VTR Ventas Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): August 4, 2015

VENTAS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (877) 483-6827

Not Applicable

Former Name or Former Address, if Changed Since Last Report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

¨  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

On August 4, 2015, Ventas, Inc. (the “Company”) completed its acquisition of Ardent Medical Services, Inc. (“AHS”).  Concurrent with the closing of the transaction, the Company separated AHS’s hospital operations from its owned real estate and sold the hospital operations to a newly formed and capitalized operating company (“Ardent”).  The acquisition was originally reported on a Current Report on Form 8-K, filed by the Company with the Securities and Exchange Commission on August 10, 2015 (the “Original Filing”). This amendment to the Original Filing is being filed to provide the historical financial statements of AHS Medical Holdings (as defined below) and any additional information required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b), which financial statements and information were not included in the Original Filing.

Item 9.01.                                        Financial Statements and Exhibits.

(a)         Financial Statements of Businesses Acquired.

The audited consolidated financial statements of AHS Medical Holdings LLC, the 100% parent company of AHS (“AHS Medical Holdings”), for the years ended December 31, 2014 and 2013 are filed herewith as Exhibit 99.1 and incorporated in this Item 9.01(a) by reference.  The unaudited condensed consolidated financial statements of AHS Medical Holdings for the six month periods ended June 30, 2015 and 2014 are filed herewith as Exhibit 99.2 and incorporated in this Item 9.01(a) by reference.

(b)         Pro Forma Financial Information.

The unaudited pro forma condensed consolidated financial information of the Company, giving effect to the acquisition of AHS and the concurrent sale of Ardent, and the related notes thereto, are filed herewith as Exhibit 99.3 and incorporated in this Item 9.01(b) by reference.

(c)          Shell Company Transactions.

Not applicable.

(d)         Exhibits:

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SIGNATURES

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

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EXHIBIT INDEX

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Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration Statements:

(1)         Registration Statement (Form S-4 No. 333-198789) of Ventas, Inc.,

(2)         the Registration Statement (Form S-3 No. 333-202586) of Ventas, Inc.,

(3)         the Registration Statement (Form S-3 No. 333-200781) of Ventas, Inc.,

(4)         the Registration Statement (Form S-8 No. 333-183121) pertaining to the Ventas, Inc. 2012 Incentive Plan,

(5)         the Registration Statement (Form S-8 No. 333-173434) pertaining to the Nationwide Health Properties, Inc. 2005 Performance Incentive Plan, as Amended,

(6)         the Registration Statement (Form S-8 No. 333-136175) pertaining to the Ventas, Inc. 2006 Incentive Plan and Ventas, Inc. 2006 Stock Plan for Directors,

(7)         the Registration Statement (Form S-8 No. 333-126639) pertaining to the Ventas Employee and Director Stock Purchase Plan,

(8)         the Registration Statement (Form S-8 No. 333-118944) pertaining to the Ventas Executive Deferred Stock Compensation Plan and Ventas Nonemployee Director Deferred Stock Compensation Plan,

(9)         the Registration Statement (Form S-8 No. 333-107951) pertaining to the Ventas, Inc. 2000 Stock Option Plan for Directors,

(10)  the Registration Statement (Form S-8 No. 333-97251) pertaining to the Ventas, Inc. 2000 Incentive Compensation Plan,

(11)  the Registration Statement (Form S-8 No. 333-61552) pertaining to the Ventas, Inc. Common Stock Purchase Plan for Directors,

of our report dated February 23, 2015, with respect to the consolidated financial statements of AHS Medical Holdings LLC included in this Current Report on Form 8-K/A of Ventas, Inc. dated September 1, 2015.

/s/ Ernst & Young LLP

Nashville, Tennessee
September 1, 2015

Exhibit 99.1

AHS Medical Holdings LLC

Consolidated Financial Statements

Years Ended December 31, 2014 and 2013

Contents

Report of Independent Auditors

The Board of Managers and Members

AHS Medical Holdings LLC

We have audited the accompanying consolidated financial statements of AHS Medical Holdings LLC, which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AHS Medical Holdings LLC at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

February 23, 2015

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AHS Medical Holdings LLC

Consolidated Statements of Operations

See accompanying notes.

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AHS Medical Holdings LLC

Consolidated Balance Sheets

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AHS Medical Holdings LLC

Consolidated Balance Sheets (continued)

See accompanying notes.

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AHS Medical Holdings LLC

Consolidated Statements of Cash Flows

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AHS Medical Holdings LLC

Consolidated Statements of Cash Flows (continued)

See accompanying notes.

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AHS Medical Holdings LLC

Consolidated Statements of Members’ Equity

See accompanying notes.

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AHS Medical Holdings LLC

Notes to Consolidated Financial Statements

December 31, 2014

1. Description of the Business and Summary of Significant Accounting Policies

Organization and Basis of Presentation

AHS Medical Holdings LLC is a holding company whose affiliates operate acute care hospitals, other health care facilities, and health plans. As a Delaware Limited Liability Company (LLC), the members of the LLC are not personally liable for the debts and liabilities of the LLC in accordance to the LLC agreement, as amended and restated, and applicable statutes. The terms “Ardent” and the “Company,” as used in these financial statements, refer to AHS Medical Holdings LLC and its affiliates unless stated otherwise or indicated by context. The term “affiliates” includes direct and indirect subsidiaries of Ardent and partnerships and joint ventures in which such subsidiaries are partners. At December 31, 2014, these affiliates operated 14 acute care hospitals, including one rehabilitation hospital and two surgical hospitals, other health care facilities including physician clinics.

The Company operated health plans (the Health Plans) in New Mexico and Oklahoma in 2014 and 2013. The Health Plans have been divested in a series of transactions that began on August 1, 2013, and were completed on May 31, 2014. The historical results of the Health Plans, including subsequent costs related to managing retained assets and liabilities not assumed by the buyer, are included in the continuing operations of the Company’s consolidated financial statements. Refer to Note 2 for further discussion related to these transactions.

The Company’s integrated health care delivery system in the State of New Mexico (the Lovelace Health System) includes Lovelace Health System, Inc., which is comprised of a federally qualified health maintenance organization (the HMO), which divested of its members as of May 31, 2014, five acute care hospitals (including one rehabilitation hospital) and other health care facilities, and a network of retail pharmacies.

The Company’s health care delivery system in Tulsa, Oklahoma (the Hillcrest HealthCare System) includes two metropolitan acute care hospitals, a network of four regional hospitals, a surgical hospital and other health care facilities, including physician clinics.

Effective January 1, 2013, the Company acquired an 80% interest in Baptist St. Anthony’s Health System in Amarillo, Texas (BSA Health System), which includes a hospital and cancer center, a majority interest in a surgical hospital, a network of primary care, urgent care, and surgical clinics and various other partnerships.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

The financial statements include the consolidated financial position and consolidated results of operations of the Company and its affiliates, which are controlled by the Company through the Company’s direct or indirect ownership of a majority interest and rights granted to the Company through certain variable interests. All intercompany balances and transactions have been eliminated in consolidation.

Summary of Significant Accounting Policies

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Reconciliation and Elimination of Intercompany Accounts and Transactions

The Company provided health care coverage to its Health Plans’ members for health care services that were often provided by its own hospitals and other health care facilities. This resulted in significant transactions among the Company’s affiliates that must be reconciled and eliminated for reporting of the Company’s consolidated financial statements. These transactions primarily related to health care services provided to members of the Company’s Health Plans, upon which accounts receivable and related net patient service revenue was recorded by the Company’s hospitals and other health care facilities and medical claims payable and related medical benefits expense was recorded by the Company’s Health Plans. These accounts and transactions were then eliminated upon consolidation.

Reclassifications

Certain amounts as of and for the year ended December 31, 2013 have been reclassified to conform to 2014 presentation. These reclassifications did not impact the Company’s financial position, results of operations or cash flows.

1. Description of the Business and Summary of Significant Accounting Policies (continued)

Net Patient Service Revenue (and Related Discounts and Allowances)

Net patient service revenue is recorded on the accrual basis in the period in which services are provided. Net patient service revenue includes amounts estimated by management to be

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reimbursable by Medicare, Medicaid and other payors under provisions of cost or prospective reimbursement formulas in effect. Amounts received are generally less than the established billing rates and the differences (contractual discounts) are reported as deductions from patient service revenue at the time the service is rendered. The effects of other arrangements for providing services at less than established rates, including certain self-pay discounts provided to uninsured patients, are also reported as deductions from patient service revenue.

The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates contractual discounts on a payor-specific basis based on its interpretation of the applicable regulations or contract terms and the historical collections of each payor. However, the ultimate reimbursements may result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to contractual discounts affect net revenues reported in the Company’s results of operations and are recorded in the period the change in estimate occurs.

The Company’s facilities provide discounts on gross charges to uninsured patients under the Company’s charity and self-pay discount policy. Uninsured patients treated for nonelective care are eligible for charity care if they do not qualify for Medicaid or other federal or state assistance and have income at or below a certain income level. The estimated costs incurred by the Company to provide services to patients who qualify for charity care were $30.3 million and $19.8 million for the years ended December 31, 2014 and 2013, respectively. The Company estimates the direct and indirect costs of providing charity care by applying a cost to gross charges ratio to the gross charges associated with providing charity care to patients. Other uninsured patients receive self-pay discounts similar to those provided to many managed care plans. Because the Company does not pursue collection of amounts determined to qualify under the charity and self-pay discount policy, they are not reported in net patient service revenue or the provision for doubtful accounts. These charity and self-pay discounts totaled $273.8 million and $242.7 million in 2014 and 2013, respectively.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

In 2014, the Company recorded an increase of $3.8 million of Medicare net patient service revenue as the estimated settlement amount for certain claims denied by Recovery Audit Contractors entities conducting reviews on behalf of the Centers for Medicare and Medicaid Services (CMS) and currently in the pending appeals process. CMS offered an administrative agreement to providers willing to withdraw their pending appeals in exchange for a timely partial payment, which was generally 68% of the claim amount, subject to certain adjustments.

Settlements under cost-based reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under the Medicare, Medicaid and other third-party payor programs often occurs in subsequent years because of audits by the programs, rights of appeal, and the application of numerous technical provisions. Settlements are considered in the recognition of net patient service revenue on an estimated basis in the period the related services are rendered, and such amounts are subsequently adjusted in future periods as adjustments become known or as years are no longer subject to such audits and reviews. These settlements resulted in an increase to net patient service revenue of $1.5 million and $2.3 million in 2014 and 2013, respectively.

In 2014, a settlement agreement (the Rural Floor Settlement) was signed between the CMS, the United Statement Department of Health and Human Services, the Secretary of Health and Human Services and the Company’s hospitals. The Rural Floor Settlement was intended to resolve all claims that had been brought or could have been brought relating to CMS’ calculation of the rural floor budget neutrality adjustment for the Medicare Program’s inpatient prospective payment system that was created by the Balanced Budget Act of 1997 for federal fiscal year 1998 through and including federal fiscal year 2011. As a result of the Rural Floor Settlement, the Company recorded $4.4 million of net patient service revenue in 2014, which is included in the net adjustment to estimated settlements.

In 2014, the Company recorded $22.9 million as a reduction to net patient service revenue resulting from a recoupment of reimbursement previously paid to Hillcrest Medical Center in Tulsa, Oklahoma for care provided to adolescent behavioral patients. This amount is based on CMS’ determination that the Company’s child and adolescent inpatient psychiatric unit at Hillcrest Medical Center did not meet CMS reimbursement criteria for acute care. This determination by CMS resulted in this unit being unable to be reimbursed for Residential Treatment Center (RTC) and acute days. The Company disagrees with the recoupment and will appeal the CMS decision.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

The total net adjustments to estimated settlements, including the Rural Floor Settlement and the disallowed RTC and acute days for the child and adolescent inpatient psychiatric unit, resulted in a decrease to net patient service revenue from continuing operations of $17.0 million in 2014 and an increase of $2.3 million in 2013, respectively.

At December 31, 2014 and 2013, the Company’s settlements under cost-based reimbursements with third-party payors were a net payable of $23.3 million and $12.4 million, respectively, of which a receivable of $14.4 million and $3.6 million, respectively, was included in other current assets and a payable of $37.7 million and $16.0 million, respectively, was included in other accrued expenses and liabilities in the consolidated balance sheets.

Final determination of amounts earned under prospective payment and cost-based reimbursement activities is subject to review by appropriate governmental authorities or their agents. In the opinion of the Company’s management, adequate provision has been made for any adjustments that may result from such reviews.

Provision for Doubtful Accounts (and Related Allowance for Doubtful Accounts)

The collection of accounts receivable, primarily from Medicare, Medicaid, managed care payors, other third-party payors, and patients, is critical to the Company’s operating performance. The Company’s primary collection risk that could result in bad debt relates to uninsured patient accounts and patient accounts whereby the primary insurance carrier has paid the amounts covered by the applicable agreement but the portion of the amount that is the patient’s responsibility (primarily deductibles and co-payments) remains outstanding. The Company’s collection procedures are followed until such time that management determines the account is uncollectible, at which time the account is written off. The Company routinely monitors, at the market level, its accounts receivable balances and utilizes historical collection experience to support the basis for its estimates of the allowance for doubtful accounts. Significant changes in payor mix or business office operations could have a significant impact on the Company’s results of operations and cash flows. The provision for doubtful accounts and the allowance for doubtful accounts relate primarily to self-pay amounts due from patients.

The Company has determined, based on an assessment at the market level, that services are provided prior to assessing the patient’s ability to pay and as such, the entire provision for bad debts is recorded as a deduction from patient service revenue in the accompanying statements of operations.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

A summary of the Company’s allowance for doubtful accounts activity is as follows:

The change in expense and write-offs relate to an increase in self pay and charity discounts as well as the timing of write-offs.

Oklahoma Hospital Provider Fee

In January 2012, CMS approved the State of Oklahoma’s Supplemental Hospital Offset Payment Program (SHOPP) with an effective date of July 1, 2011. The SHOPP program created a hospital provider fee assessment on all nonexempt Oklahoma hospitals. Similar to Medicaid programs in other states, revenues from this assessment are used to fund certain SoonerCare Medicaid programs and secure additional matching Medicaid funds from the federal government. The SHOPP funds are paid to Oklahoma hospitals based on their respective health care services provided to Medicaid patients.

In 2014 and 2013, the Company recorded net patient service revenue of $49.8 million and $42.5 million, respectively and other operating expense of $20.7 million and $16.7 million, respectively, related to the SHOPP program, resulting in $29.2 million and $25.8 million, respectively, of income from continuing operations before income taxes.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Premium Revenue (and Related Premiums Receivable and Unearned Premiums)

Through May 31, 2014 (the date of the sale of the remainder of the health plan business — refer to Note 2 for further discussion on this divestiture), premium revenue for coverage of health care services provided by the Health Plans was recognized as revenue over the period in which enrollees were entitled to medical care. An allowance was established at December 31, 2013, for retroactive premium adjustments, as well as for doubtful accounts and other potential charges.

Premiums collected in advance were deferred and recorded as unearned premiums. Premiums receivable and the related allowance for doubtful accounts and retroactive adjustments were recorded on an accrual basis to report the receivables at their net realizable value.

The Company’s Medicare contracts were complex and subject to interpretation and retroactive adjustment. The Health Plans’ premium revenue earned pursuant to certain Medicare contracts was subject to adjustment based on certain health factors of the enrollees pursuant to CMS’ risk adjusted payment methodology. Accordingly, the Health Plans collected and periodically reported diagnosis code information to CMS. CMS periodically adjusted risk-adjusted payments during the year based on the diagnosis code submissions, with a final retroactive adjustment determined in the following year. Estimates of the risk-adjusted settlement were recorded based on the submissions of diagnosis code information and adjusted to actual amounts when the final settlement was known.

Medicare Part D capitation payments received from CMS included direct subsidy payments, low income subsidy payments, and reinsurance subsidy payments. Direct subsidy payments were recorded as premium revenue in the month in which the members were entitled to receive pharmacy benefits, except for any calculated risk corridor liability due to CMS, which was excluded from premium revenue as a return premium under a retrospectively rated contract. Low income subsidy payments and reinsurance subsidy payments were not included in premium revenue, and related claims incurred for these coverages were excluded from the Company’s medical benefit expense.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

The Company’s Medicaid contracts were complex and subject to interpretation and retroactive adjustment. The Health Plans’ premium revenue earned pursuant to its Medicaid contracts was subject to certain maximum profit and minimum medical loss ratio requirements as defined in the respective contracts. At December 31, 2013, the Company established an allowance for premiums received in excess of these requirements. No such allowance at December 31, 2014.

Final determination of amounts earned under Medicare and Medicaid contracts is subject to review by appropriate governmental authorities or their agents. Changes in estimates related to retroactive premium adjustments affect premium revenues reported in the Company’s results of operations and are recorded in the period the change in estimate occurs.

Other Revenues

Other revenues consist primarily of retail pharmacy and cafeteria sales as well as rental and miscellaneous income within the Company’s hospitals and other health care facilities and provider network access fees and medical management services provided by the Health Plans, all of which are recognized as services are provided or goods are sold.

Medical Benefit Expense (and Related Medical Claims Payable)

Accrued medical claims are estimates of payments to be made under the health coverage plans of the Health Plans for reported claims and for claims incurred but not yet reported. Management employs standard actuarial methods to estimate the liability for medical claims payable and utilizes data developed from historical trends resulting in a best estimate approach. The estimates include assumptions related to the effects of payment patterns, benefit changes, medical trends, seasonality and other relevant factors such as catastrophic claims incidence. Other normal actuarial considerations are also considered in estimating the medical claims payable. These considerations include comparisons of current and prior bed day and admissions data to gauge the impact of changes in these metrics over time, retrospective comparisons of the actual claim payments to prior period estimates, and the relative change in claims inventory over recent months.

When estimates change, the Company records the adjustment to medical benefit expense in the period the change in estimate occurs. In addition, the Company accrues administrative expenses associated with those unpaid health claims that are in the process of settlement as well as those that have been incurred but not yet reported. This accrual is based on the historical relationship between claims processing expenses and incurred claims.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

An analysis is performed and an accrual is recorded when it is probable that expected future health care costs and administrative expenses under existing contracts will exceed anticipated future premiums and insurance recoveries on those contracts. At December 31, 2014, no such accruals for loss contracts were necessary due to the finalization of the divestiture of the Health Plans on May 31, 2014. At December 31, 2013, the Company recorded an accrual of $3.8 million for a premium deficiency reserve in medical claims payable.

Noncontrolling Interests

The financial statements include the financial position and results of operations of BSA Health System, Tulsa Spine & Specialty Hospital and Bailey Medical Center in which the Company owns less than 100% but maintains a controlling interest. Additionally, the Company acquired controlling interests in Tulsa Spine & Specialty Hospital and BSA Health System in 2014 and 2013, respectively. Refer to Note 2 for further information on the Company’s acquired noncontrolling interests.

A summary of these entities is as follows (in thousands):

For the BSA Health System, the noncontrolling interest holders have a right to sell (put) their member units to the Company (and the Company has an obligation to purchase the member units) upon the occurrence of certain events or circumstances. The option period commences on the earliest to occur of (i) the fifth anniversary date of the BSA Health System’s LLC agreement, (ii) the determination by the noncontrolling interests that its continued ownership in the Company will detrimentally affect the noncontrolling interests to continue status as a tax-exempt organization, (iii) the expiration or termination of the management agreement, or (iv) a change in control or certain legal proceedings. This put option is to be settled in cash at fair market value.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Additionally, the Company has an option to purchase (call) the noncontrolling interest holders’ member units for the BSA Health System commencing on the earlier to occur of (i) the date that the sharing percentage of the noncontrolling interests is less than 20%, but not before the fifth anniversary of the BSA Health System’s LLC agreement or (ii) the expiration or termination of the management agreement. This call option is to be settled in cash at fair market value.

In accordance with Accounting Standards Codification (ASC) 810, Consolidation, noncontrolling interests are considered to be equity holders in the consolidated company, pursuant to which noncontrolling interests are classified as part of equity, unless the noncontrolling interests are redeemable. Due to the redemptive features associated with the noncontrolling interests for the BSA Health System, this balance is classified outside the permanent equity section of the Company’s consolidated balance sheets.

Earnings or losses attributable to the noncontrolling interests are presented separately in the consolidated statements of operations.

The components of redeemable noncontrolling interests are as follows (in thousands):

Changes in the fair value of the Company’s redeemable noncontrolling interests are recognized as adjustments to the Company’s consolidated members’ equity.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired. In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are subject to annual impairment tests. The Company acquired businesses resulting in goodwill of $71.5 million in 2014 and $320.8 million in 2013. On a quantitative and qualitative basis, the Company compares the fair value of the reporting units to their carrying amounts on at least an annual basis to determine if there is potential impairment. If the fair value is less than carrying value, the fair value of the reporting unit is assigned to its respective assets and liabilities, including goodwill. An impairment charge is recorded if the implied fair value of goodwill is determined to be less than its carrying value. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360, Property, Plant, and Equipment. There were no goodwill or other intangible impairment charges in 2014 and 2013.

Risk Management and Self-Insured Liabilities

The Company maintains claims-made commercial insurance related to professional risks and occurrence-based commercial insurance related to workers’ compensation and general liability risks. The Company provides an accrual for actual claims reported but not paid and actuarially determined estimates of claims incurred but not reported. When estimates change, the Company records the adjustment in the period the change in estimate occurs. In addition, the Company accrues administrative expenses associated with those unpaid claims that are in the process of settlement as well as those that have been incurred but not yet reported. This accrual is based on the historical relationship between claims processing expenses and incurred claims.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Unit-Based Compensation

The Company, from time to time, grants options for a fixed number of common units to employees. Unit options are granted with an exercise price equal to or above the units’ estimated fair value at the date of grant. The units’ estimated fair value is estimated based on recent investments by investors and periodic valuations performed by valuation professionals. ASC 718, Compensation — Stock Compensation, requires the Company to recognize compensation expense in an amount equal to the fair value of unit options granted over their applicable vesting period. The Company recorded unit-based compensation of $2.5 million and $1.9 million in 2014 and 2013, respectively, for unit options granted or modified after the adoption of the provisions in ASC 718 on October 1, 2005.

The fair value of each option grant is estimated on the date of grant using a Black-Scholes option pricing model. The weighted average assumptions used for grants subsequent to the adoption of the provisions in ASC 718 are as follows:

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Electronic Health Record Incentive Income

The American Recovery and Reinvestment Act of 2009 provides for Medicare and Medicaid incentive payments beginning in 2012 for eligible hospitals and professionals that adopt and meaningfully use certified electronic health record (EHR) technology. In 2014 and 2013, the Company recognized EHR incentive income related to the Medicare and Medicaid incentive payments. For Medicaid EHR incentive payments, recognition occurs at the time meaningful use criteria are met since Medicaid payments for the states in which the Company operates are based upon historical cost reports with no subsequent payment adjustment. For Medicare EHR incentive payments, recognition is deferred until the end of the Medicare federal fiscal year during which EHR meaningful use was demonstrated. The related income from the combined Medicare and Medicaid attestations of EHR technology was $13.7 million and $20.6 million in 2014 and 2013, respectively, and is presented as EHR incentive income in the consolidated statements of operations.

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments with a maturity of 90 days or less when purchased.

Inventories

Inventories consist primarily of hospital supplies and pharmaceuticals and are stated at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment additions are stated at cost. Routine maintenance and repairs are charged to expense as incurred. Expenditures that increase values, change capacities or extend useful lives are capitalized. Depreciation is computed by applying the straight-line method over the lesser of the estimated useful lives of the assets or lease term, ranging generally from five to forty years for buildings and improvements, one to twenty years for equipment and three to ten years for leasehold improvements.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Other Assets

Other assets consist primarily of deferred financing costs, medical malpractice and workers’ compensation insurance receivables, and restricted cash and investments. Deferred financing costs are deferred and amortized over the life of the related debt under the effective interest method.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities, with the primary differences related to the allowance for doubtful accounts, accrued liabilities, depreciation methods and periods, and deferred cost amortization methods.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a difference in estimated and actual tax rates is recognized in income in the period that includes the enactment date. The Company identifies deferred tax assets that more likely than not, based on the available evidence, will be unrealizable in future periods and records a valuation allowance accordingly. Refer to Note 8 for further discussion on income taxes.

Federal and state tax laws are complex and the Company’s tax positions may be subject to interpretation and adjustment by federal and state taxing authorities. The Company accounts for uncertain tax positions in accordance with ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold may be recognized. The final outcome of audits by federal and state taxing authorities may have a significant effect on the financial position and results of operations of the Company.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Concentrations of Credit Risk

Patient accounts receivable is the Company’s primary concentration of credit risk, which consists of amounts owed by various governmental agencies, managed care payors, commercial insurance companies, employers and patients. The Company manages its patient accounts receivable by regularly reviewing its accounts and contracts and by providing appropriate allowances for uncollectible amounts. The number of patients and payors limits concentration of credit risk from any one payor.

The composition of the Company’s accounts receivable and net patient service revenue is as follows ($ in thousands):

Self-pay receivables in the chart above include uninsured patients as well as co-payments and deductibles. Other includes workers’ compensation, motor and vehicle accident insurance and other similar payors.

The Health Plans had certain contracts with CMS and New Mexico to provide health care services to Medicare and Medicaid beneficiaries under the Medicare Advantage and Salud! programs, respectively. Medicare-related programs represented 53.3% and 41.8% of premium revenue in 2014 and 2013, respectively. There was no premium revenue from the Salud! programs in 2014. In 2013, the Salud! programs represented 19.9% of premium revenue.

At December 31, 2014, there were no outstanding premiums receivables. At December 31, 2013, premiums receivable includes amounts due from one major federal employer group representing 36.3% of total net premiums receivable. This group represented 15.5% and 9.5% of premium revenue in 2014 and 2013, respectively.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Market Risks

The Company’s total net revenue by market from continuing operations in 2014 and 2013 are as follows:

The Company’s cash flows and results of operations could be significantly and adversely impacted by adverse economic, legislative or other factors in these markets.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short-term nature of these items.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

The following table summarizes the Company’s assets and liabilities at fair value at December 31, 2014 and 2013 (in thousands):

In 2014, the Company repaid its revolving credit facility. Refer to Note 7 for further discussion of this payment. Additionally, refer to Note 1 for a rollforward of redeemable noncontrolling interests.

In general, fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset, and include situations where there is little, if any, market activity for the asset. Ardent determines its term loan fair value with Level 2 inputs and noncontrolling interests with Level 3 inputs.

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1. Description of the Business and Summary of Significant Accounting Policies (continued)

Risk Pool Assessments

The Company is a member of the New Mexico Medical Insurance Pool and the New Mexico Health Insurance Alliance, which are risk pools for individuals who are unable to obtain health insurance on a voluntary basis. Pool members share in operating results of the pools proportionate to their share of health insurance premiums written. The Company expenses risk pool assessments in the year the related premiums are recorded, and accrues for anticipated assessments based on historical experience. There were no outstanding assessments at December 31, 2014. At December 31, 2013, the Company accrued anticipated assessments of $1.5 million, which are included in other accrued expenses and liabilities in the consolidated balance sheets. The Company also receives credits on premium taxes for a portion of pool assessments. The Company accrues these credits as the related assessments are accrued.

Recently Issued Accounting Pronouncements

In July 2011, the Financial Accounting Standards Board issued Accounting Standard Update No. 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers (ASU 2011-06). ASU 2011-06 provides authoritative guidance to the recognition and income statement reporting of the mandated health insurer fee to be paid to the federal government by health insurers, as part of the Patient Protection and Affordable Care Act. The health insurer fee is based on a company’s share of the industry’s net premiums written during the preceding calendar year and is payable on September 30 of each year. The Company adopted ASU 2011-06 for the year beginning January 1, 2014. For the year ended December 31, 2014, the Company recorded $5.6 million of other operating expenses related to the health insurer fees. All amounts were paid in 2014 and there are no outstanding payables at December 31, 2014. Due to the divestiture of the Company’s health plan operations, ASU 2011-06 will not significantly impact the Company’s financial position, results of operations or cash flows for future years. Refer to Note 2 for further discussion related to the divestiture of the Health Plans.

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2. Acquisitions and Divestitures

Acquisitions

Acquisitions are accounted for using the acquisition method of accounting prescribed by ASC 805, Business Combinations, and the results of operations are included in the consolidated statements of operations from the respective dates of acquisition. The purchase prices of these transactions are allocated to the assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition and can be subject to change during the 12 months subsequent to the acquisition date due to settling amounts related to purchased working capital and final determination of fair value estimates. All goodwill resulting from the Company’s acquisitions is deductible for federal income tax purposes.

Effective December 1, 2014, the Company acquired a 51% controlling interest in a surgical hospital in Tulsa, Oklahoma, for $38.2 million. This transaction resulted in goodwill of $66.4 million. Based on the Company’s economic interest and its rights under the management agreement with the hospital, the Company has control of the joint venture’s operations and as result, it is consolidated into the Company’s financial statements.

In 2014, the Company also completed individually immaterial acquisitions of certain assets and operations for a combined $7.3 million. These transactions resulted in goodwill of $5.1 million.

Effective January 1, 2013, the Company acquired an 80% interest in Baptist St. Anthony’s Health System, which includes a 445-bed hospital and cancer center, an interest in a 41-bed surgical hospital, a network of primary care, urgent care, and surgical clinics and various other partnerships, in Amarillo, Texas for $443.1 million, net of cash acquired. The purchase price for the Baptist St. Anthony’s Health System acquisition was paid in cash and was financed, in part, with proceeds from the issuance of additional senior secured debt, preferred and common units and with cash on hand. The transaction resulted in goodwill of $320.8 million. Based on the Company’s economic interest and rights under the management agreement with Baptist St. Anthony’s Health System, the Company has control of the joint venture’s operations and as a result, it is consolidated into the Company’s financial statements.

2. Acquisitions and Divestitures (continued)

The 2014 acquisitions, which were purchased with cash on hand, strengthened the presence and market share within the Company’s existing markets. The 2013 acquisition provided the Company a successful brand in a new market while reducing the Company’s geographical and market risks.

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The table below summarizes the allocations of the purchase price for the aforementioned acquisition transactions (in thousands; 2014 balance are preliminary subject to customary adjustments):