NFP Litigation Update

As you know, NMHS entered into a Memorandum of Understanding (MOU) with the Scruggs law firm relating to our provision of charity care for patients who cannot afford to pay for their care. In 2004, we provided $45 million in charity care, as part of our mission as a not-for-profit organization and community neighbor. NMHS projects charity care will exceed $60 million in 2005. When we entered into the MOU, both parties believed the financial consequences of the settlement would be minimal and the MOU included several protections (opt outs) to which both parties agreed.

Those protections relate to material changes in the following:

1. Financial or other unanticipated consequences
2. Government reimbursement policies
3. Opening of a second hospital not affiliated with NMHS in Lee County
4.Influx of persons seeking charity care from outside our service area

As it turned out, during the period from August 2004 through March 2005, we experienced material changes in items 1, 2 and 4. Consequently, we met with the Scruggs firm in December 2004 to discuss these changes. They asked us to draft a proposal of what we believed we could "live with." We presented that proposal to them on April 6, 2005, as a 13-point plan (outlined below), but we were unable to come to an agreement.

Even though the discussions have stopped, we are voluntarily adopting the 13-point plan. Please be assured that we will continue providing care to all patients regardless of ability to pay. And, as always, thank you for your continued support.


NMMC's Thirteen Point Proposal Regarding NFP Litigation

Below is an abbreviated version of NMMC's plan of action in response to not-for-profit litigation, the impending Medicaid cutback and other related issues. The proposal is available at www.nmhs.net/breakingnews.asp.

1. NMMC shall provide charity (free) care to any patient who meets its charity care guideline.

2. NMMC has set a budgetary target of 4% of gross patient revenue as charity care.

3. NMMC shall provide charity care to residents in Lee County and to its 23-county service area for
services not provided in the county of the patients' residence.

4. NMMC affiliate hospitals will provide charity care to the residents of the county in which the
hospital is located.

5. NMMC shall provide the prevalent managed care discount to any uninsured patient meeting the
system's definition of uninsured: where the income is at 400% or less of the (Federal Poverty
Level) FPL, no third party insurance coverage, an ERISA plan, Medicare, Medicaid, SCHIP,
Champus, or other coverage.

6. NMMC shall post in various areas in the facility, its admission agreement form, information about
the charity care policy and the assistance available.

7. NMMC shall provide information in a billing statement that NMMC provides charity care assistance
for eligible patients who meet charity care guidelines.

8. NMMC will bill a patient over a period of 60 days before the patient is involuntarily referred to its
in-house collection agency. Extended payment options are available.

9. Tupelo Service Finance (TSF) will not refer to an outside collection agency until several attempts
have been made by TSF to collect the outstanding amount. This will not apply to any patient who
has made financial arrangements with TSF and has failed to fulfill the terms of the agreement.

10. For patients who do not meet NMMC's charity care guidelines but are uninsured, NMMC will
provide options to pay over a set period of time at reduced interest rates, dependent upon the
financial ability and resources of the patient.

11. Neither NMMC nor TSF will place a lien on a patient's house or automobile.

12. Collection policies shall comply with the Fair Debt Collection Practice Act.

13. Failing to pay medical bills shall not be reported by NMMC or TSF to a credit agency. However, if
a judgment is obtained by TSF, then it shall be reported as part of public record information. If an
outstanding bill is referred to an outside collection agency, the reporting to a credit agency will be
determined by the policies and procedures of the outside collection agency.
 

April 10, 2005