

Shareholders who wish to nominate a candidate for the Board of Directors (other than persons nominated by or at the direction of the Board of Directors) should provide the information required by the Company's By-Laws and follow the instructions under "User's Guide — Other Shareholder Proposals for Presentation at the 2019 Annual Meeting" in this Proxy Statement. During 2017, there were no material changes to the procedures by which a shareholder may recommend nominees to the Board of Directors.

Board Terms

The Company's Certificate of Incorporation provides that the Board of Directors is divided into three classes of as nearly equal size as possible. Although we are aware that in the view of certain shareholders and governance experts, all directors should be elected annually, we believe our business model warrants board terms with a longer-term focus. It takes us an average of approximately three years to fully integrate acquisitions and we design our business plan, our compensation, and our board structure to mirror this need for a multi-year time frame. Approximately one-third of the directors are elected each year. Our By-Laws provide that, in an uncontested election, a director nominee will be elected to the Board only if he or she receives the affirmative vote of a majority of the votes cast with respect to his or her election. The Board will only nominate for election or re-election as a director candidates who agree to tender, promptly following the annual meeting at which they are elected or re-elected as a director, an irrevocable resignation that will be effective upon (i) the failure to receive the required vote at the next meeting at which they face re-election and (ii) Board acceptance of such resignation.

DIRECTOR COMPENSATION

The Compensation Committee of the Board of Directors is responsible for reviewing and making recommendations to the Board of Directors regarding all matters pertaining to compensation paid to directors for Board, committee and committee chair services. Mr. Carpenter, the Company's Chairman and CEO, does not receive compensation for serving as a member of the Board of Directors.

In making non-employee director compensation recommendations, the Compensation Committee takes various factors into consideration, including, but not limited to, the responsibilities of non-employee directors generally and as committee chairs, and the forms of compensation paid to non-employee directors by comparable companies. Under the Compensation Committee's charter, the Committee is authorized to engage consultants or advisors in connection with its review and analysis of director compensation. In 2017, as in prior years, the Compensation

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OUR BOARD OF DIRECTORS

 

Committee utilized the services of Mercer, its independent compensation consultant, to provide information on peer comparisons for director compensation. The compensation consultant also reported on current trends in director compensation.

Following the annual meeting of shareholders each year, the Board of Directors, upon recommendation of the Compensation Committee, determines the compensation payable to non-employee members of the Board of Directors through the date immediately preceding the next annual meeting of shareholders.

2017 Director Compensation

The Board of Directors believes that our compensation program for non-employee directors:

ties a large portion of the non-employee directors' compensation to shareholder interests through equity awards made under our 2013 Plan, the value of which fluctuates up or down depending on the stock price;

focuses on the long term, since the receipt of the shares of Common Stock pursuant to the equity award is deferred until the earlier of three years from the date of grant or the date the director ceases to be a member of the Board of Directors;

is simple to understand and communicate;

is equitable based on the work required of non-employee directors serving an entity of the Company's size and scope in a highly regulated industry undergoing substantial change; and

takes into account the greater time commitment of our non-employee directors as a result of their service on all committees of the Board of Directors.

In 2017, the annual compensation for our non-employee directors remained unchanged from 2016 levels. Annual compensation includes an annual cash retainer of $140,000 and an additional annual cash retainer of $75,000 payable to the Lead Director of the Board of Directors. Also, the non-employee directors receive an additional cash retainer of (i) $25,000 per year payable to the Chair of the Audit and Compliance Committee, (ii) $20,000 per year payable to the Chair of the Compensation Committee and (iii) $15,000 per year payable to the Chair of each of the Corporate Governance and Nominating Committee and the Quality Committee. Each of the foregoing annual fees is paid in four quarterly installments. No meeting fees are paid, but non-employee directors are reimbursed for expenses incurred relating to attendance at Board and committee meetings.

Non-employee directors may elect to defer payment of all or any part of their directors' fees. For each term of the Board of Directors (beginning on the date of an annual meeting of shareholders and ending on the date immediately preceding the next annual meeting of shareholders), a non-employee director may elect to receive an RSU award pursuant to the 2013 Plan in lieu of all or any portion (in multiples of 25%) of his or her annual retainer payable for such term. Such an election applies to the number of RSUs determined by dividing (a) the additional annual retainer amount that would have been payable to the non-employee director in cash in the absence of his or her election, by (b) the closing price of the Company's stock on the trading date immediately prior to the grant date. No cash fees were deferred in 2017.

In addition to the cash compensation described above, on June 7, 2017 the Board of Directors, upon recommendation of the Compensation Committee, approved the grant of approximately $185,000 of RSUs to each of the non-employee directors. The terms of the grant provided that these RSUs would become fully vested and no longer subject to forfeiture upon the earliest of any of the following conditions to occur: (1) six months and one day following the date of grant; (2) the death or disability of the non-employee director; or (3) a "change in control" of the Company (as defined in the 2013 Plan). The awards became fully vested on December 8, 2017. The non-employee director's receipt of shares of Common Stock pursuant to the award of RSUs is deferred until the first business day following the earliest to occur of (A) the third anniversary of the date of grant, or (B) the date the non-employee director ceases to be a member of the Board of Directors.

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DIRECTOR COMPENSATION

Certain information concerning the compensation of non-employee directors for 2017 is set forth in the table below.



GRAPHIC

Name


Fees Earned
or
Paid in Cash
(1)





Stock
Awards
(2)




Total

 

Kermit R. Crawford

$140,000   $184,992   $324,992    

Richard H. Evans

215,000 184,992 399,992  

Michael P. Haley

165,000 184,992 349,992  

Marguerite W. Kondracke

155,000 184,992 339,992  

John E. Maupin, Jr.

160,000 184,992 344,992  

Jana R. Schreuder

140,000 184,992 324,992  

Reed V. Tuckson

155,000 184,992 339,992  

(1)
Reflects the cash fees paid to each non-employee director. In addition to the annual cash retainer, Mr. Evans received an additional $75,000 for service as the Lead Director; Mr. Haley received $25,000 for service as chair of the Audit Committee; Dr. Maupin received $20,000 for service as chair of the Compensation Committee; Ms. Kondracke received $15,000 for service as chair of the Corporate Governance and Nominating Committee; and Dr. Tuckson received $15,000 for service as chair of the Quality Committee. No cash fees were deferred in 2017.

(2)
Reflects the grant date fair value for RSUs granted under the 2013 Plan, in accordance with ASC 718-10. The assumptions used in calculating the values are set forth in Note 10 to the Company's financial statements included in the 2017 Annual Report on Form 10-K.

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ELECTION OF DIRECTORS (PROPOSAL 1)

 

    

PROPOSAL 1: ELECTION OF DIRECTORS

Upon the recommendation of the Corporate Governance and Nominating Committee of the Board of Directors, which consists entirely of independent directors, the Company's Board of Directors has nominated two Class I directors for election at the Annual Meeting to hold office until the annual meeting of shareholders in 2021 or until their successors have been elected and qualified. For information on all of our directors, including the nominees below, please see the section entitled "Board of Directors" beginning on page 15.

Election of Directors

The Company's Board of Directors currently consists of eight members, seven of whom are independent. The Company's Amended and Restated Certificate of Incorporation provides that the Board of Directors is divided into three classes of as nearly equal size as possible. Although we are aware that in the view of certain shareholders and governance experts, all directors should be elected annually, we believe our business model warrants board terms with a longer-term focus. It takes us an average of approximately three years to fully integrate acquisitions and we design our business plan, our compensation, and our board structure to mirror this need for a multi-year time frame. Approximately one-third of the directors are elected each year. Our By-Laws provide that, in an uncontested election, a director nominee will be elected to the Board only if he or she receives the affirmative vote of a majority of the votes cast with respect to his or her election. The Board will only nominate for election or re-election as a director candidates who agree to tender, promptly following the annual meeting at which they are elected or re-elected as a director, an irrevocable resignation that will be effective upon (i) the failure to receive the required vote at the next meeting at which they face re-election and (ii) Board acceptance of such resignation.

Nominees for Election: Class I Directors — Term will expire in 2021

The nominees for election at the Annual Meeting are:

Marguerite W. Kondracke, the Chair of our Corporate Governance and Nominating Committee; and

John E. Maupin, Jr., the Chair of our Compensation Committee.

Information regarding each director's specific experience, qualifications, attributes and skills that led to the conclusion that the person should serve as a director of the Company is presented in the section above under the heading "Meet our Board of Directors."

Shareholders are not voting at this Annual Meeting on the election of Class II or Class III directors, who will continue to serve as directors until the annual meeting of shareholders in 2019 or 2020, respectively, or until their successors are elected and qualified.

GRAPHIC

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" BOTH OF THE NOMINEES.

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OUR COMPANY

OUR COMPANY

Executive Officers of the Company

Our Company is led by an energetic, talented, diversely skilled and dedicated management team. For 2017, our executive officers included Messrs. Carpenter, Dill, Coggin and Bumpus. Ms. Peters was designated an executive officer effective January 1, 2018. The following list identifies the name, age and position(s) of the executive officers and other senior officers of the Company.

Name Age
Position

William F. Carpenter III

63 Chairman and Chief Executive Officer

David M. Dill

49 President and Chief Operating Officer

Michael S. Coggin

48 Executive Vice President, Chief Financial Officer and Chief Accounting Officer

John P. Bumpus

57 Executive Vice President and Chief Administrative Officer

Jennifer C. Peters

47 Senior Vice President and General Counsel

Russell L. Holman, M.D.

50 Chief Medical Officer

Jeffrey G. Seraphine

48 Chief Development Officer

Victor Giovanetti

54 President — Eastern Group

Robert N. Klein

57 President — Western Group

R. Scott Raplee

52 President — Central Group

Melissa O. Waddey

42 President — Ambulatory and Operations Services

The term of each officer runs until his or her successor is appointed by the Board, or until his or her earlier death, resignation or removal. Below is a biographical summary of the experience of the executive and senior officers of the Company. Information pertaining to Mr. Carpenter, who is both a director and an executive officer of the Company, may be found in the section entitled "Meet our Board of Directors" on page 15.


 


GRAPHIC


David M. Dill has served as President of the Company since January 2011 and as Chief Operating Officer of the Company since April 2009. Mr. Dill served as Executive Vice President from February 2008 to January 2011. Mr. Dill joined the Company in July 2007 as Chief Financial Officer and continued to serve in that role until April 2009. From March 2006 until Mr. Dill joined the Company, he served as executive vice president of Fresenius Medical Care North America and as chief executive officer of one of two United States divisions of Fresenius Medical Care Services, a wholly owned subsidiary of Fresenius Medical Care AG & Co. KGaA. Mr. Dill previously served as executive vice president, chief financial officer and treasurer of Renal Care Group, Inc., a publicly-traded dialysis services company, from November 2003 until Renal Care Group was acquired by Fresenius Medical Care in March 2006. From 1996 to November 2003, Mr. Dill served in various finance and accounting roles with Renal Care Group, Inc. Mr. Dill served as a member of the board of directors of Psychiatric Solutions, Inc., a behavioral health services company, from 2005 until 2010.


 

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GRAPHIC


Michael S. Coggin has served as the Company's Executive Vice President, Chief Financial Officer and Chief Accounting Officer since September 2016. From December 2008 until September 2016, Mr. Coggin served as Senior Vice President and Chief Accounting Officer of the Company. From September 2007 until December 2008, Mr. Coggin served as chief financial officer of Specialty Care Services Group, a multi-service line healthcare provider primarily focused on providing perfusion and auto-transfusion services to hospitals. Mr. Coggin was a senior vice president in the finance, accounting and internal audit groups of Renal Care Group, Inc. from April 2004 until its acquisition by Fresenius Medical Care AG & Co. KGaA in March 2006. Following the acquisition, Mr. Coggin provided finance and accounting oversight for business units within the East Division of Fresenius. Prior to that time, Mr. Coggin was an audit manager at KPMG Peat Marwick in Nashville, Tennessee.


 

 


GRAPHIC


John P. Bumpus has served as Executive Vice President and Chief Administrative Officer of LifePoint Health since 2008. In this role, Mr. Bumpus oversees human resources and talent development; employee and labor relations; compensation and benefits; capital and construction management; communications; administration; and aviation. He previously served as Senior Vice President, Human Resources and Administration of the Company. Prior to joining LifePoint, Mr. Bumpus served as vice president, human resources for Province Healthcare Company. He also held various leadership positions during his tenure with The Kroger Company, including strategic planning and implementation specialist; manager, human resources; and various positions in operations for the Nashville marketing area.


 

 


GRAPHIC


Jennifer C. Peters was appointed the Company's General Counsel effective April 3, 2017 and Corporate Secretary effective June 7, 2017. Prior to assuming her current role, Ms. Peters served as senior vice president and chief operations counsel of the Company, where she was responsible for overseeing the Company's operations lawyers and contract management team to ensure consistent legal guidance across all operational units. Prior to joining the Company in November 2013, Ms. Peters served as general counsel, secretary and chief compliance officer for Simplex Healthcare from October 2010 through November 2013. Ms. Peters has also served as vice president and associate general counsel at Community Health Systems. In addition, Ms. Peters has experience as a hospital administrator.


 

 


GRAPHIC


Russell L. Holman, M.D. became the Company's Chief Medical Officer in February 2013. Dr. Holman oversees the Company's quality and clinical effectiveness, care management, disease management, patient safety and satisfaction, physician engagement, appropriateness of care and ancillary resource utilization. Prior to joining the Company, Dr. Holman served as chief clinical officer of Cogent HMG, where he served in executive leadership roles for eight years. Previously, he served as medical director of hospital services for HealthPartners Medical Group & Clinics in Bloomington, Minnesota, and assistant director of the Internal Medicine Residency Program at the University of Minnesota. Among Dr. Holman's professional accomplishments, in 1996 he founded one of the earliest hospitalist programs for Regions Hospital in St. Paul, Minnesota. In 2000, he created one of the nation's first postgraduate Fellowship Programs in Hospital Medicine for HPMG&C. In 2007, he co-authored and edited the textbook, Comprehensive Hospital Medicine.


 

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GRAPHIC


Jeffrey G. Seraphine has served as the Company's Chief Development Officer since January 2017. Prior to assuming his current position, Mr. Seraphine served as President of the Company's Eastern Group beginning in February 2013. Mr. Seraphine is a founding employee of the Company and, since 1999, has served in various roles, including as President of the Company's Delta Division and as CEO of several of the Company's hospitals. Prior to joining LifePoint, Mr. Seraphine served in hospital administration roles with Hospital Corporation of America (HCA) in Florida.


 

 


GRAPHIC


Victor Giovanetti has served as President of the Company's Eastern Group since January 2017. From July 2015 to January 2017, Mr. Giovanetti served as President of the Company's Western Group. Mr. Giovanetti joined the Company in July 2013 as Chief Operating Officer of the Company's Eastern Group. Mr. Giovanetti has more than 25 years of management experience in operations, financial, clinical and strategic aspects of healthcare administration. Prior to joining the Company, his positions included president of HCA Lewis-Gale Regional Health System in Roanoke, Virginia, chief executive officer and chief operating officer of Southern Hills Medical Center in Nashville, Tennessee, and various management roles with HCA, Symbion and other healthcare organizations in Georgia.


 

 


GRAPHIC


Robert N. Klein has served as President of the Company's Western Group since January 2017. Mr. Klein has more than 25 years of healthcare administration experience, having served in various positions, including division president, since joining the Company in 2005. Most recently, Mr. Klein served as chief operating officer of the Company's Central Group from 2013 until his promotion to Western Group President. Prior to joining the Company, Mr. Klein served as chief executive officer of several HCA hospitals in Tennessee and in executive leadership positions at Baptist Medical Center in Alabama. Mr. Klein is a Fellow in the American College of Healthcare Executives.


 

 


GRAPHIC


R. Scott Raplee has served as President of the Company's Central Group since February 2013. Mr. Raplee is a founding employee of LifePoint and began his tenure as the Company's National Division Chief Financial Officer in 1999. Since then, he has served in various roles, including as Operations Chief Financial Officer, Senior Vice President and Operations President, and Senior Vice President and President of Operations Planning and Support, until his appointment as Central Group President.


 

 


GRAPHIC


Melissa O. Waddey has served as President of the Company's Ambulatory and Operations Services since January 2017. In this position, Ms. Waddey leads multiple departments that drive operations strategy, organic growth and integration of new hospitals, and oversees physician services. Ms. Waddey joined the Company in 2010 and has served in a variety of positions, including senior vice president, operations strategy and integration and chief of staff to the Company's Chairman and CEO. Prior to joining the Company, Ms. Waddey served in several hospital operational roles with HCA.


 

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OUR COMPANY

 

    

CORPORATE GOVERNANCE

We believe our corporate governance structure enables our Board and employees to make prompt, principled and sound business decisions and be held accountable for delivering shareholder value, and also supports our quality, compliance, and risk management goals.

Strong Governance Practices Promote Independent Board Oversight

LifePoint is committed to exercising good corporate governance practices. We believe that good governance promotes the long-term interests of our shareholders and strengthens Board and management accountability.

 

Majority vote standard in uncontested elections of directors

  Shareholder Rights  

Director resignation policy with respect to directors who do not receive a majority of votes cast

 
 

No poison pill

   

One class of voting shares outstanding

 
 
 

All directors are independent, other than the CEO

   

Active, engaged and independent chairs of all standing committees

 
 

Audit and Compliance, Corporate Governance and Nominating, and Compensation Committees 100% independent

   

Regular executive sessions of independent directors chaired by our Lead Director

 
  Board Composition
and Practices

Comprehensive annual self-evaluation and performance assessments of Board,
Committees and each director


   

Director "overboarding" policy generally restricting the number of public company boards on which a director of the Company may serve

 
 

Independent director participation and oversight of key governance processes, such as risk oversight, strategic planning and CEO performance, succession planning and compensation

   

Mandatory director retirement policy

 
 

Governance Materials Available on our Website

The structure and processes of the Board of Directors are based on key governance documents, including our Corporate Governance Standards, which govern the operation of the Board of Directors and its committees and guide the Board and our executive leadership team in the execution of their responsibilities. Our Corporate Governance Standards, along with all of our governance documents, are reviewed at least annually and are updated periodically in response to changing regulatory requirements, evolving practices, issues raised by our shareholders and other stakeholders, and otherwise as circumstances warrant.

Our Corporate Governance Standards, along with the Company's other corporate governance materials, are available under the "Investors — Corporate Governance" section of the Company's website at www.LifePointHealth.net. Instructions for how to communicate with our Board of Directors are also included in this section of our website.

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OUR COMPANY

    

CORPORATE CONTROLS

Corporate controls ensure that the strategy we adopt and the business plan we design to achieve it deliver the results we want and not those we do not. Often more focus is placed on the seemingly more exciting strategy-dominated front-end of business decision making and not the corporate controls back end that is equally essential to success.

Our featuring of our corporate controls here, our inclusion of a Quality Committee of the Board and our integration of quality goals into our compensation plans show we do not neglect these key functions.

Board Oversight of Risk

GRAPHIC

The Board of Directors considers risk oversight a high priority. Throughout the year, the Board of Directors and the committees to which it has delegated responsibility dedicate a portion of their meetings to review and discuss specific risk topics. The Board of Directors has delegated responsibility for the oversight of specific risks to the following committees:

• The Enterprise Risk Management Committee of the Company, which is comprised of individuals from all major areas of the Company, including operational, financial, human resources, legal and risk functions of the Company, has established a comprehensive process for the management of risk across the Company and measurement methodologies for quantifying, comparing, benchmarking and prioritizing risks facing the Company.

• The Audit and Compliance Committee oversees the Company's guidelines, policies and processes for monitoring and mitigating risk relating to the financial statements and financial reporting processes, as well as key credit risks, liquidity risks, market risks and compliance efforts. The Audit and Compliance Committee oversees the internal audit function and the Company's ethics programs, including the Code of Conduct and Code of Ethics, and receives reports from the Company's compliance and audit services departments at each of its regular meetings.

• The Compensation Committee, with management and the Compensation Committee's independent compensation consultant, regularly monitors and assesses the risk levels of the Company's executive compensation policies and practices and the Company's compensation practices in general. The Compensation Committee reviews and approves compensation programs with features that mitigate risk without diminishing the incentive aspect of the compensation, including the use of multiple metrics that align the executives with the Company's long-term strategy and have appropriate thresholds and caps, multi-year vesting for equity, a carefully considered peer group to assure the Company's compensation practices are measured and appropriately competitive, and significant long-term incentives that promote longer-term goals and reward sustainable stock, financial and operating performance, especially when combined with the Company's stock ownership guidelines. In addition, the Company's executive compensation recoupment policy allows the Company to recover bonus payments and certain equity awards under certain circumstances. Based on its assessment, the Compensation Committee believes that the Company's compensation programs do not motivate risk-taking that could reasonably be expected to have a materially adverse effect on the Company.

• The Corporate Governance and Nominating Committee oversees risks related to the Company's governance structure and processes, including by regularly reviewing and considering corporate governance practices, ensuring that appropriate senior management succession plans are in place, and conducting annual Board and committee evaluations.

GRAPHIC

• The Quality Committee plays a significant role in evaluating risks with respect to clinical performance and industry practices, including by monitoring and evaluating the Company's quality of care and patient safety programs and initiatives, and

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OUR COMPANY

 

receiving management reports on deviations from the Company's quality and safety standards and corrective and preventative actions.

• The Disclosure Committee of the Company, which is comprised of all senior leaders as well as individuals from all major areas of the Company, including operational, financial, human resources, legal and risk functions of the Company, plays an integral role in reviewing the accuracy, completeness, timeliness and fairness of the Company's financial reporting.

Cybersecurity and Information Security Risk Oversight

Our Board of Directors recognizes the importance of maintaining the trust and confidence of our patients, employees and vendors, and devotes significant time and attention to oversight of cybersecurity and information security risk. In particular, our Board of Directors and our Enterprise Risk Management Committee each receive regular reporting on cybersecurity and information security risk. At least quarterly, our Enterprise Risk Management Committee and our Board receive an operational risk update that includes a review of cybersecurity and information security risks. At least once each year, the Board discusses cybersecurity and information security risks with the Company's Chief Information Officer and Information Security Officer. Below are some of the measures we employ to identify and mitigate threats to confidentiality, availability and integrity of our information systems.

On a regular basis, the Board of Directors reviews our cybersecurity risk management practices, primarily by receiving reports on the Company's cybersecurity management program prepared by the Chief Information Officer and the Information Security Officer.

Cybersecurity education and training is regularly provided to our Board members and employees.

We continuously make investments in our technology infrastructure.

We continuously develop and enhance controls, processes and systems to protect our networks, computers, systems and data from attacks or unauthorized access.
Our insurance policies include coverage for potential financial losses due to cyber breaches.

We retain a computer forensics firm and an industry-leading consulting firm in case of a breach event.

Our Board member, Jana R. Schreuder, has extensive technology, operations and risk management expertise. Her background as the former president, operations and technology, and as head of corporate risk management for Northern Trust Corporation affords the Company with a leader who has comprehensive knowledge and experience in this area.

Our information security group performs ongoing social engineering assessments.

Code of Conduct and Code of Ethics

The Company has a Code of Conduct that provides guidance to the Board of Directors and all employees, including the Company's senior management. The Board of Directors has also adopted a Code of Ethics for the Company's CEO, principal financial officer, principal accounting officer, controller and persons performing similar functions, which specifically addresses the unique roles of these officers in corporate governance. Many of the topics covered in the Code of Ethics are also addressed in the Code of Conduct, and each of the officers subject to the Code of Ethics is subject to, and has agreed to comply with, the Code of Conduct.

The Code of Conduct and the Code of Ethics are available under the "Investors — Corporate Governance" section of the Company's website at www.LifePointHealth.net.

Compliance Hotline

Any person, whether or not an employee, who has a concern about the conduct of the Company or any of the Company's personnel, including pursuant to the Audit and Compliance Committee's policy on the reporting of concerns regarding the Company's accounting, internal controls or auditing matters, may, in a confidential and anonymous manner, communicate that concern through an external compliance hotline by calling 877-508-5433. The hotline services are available 24 hours a day, seven days a week. All calls to the compliance hotline are handled on an expedited basis and, under certain circumstances, are then communicated directly to the Chair of the Audit and Compliance Committee.

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OUR COMPANY

Independence and Related Person Transactions

Independence Determinations

Please refer to the section entitled "Board of Directors — Board Independence" on page 20 for a discussion of the independence of the Board and the committees of the Board.

Related Person Transaction Policy and Process

In addition to the Company's Corporate Governance Standards, Code of Conduct and Code of Ethics, the Board of Directors has approved written policies and procedures that govern the review, approval and/or ratification of transactions between the Company and its directors, director nominees, executive officers, greater than five percent beneficial owners and each of their respective family members, where the amount involved in the transaction exceeds or is expected to exceed $100,000 in any single calendar year. A copy of the Related Person Transactions Policies and Procedures is available under the "Investors — Corporate Governance" section of the Company's website at www.LifePointHealth.net.

This policy is administered under the oversight of the Audit and Compliance Committee. To assist this committee in identifying potential related person transactions, each director and executive officer is required to identify his or her family members and provide certain information about them, which they update on a quarterly basis. The Company's Corporate Governance Officer disseminates a list of the related persons to various officers and departments of the Company on a quarterly basis so that such transactions can readily be identified. If a related person transaction is identified in advance and the Corporate Governance Officer determines that the transaction is subject to this policy, the transaction must be submitted to the Audit and Compliance Committee (or its Chair, if time is of the essence) for consideration. The Audit and Compliance Committee may generally approve such transactions that are in, or not inconsistent with, the best interests of the Company and its shareholders. The policy also enumerates certain related person transactions that are deemed automatically pre-approved by the Audit and Compliance Committee because the SEC has determined that such transactions are not required to be disclosed or they are unlikely to raise the concerns underlying the SEC's disclosure requirements.

During 2017, there were no reportable related person transactions for the Company, and no related person had any reportable indebtedness to the Company or any of its subsidiaries.

Compensation Committee Interlocks and Insider Participation

During 2017, the Compensation Committee of the Board of Directors consisted of Drs. Maupin and Tuckson, Mses. Kondracke and Schreuder, and Messrs. Evans, Haley and Crawford. None of the members of the Compensation Committee has at any time been an officer or employee of the Company, nor has any of the members had any relationship requiring disclosure by the Company. None of the Company's executive officers serve, or in the past year served, as a member of the board of directors or compensation committee of any entity that has or had one or more of its executive officers serving on the Company's Board of Directors or Compensation Committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and persons who beneficially own more than ten percent (10%) of the Common Stock to file reports of ownership and changes in ownership with the SEC. Such executive officers, directors and beneficial owners are also required to furnish the Company with copies of all Section 16(a) reports they file. Based solely on a review of (1) the applicable filings, and any amendments thereto, made with the SEC and posted on its website and (2) written representations from the Company's executive officers and directors, the Company believes that all reports were filed in a timely manner during 2017 except that, due to an administrative error, Drs. Maupin and Tuckson, Messrs. Evans and Haley, and Ms. Kondracke failed to timely report the issuance of shares in June 2017 upon vesting of RSUs granted in 2014. In addition, Mr. Crawford failed to timely report a purchase of shares in June 2017. Each of these transactions was reported in a timely filed Form 5 in February 2018.

All Section 16(a) reports are posted on the "Investors — SEC Filings" section of the Company's website, www.LifePointHealth.net, by the end of the business day after filing and remain accessible for at least 12 months.

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OUR COMPANY

Social Responsibility

Sustainability isn't a sideline issue for LifePoint Health — as a company that helps people with their health at their most vulnerable moments, it is at our core.

GRAPHIC

Our business plan is a summary of what sustainability is all about: we seek continuous improvement in the quality of our care as measured against clinical outcomes, service standards for both our patients and our physicians and other healthcare professionals, and sustainable returns for shareholders while being, in the majority of cases, the main source of employment and a key source of tax revenues in the majority of our locations. Jobs and tax revenues to fund society-wide policy goals are often neglected in sustainability discussions, even though they are what most people and communities care about most.

GRAPHIC

We are particularly proud of the partnership between our Health Support Center and the Second Harvest Food Bank of Middle Tennessee. Following our commitment in January 2017 to volunteer with Second Harvest as a means to further realize our mission of Making Communities Healthier®, hundreds of volunteers from all departments and teams across our Health Support Center provided nearly 1,000 hours of service throughout the year. LifePoint volunteers sorted, packed, or distributed a cumulative total of 277,859 pounds of food for families dealing with the health crisis that is food insecurity, representing nearly 200,000 meals provided to men, women, children and seniors.

We also support the communities in which we operate by striving to minimize our environmental impact in our daily operations. We have comprehensive environmental policies and procedures that address federal regulatory requirements related to areas of environmental risks. We are committed to complying with all applicable regulatory guidelines and laws and to taking appropriate and timely corrective actions when deviations occur.

In 2017, all of our eligible hospitals participated in an energy conservation program that conducts energy audits to review utility and operating data, evaluates energy consumption and rate structures and creates a weather-corrected energy use profile for each hospital. We have participated in this program since 2007 and continue to significantly reduce our carbon footprint and consumption of electricity and natural gas each year. In 2017, we generated savings through this program of almost $9 million.

We also participate in the reprocessing and remanufacturing of single-use medical device programs offered by Stryker Sustainability Solutions, which dramatically reduces medical waste and results in cost savings for our hospitals. As a result of our participation in these programs, we diverted over 140,000 pounds of medical waste and achieved savings of over $2 million in 2017.

These are just a few of the ways we demonstrate our corporate social responsibility. We also hope you will read our most recent social responsibility report, which you can find on our website under the "Investors — Corporate Governance" section at www.LifePointHealth.net.

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL 2)

    

PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit and Compliance Committee has selected Ernst & Young LLP (EY) as the Company's independent registered public accounting firm for 2018 and, as a matter of good corporate governance, the Board is requesting shareholders to ratify this selection. EY has audited the Company's financial statements since 1999 and is considered by management to be well qualified. If the selection of EY is not ratified by the shareholders, the selection of an independent registered public accounting firm will be determined by the Audit and Compliance Committee after careful consideration of any information submitted by the shareholders.

Representatives of EY are expected to be present at the Annual Meeting and will have an opportunity to make any statement they consider appropriate and to respond to any appropriate shareholders' questions.

Fees and Services of the Independent Registered Public Accounting Firm

The following is a summary of services rendered by EY and the fees paid for such services during the last two fiscal years.

 
 
 

Service


2017
2016

Audit Fees

$ 4,278,036 $ 4,835,382

Audit-Related Fees

400,000 200,000

Tax Fees

361,142 537,546

All Other Fees

Total

$ 5,039,178 $ 5,572,928

Audit Fees — Primarily for professional services rendered in connection with the audit of the Company's consolidated annual financial statements, audit of internal control over financial reporting (pursuant to §404 of Sarbanes-Oxley) and reviews of the interim condensed consolidated financial statements included in the Company's quarterly reports on Form 10-Q for the first three fiscal quarters of the fiscal years ended December 31, 2016 and 2017. The fees also include separate opinion audits of certain subsidiaries, as well as comfort letters and consents related to SEC filings.

Audit-Related Fees — Primarily for consultation on accounting and reporting standards.

Tax Fees — For assistance with tax compliance regarding tax filings and other tax advice and consulting services.

All Other Fees — No fees were incurred for products and services provided by EY outside of those already disclosed.

The Audit and Compliance Committee considered and determined that the provision of non-audit services by EY during 2016 and 2017 was compatible with maintaining auditor independence. None of these services is of a type that is prohibited under the independent registered public accounting firm independence standards of the SEC.

Audit Committee Pre-Approval Policies and Procedures

The Audit and Compliance Committee has implemented procedures to ensure the pre-approval of all audit, audit-related, tax and other services performed by the Company's independent registered public accounting firm. These procedures require that the Audit and Compliance Committee approve all services prior to the commencement of work. Unless the specific service has been pre-approved with respect to that year, the Audit and Compliance Committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it. On a quarterly basis, the Audit and Compliance Committee reviews a summary listing of all service fees, along with a reasonably detailed description of the nature of the engagement of EY. For 2017, the Audit and Compliance Committee delegated to the Chair of the Audit and Compliance Committee pre-approval authority with respect to audit or permitted non-audit services (in an amount not to exceed $50,000 in each instance) provided by EY, subject to ratification of such pre-approval by the Audit and Compliance Committee at its next scheduled meeting. The Audit and Compliance Committee pre-approved in accordance with SEC rules all audit, audit-related, tax and other services performed by EY during 2017.

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL 2)

 

    

Independent Auditor Evaluation

The Audit and Compliance Committee has established practices to evaluate the qualifications, compensation, performance and independence of the Company's independent registered public accounting firm, both on an ongoing basis throughout the year and through the completion of an annual evaluation. The evaluation, which is administered by the Corporate Secretary and an internal risk executive, assesses the Company's satisfaction with the quality and efficiency of the services provided. A summary of the results is provided to the Audit and Compliance Committee for its discussion and analysis.

Based on the results of the annual evaluation, the Audit and Compliance Committee selected EY as the Company's independent registered public accounting firm for 2018. The factors considered by the Audit and Compliance Committee included:

Quality of services provided by EY;

Effectiveness of the communication and interaction between EY, management and the Audit and Compliance Committee;

The independence and objectivity of EY;

Resources of EY, including technical knowledge and understanding of the Company's business and industry; and

Reasonableness of fees.

The Audit and Compliance Committee and the Board believe it is in the best interest of the Company and its shareholders to continue to retain EY as the Company's independent registered public accounting firm.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2.

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AUDIT AND COMPLIANCE COMMITTEE REPORT

AUDIT AND COMPLIANCE COMMITTEE REPORT

The Audit and Compliance Committee consists entirely of independent directors in accordance with the NASDAQ and SEC audit committee structure and membership requirements. The Audit and Compliance Committee has certain duties and powers as described in its written charter adopted by the Board of Directors. A copy of this charter is available under the "Investors — Corporate Governance" section of the Company's website, www.LifePointHealth.net.

In performing its functions, the Audit and Compliance Committee acts primarily in an oversight capacity. The Audit and Compliance Committee relies on the work and assurances of the Company's management, which has the primary responsibility for preparing financial statements and reports and implementing internal controls over financial reporting, and the work and assurances of the Company's independent registered public accounting firm, which reviews quarterly and audits annually the Company's financial statements. In addition, the Audit and Compliance Committee relies on the Company's independent registered public accounting firm to express an opinion on the conformity of the Company's annual financial statements to generally accepted accounting principles and to attest management's assessment of the effectiveness of internal controls over financial reporting.

The Audit and Compliance Committee selected EY as the Company's independent registered public accounting firm for 2017. This selection was subsequently approved by the Board of Directors and was ratified by the Company's shareholders at the annual meeting of shareholders held on June 6, 2017.

The Audit and Compliance Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2017 with the Company's management and EY. The Audit and Compliance Committee has also discussed with EY the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301, "Communications with Audit Committees," as amended.

The Audit and Compliance Committee has also received and reviewed the written disclosures and the letter from EY required by applicable requirements of the Public Company Accounting Oversight Board regarding EY's communications with the Audit and Compliance Committee concerning independence, and has discussed with EY their independence.

The Audit and Compliance Committee discussed with the Company's internal audit and compliance officers and EY the overall scope and plans for their respective audits. The Audit and Compliance Committee met with the internal audit and compliance officers and EY with and without members of management present to discuss the results of their examinations, their evaluation of the Company's internal controls and the overall quality of the Company's financial reporting and compliance program.

In reliance on these reviews and discussions, and the report of EY, the Audit and Compliance Committee recommended to the Board of Directors, and the Board of Directors determined, that the audited financial statements be included for filing with the SEC in the 2017 Annual Report on Form 10-K.

AUDIT AND COMPLIANCE COMMITTEE

Michael P. Haley, Chair
Kermit R. Crawford
Richard H. Evans
Marguerite W. Kondracke
John E. Maupin, Jr.
Jana R. Schreuder
Reed V. Tuckson

Dated: April 18, 2018

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COMPENSATION DISCUSSION AND ANALYSIS

 

    

COMPENSATION DISCUSSION AND ANALYSIS

In this Compensation Discussion and Analysis you will find detailed information regarding the compensation for our Named Executive Officers (NEOs). For 2017, our NEOs were:

William F. Carpenter III, Chairman and Chief Executive Officer;

David M. Dill, President and Chief Operating Officer;

Michael S. Coggin, Executive Vice President and Chief Financial Officer;

John P. Bumpus, Executive Vice President and Chief Administrative Officer; and

Paul D. Gilbert, former Executive Vice President and Chief Legal Officer, who resigned as an executive officer effective February 14, 2017.

2017 Pay-for-Performance Results

Overall, actual 2017 executive compensation pay demonstrates that the Company's executive compensation program rewards performance and aligns compensation with performance and shareholder interest. Additionally, based on the results of an annual assessment conducted by the Compensation Committee, including an evaluation by the Company's independent compensation consultant, the program does not promote unnecessary and excessive risk. These conclusions are similar to last year's findings.

Since making its compensation decisions in February 2017, the year-end results for 2017 have been determined. Due to an increasingly challenging operating environment, 2017 was a difficult year for healthcare providers. LifePoint was no exception and we did not achieve our financial performance expectations. The hospitals we acquired in 2016 did not improve at the pace we had expected and this negatively impacted the financial performance of the Company overall. We did not achieve all of our challenging revenue and EBITDA performance goals, however, the Company exceeded its goals for quality performance. Based on these results, the payouts from our incentive plans were below target: the payout for our annual cash incentive was 68% of target; and the payout for our 2015 performance-based RSUs, which was determined based on the Company's relative TSR percentile ranking as of December 31, 2017 against the TSR Peer Index, was 92% of target. These below-target payout levels are consistent with our performance and demonstrate the Compensation Committee's and the Company's commitment to our pay-for-performance philosophy.

Compensation Philosophy and Objectives

The Compensation Committee provides oversight and guidance with regard to the compensation programs for which our most senior executives, including our NEOs, are eligible. When making compensation decisions for the CEO, as well as other Company senior leaders, the Compensation Committee is guided by the following objectives:

Ensure compensation is related to performance and that a large majority of an executive's pay is at-risk;

Attract and retain highly capable and motivated leaders by paying at competitive levels;

Establish competitive performance targets that will drive long-term shareholder value;

Ensure that compensation program elements do not encourage unnecessary and excessive risk;

Promote a commitment to compliance and the high ethical standards of the Company; and

Make decisions that are informed by shareholder feedback.

The role of the Compensation Committee is explained in more detail on page 53.

Our Compensation Processes

Each year, the Compensation Committee conducts a robust and thoughtful compensation planning and goal-setting process incorporating market data, input from its independent compensation consultant, shareholder feedback, and perspectives from Company management, as applicable. This process incorporates a course timeline, portions of which are highlighted below, which guides the Compensation Committee in its compensation-related work for the year. The Compensation Committee's decisions and actions related to the 2017 process are described in the following pages.

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Compensation Committee Course Timeline
January - March

Review tally sheets for NEOs and other senior leaders of the Company

  Certify achievement of prior year executive compensation program performance targets   Approve executive compensation program targets for the year   Determine total target executive compensation packages for NEOs and other senior leaders   Review and approve annual equity recommendations for all eligible employees   Assess independence of executive compensation consultant
April - June

Review and approve Compensation Discussion and Analysis section of annual proxy statement

  Review market and peer data with respect to Director compensation   Recommend Director compensation   Review executive benefit and compensation programs
July - September

Review and assess Compensation Committee charter

  Review and approve benefit plan changes, if required
October - December

Establish Director compensation deferrals for the upcoming year

  Complete detailed executive compensation peer review to establish the framework for first quarter executive compensation decisions   Assess compliance with stock ownership guidelines   Complete risk analysis of compensation programs to ensure no incentive for excessive risk-taking
Ongoing
Review and approve new employee and promotion equity recommendations
Monitor and review unanticipated items that may meaningfully impact compensation
Assess shareholder feedback

Pay Practices — How We Pay What We Pay

Similar to other companies, the Compensation Committee has adopted a number of key practices and controls consistent with good governance and the Company's compensation philosophy, including:

Our pay design aligns with our strategy.

We do not use one-off compensation awards (apart from promotions, market adjustments or hiring bonuses).

We cap our incentive compensation opportunities.

We use multiple metrics for our performance-based compensation.

Our employees do not have employment contracts.

We have no supplemental defined benefit retirement plans for NEOs.

Our Board uses an independent compensation consultant.
We benchmark to peer market data.

We have double triggers in our change of control cash severance payments.

We have a claw-back policy.

We do not reprice stock options.

We have anti-hedging and pledging policies.

We undertake annual compensation risk analyses.

We undertake annual share utilization and dilution analyses.

We have established stock ownership guidelines.

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COMPENSATION DISCUSSION AND ANALYSIS

 

    

Compensation Design

Pay Mix

We design the mix of our pay elements to most effectively promote pay for performance and shareholder alignment. The result of this mix puts 91% of our CEO's target pay at risk and an average of 85% of target pay at risk for all other NEOs. Mr. Gilbert resigned as an executive officer effective February 14, 2017 and, as a result, is not included in calculations expressing percentage of NEO compensation. In 2017, our compensation consisted of the following components:

Base salary (9% of our CEO's target pay and an average of 15% of our other NEOs' pay). Even though it is the smallest component of our pay mix, providing a very competitive base salary is particularly important to us, given our geographic proximity to companies with whom we compete for executive talent;
Short-term annual cash incentive (13% of our CEO's target pay, and an average of 13% of the other NEOs' pay) is tied to key annual Company performance metrics; and
Long-term equity-based pay (78% of our CEO's target pay, and an average of 72% of the other NEOs' pay) is tied to our Company's long-term performance metrics.


CEO Target Pay Mix
Avg. Other NEOs' Target Pay Mix
(excl. Mr. Gilbert as he did not
serve as an NEO for the full year)

GRAPHIC


GRAPHIC

Base Salaries

We determine the base salary for each NEO based upon their short- and long-term performance, their duties and responsibilities, relevant market data for their role, and the overall performance of the Company.

Short-Term Annual Cash Incentive

We use short-term annual cash incentive awards to reward performance during the year relative to Compensation Committee-approved goals for the year. Short-term metrics are aligned with the goals approved in our annual business plan, designed to be challenging and achievable, and when met or exceeded, drive long-term shareholder value. The Compensation Committee establishes specific goals for each of these performance metrics in February for the entire year. For 2017, the Performance Metrics included Adjusted Normalized Revenue, Adjusted Normalized EBITDA and Quality. The Compensation Committee's rationale is summarized below.

Performance Metric


Rationale

Adjusted Normalized Revenue

Growing revenue is key to our long-term success.

Adjusted Normalized EBITDA

Profitable growth is essential to delivering value to our shareholders and to ensuring we can reinvest in our business.

Quality

Providing high quality care and service to our patients is an essential driver of organizational growth, value-based reimbursement, recruiting outstanding talent and foundational in our ability to drive shareholder value.

A detailed review of the Company's results versus these metrics can be found on page 51. In addition, see Appendix A for definitions and a reconciliation of non-GAAP measures.

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COMPENSATION DISCUSSION AND ANALYSIS

Long-Term Equity-Based Pay

We use 100% performance-based equity incentive awards as long-term compensation to align our NEOs' compensation with the interests of the Company's shareholders. In making the long-term equity awards, the Compensation Committee considers the value of the awards as part of the NEO's total direct compensation, which is determined for each NEO based on their short- and long-term performance, their duties and responsibilities, relevant market data for their role, and the overall performance of the Company.

The Compensation Committee decided in February 2017 that target values for the 2017 long-term incentive awards would be set at levels comparable to the target values for the 2016 long-term incentive awards. For the CEO, the Compensation Committee weighted the target value of the award at approximately 45% stock options and 55% performance-based RSUs; for the other NEOs, the target value was weighted approximately 50% stock options and 50% performance-based RSUs.

Stock options awarded to all NEOs vest in four equal installments beginning on the first anniversary following the date of grant and expire after 10 years. The Compensation Committee considers stock options to be performance-based. The regularly scheduled meetings of the Compensation Committee at which stock option awards are granted do not coincide with earnings releases or other periodic filings of the Company that may have a material effect on the stock price of the Company and are scheduled in advance without regard to those events.

Performance-based RSUs awarded in 2017 are subject to a three-year performance period followed by an additional one-year time-based vesting period. The NEO can earn 0% to 200% of the target grant based upon diluted EPS results versus target in the first three years following the grant date. At the end of the three-year performance period, any amounts earned are subject to adjustment pursuant to a relative TSR modifier. Additional details on the performance-based RSUs awarded in 2017 can be found on page 52.

Formulaic Framework for Incentive Programs

The determination of cash or shares paid out under our executive compensation plan generally follows a formulaic approach based on results against specific predetermined goals. The formulas used in each of our annual cash incentive award program and our long-term performance-based equity program are described in detail in the section entitled "2017 Compensation" beginning on page 50.

The financial measures established by the Compensation Committee and the Company's results relating to these measures may differ from the financial measures reported in other filings by the Company or in the Company's earnings release. The Compensation Committee has approved a pre-determined framework of adjustments to our reported financial results for purposes of the executive compensation plan to account for:

gains or losses on sales of facilities

operating results of acquired or divested facilities

impairment charges

certain gains or losses arising from litigation or settlements with governmental entities or other third parties

gains or losses on extinguishment of debt
changes as a result of the implementation of new accounting or tax standards

restructuring charges

accelerated depreciation due to an unexpected change to the useful life of an asset

other matters that are unusual, non-operational or non-recurring in nature

Generally, these adjustments exclude one-time or unusual items and external factors that are inconsistent with the assumptions reflected in our financial plans. The Compensation Committee believes that this flexibility is critical in order to minimize unintended incentives or disincentives, as well as to more accurately reflect items that are within management's control. For more information about the adjusted financial measures reported in this Compensation Discussion & Analysis, please see Appendix A of this proxy statement.

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COMPENSATION DISCUSSION AND ANALYSIS

 

2017 Compensation Decisions and Rationale

Overall actual pay in 2017 demonstrates that the Compensation Committee's desire to pay for performance and align pay with shareholder interests is being achieved with the Company's executive compensation program. During the year, decisions were made consistently with the programs' objectives.

In 2017, in response to feedback from our shareholders, we eliminated excise tax gross-up provisions for employees hired on or after February 28, 2017. In addition, consistent with our pay for performance philosophy and in consideration of the challenging healthcare operating environment, we held base salaries for our executives at 2016 levels, except with respect to two executive officers who received increases in connection with either a promotion or an increase in responsibilities. In addition, we increased the vesting term for options and performance-based RSU awards granted under our long-term incentive program from three to four years.

Key decisions that impacted our NEOs' total direct compensation are highlighted below.

CEO Pay

In February 2017, the Compensation Committee decided that the CEO's target total direct compensation, which consists of base pay, short-term annual cash incentive, and long-term equity-based pay should remain comparable to 2016. In reaching this decision, the Compensation Committee considered:

The Company's overall performance in 2016;

The CEO's short- and long-term individual performance;

The current healthcare industry environment;

The strength and commitment of the management team Mr. Carpenter has built and continues to motivate;

The competitive position of the target package relative to the market;

The high percentage (approximately 91%) of the CEO's target pay that is at-risk and tied to the Company's performance;

Mr. Carpenter's focus on delivering high-quality patient care and service, maintaining regulatory compliance in a highly regulated industry and delivering shareholder value; and

Recent successful CFO succession/transition process.

Other NEOs

Component


Decision

Base Salary

  The Compensation Committee determined that based on the current healthcare industry environment as well as the overall performance of the Company in 2016, no merit-based salary increases would be provided to any NEO, except for the following:

 

Mr. Coggin's base salary increased as a result of his promotion to CFO and to position his salary more competitively to market levels for his role.

 

Mr. Bumpus' base salary increased in June 2017 as a result of his increased responsibilities and to position his salary more competitively relative to similar roles in the market.

Short-Term Annual Cash Incentive

  All other NEO short-term annual cash incentive target award percentages remained unchanged from 2016 as the Compensation Committee determined they were positioned appropriately when compared to the market, with the exception of Mr. Coggin, whose target changed as a result of his promotion to CFO.

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COMPENSATION DISCUSSION AND ANALYSIS

    

Component


Decision

Long-Term Equity-Based Pay

 

All other NEO long-term equity-based pay target values remained unchanged from 2016 as the Compensation Committee determined they were positioned appropriately when compared to the market, except for the following:

 

Mr. Coggin, whose target value increased as a result of his promotion to CFO.

 

Mr. Bumpus, whose target value increased as a result of his increased responsibilities.

After considering relevant market data, shareholder input, and the changing dynamics of the healthcare sector, the Compensation Committee made the following changes to the Company's executive compensation programs for 2017:

Component


Decision

Short-Term Annual Cash Incentive Plan

 

The 2017 short-term annual cash incentive plan included Adjusted Normalized Revenue, Adjusted Normalized EBITDA, and quality metrics.

 

The Compensation Committee removed the diluted EPS target from the 2017 short-term annual cash incentive plan and added it as the primary metric in the 2017 long-term incentive plan, eliminating any duplication of metrics between these plans in response to shareholder feedback.

 

The acquisition revenue target was removed from the 2017 short-term annual cash incentive plan. While the Company continued to consider potential acquisition opportunities that were strategic and compelling to its business, integration of recently acquired facilities was a primary focus in 2017. The Compensation Committee determined that the results of this ongoing integration were best measured by the Adjusted Normalized EBITDA component of the plan.

Long-Term Equity Incentive Plan

 

For 2017, the Compensation Committee decided to award our NEOs a mix of performance-based RSUs and stock options, similar to 2016.

 

However, the Compensation Committee, in order to provide further alignment with shareholders, decided that the metrics for the performance-based RSUs would be diluted EPS combined with a relative TSR modifier that adjusts the total number of shares earned pursuant to the performance-based RSUs. Performance for each metric is measured over the 2017 Performance Period, with any amounts earned at the end of three years subject to an additional one-year time-based vesting period.

 

In addition, the Compensation Committee established four-year vesting for all stock option grants to the NEOs.

Excise tax gross-ups

  In response to shareholder feedback, the Compensation Committee eliminated excise tax gross-ups for any employee hired on or after February 28, 2017.

Shareholder Outreach on Compensation Matters

Similar to prior years, the Company continued its annual shareholder outreach process in 2017. At our Annual Meeting of Shareholders in June 2017, our shareholders approved our executive compensation program with approximately 76% of the votes cast in favor of our "say-on-pay" proposal. Following the meeting, at the Compensation Committee's request, the Company sought feedback on our executive compensation plan from shareholders owning approximately 44% of the Company's outstanding Common Stock. The Compensation Committee considers all shareholder feedback as it makes compensation decisions and will make changes it deems appropriate. In 2018, the Compensation Committee plans to continue its shareholder outreach efforts and incorporate feedback, as applicable.

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COMPENSATION DISCUSSION AND ANALYSIS

 

Market for Talent and Peer Group Selection

Geographic Concentration

Despite the current performance in a challenging operating environment, the Compensation Committee believes that our executive leadership team has consistently performed at a high level over the long term, executing on our strategic initiatives and creating value for shareholders. Most notably, this record of achievement makes our NEOs potentially attractive to