Priority Health Choice Inc.

“Priority health managed benefits, inc. (phmb), an entity related through common ownership, provides contracted management services to priority health choice and its affiliates. Priority health, a 501(c)(4), is the parent company to the organization. Priority health's governing body retains control of the activities of phmb as the governing bodies of priority health and phmb are comprised of the same directors and officers.”

“Members of the board of directors and officers of the organization also serve on the board of directors and/or as officers of related taxable entities - business relationship”

“The organization's articles of incorportion were amended on september 30, 2013 to reflect a change of legal name from priority health government programs, inc. To priority health choice, inc.”

“The parent organization is priority health (ein 38-2715520), a tax-exempt 501(c)(4) organization. Priority health controls 100% of the organization. Priority health has three shareholders as follows: spectrum health system (ein 38-3382353), class a shareholder - 93.9% munson healthcare (ein 38-1362830), class b shareholder - 5.5% northern michigan regional health system (ein 38-2146751), class b shareholder - .6% all shareholders are tax-exempt internal revenue code section 501(c)(3) organizations.”

“Election of members and their rights from priority health choice bylaws: article v section 2. Number and class of directors. The board of directors will be comprised of six (6) members as follows: a. One (1) member will be the president and chief executive officer of priority health. B. One (1) member will be the chief financial officer of priority health. C. One (1) member will be the chief medical officer of priority health. D. One (1) member will be the chief operations officer of priority health. E. Two (2) members will be adult enrollee members of priority health choice, inc. Section 3. Election of adult enrollee members. The board of directors will solicit names of potential candidates from the members, shareholders, directors and community. The priority health choice, inc. Board of directors will submit a list of nominees for election to the board of directors as adult enrollee representatives. At least one (1) member will be nominated for each directorship to be filled at such annual meeting. In addition, any group of adult enrollees in the corporation's health maintenance plan, upon filing a petition with more than one hundred (100) legitimate signatures of current members with the secretary of the board of directors at least ninety (90) days prior to the annual meeting, may nominate a candidate for election to the board of directors. Eligible members will be given the opportunity to vote on the candidates for election to the board of directors.”

“From priority health choice bylaws: section 1. Votes. Each shareholder of record as determined in accordance with section 2 of this article will, at every meeting of shareholders, be entitled to one (1) vote in person or by proxy for each share of capital voting stock of the corporation held by the shareholder. A vote may be cast either verbally or in writing. Unless the articles of incorporation or bylaws state otherwise, all matters will be determined by the vote of the holders of a majority of the issued and outstanding stock in the corporation. Section 2. Record date for determination of shareholders. For the purpose of determining shareholders entitled to notice of, and to vote at, a meeting of shareholders, or any adjourned meeting, or to express consent to or dissent from a proposal without a meeting, or for the purpose of any other action, the board of directors may fix in advance a date, not more than sixty (60) days nor less than twenty-one (21) days before the date of the meeting or other action, as the record date for the determination of shareholders. Section 3. Proxies. A shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize other persons to act for the shareholder by proxy. No proxy will be deemed operative unless and until signed by the shareholder or the shareholder's authorized agent or representative and filed with the corporation. Unless otherwise provided in the proxy, a proxy is valid only for three (3) years from its date. Section 4. Annual budget and strategic plan. At the first meeting of the board of directors during each fiscal year, the board of directors will approve the annual budget and strategic plan for the corporation. At the first meeting of the board of directors of the shareholder during each fiscal year, the shareholder will approve the annual budget and strategic plan for the corporation. Section 5. Power to elect president. The shareholders will select a president from the board of directors. Section 6. Removal of officers and agents. Any officer or agent may be removed by the shareholders whenever, in their judgment, the business interests of the corporation will be served by the removal. Section 7. Delegation of powers. For any reason they deem sufficient, whether occasioned by absence or otherwise, the shareholders may delegate all or any of the powers and duties of any officer to any other officer or director. Section 8. Power to require bonds. The shareholders may require any officer or agent to file with the corporation a satisfactory bond conditioned for faithful performance of the officer's or agent's duties.”

“The review process for this form 990 is as follows: 1. Preparation of the return is supervised and reviewed by the organization's corporate tax manager. 2. A second review is performed by an external cpa firm with expertise in tax-exempt return preparation. 3. The return is reviewed by the organization's finance and legal departments and presented to the finance and audit committee who is responsible for approving the return for filing and distribution to the board of directors. 4. The return is sent to the members of the board of directors. 5. The organization's chief financial officer reviews comments or questions received by members of the board of directors, if any, to address or to incorporate, as appropriate, into the return prior to filing.”

“Board of directors 1. Conflicts of interest must be disclosed, both via an annual electronic disclosure process as well as verbally at a board meeting prior to discussion of any agenda item with regard to which a board member has a conflict. 2. A person having a financial interest in a proposed transaction or arrangement may make a presentation at a meeting of the board of directors or committee considering that transaction or arrangement, but after that presentation he or she shall leave the meeting during discussion and voting on that proposed transaction or arrangement. The person having the financial interest shall not be counted in determining whether a quorum is present. 3. The chairperson of the board of directors or committee shall, if appropriate, appoint a disinterested person or committee (including outside advisors) to investigate alternatives to the proposed transaction or arrangement, and to advise whether the proposed transaction or arrangement is in the organization's best interest. 4. The board of directors or committee shall exercise due diligence to determine whether the organization can, with reasonable efforts, obtain a more advantageous transaction or arrangement that would not give rise to a conflict of interest. 5. If a more advantageous transaction or arrangement is not reasonably attainable under circumstances that would not give rise to a conflict of interest, the board of directors or committee shall determine by a majority vote of the disinterested directors and members whether the proposed transaction or arrangement is in the organization's best interest and for its own benefit and whether the transaction is fair and reasonable to the organization, and shall make its decision as to whether to enter into the transaction or arrangement in conformity with such determination. 6. The minutes of the meetings of the board of directors and all of the organization's committees shall set forth: a)the names of the persons who disclosed a financial interest in a proposed transaction or arrangement involving the organization or any of its subsidiaries and the nature of the financial interest; and b)the names of the persons who were present for discussions and votes relating to such transaction or arrangement, including any discussion of alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection with that matter. The votes of individual members need not be recorded unless otherwise directed by the board of directors or committee. 7. There is an ongoing requirement that members of the board of directors complete another disclosure questionnaire at any point during his/her tenure on the board of directors when a new potential conflict of interest arises. If a member of the board of directors completes a disclosure questionnaire as a result of a new potential conflict of interest, that disclosure questionnaire is submitted to the legal, organizational integrity, internal audit, and human resources departments for review. Management 1. Upon acceptance of an employment offer, each member of management completes a conflict of interest disclosure questionnaire. A copy of the member of management's disclosure questionnaire is sent to the organization's legal department. A copy of the member of management's disclosure is reviewed by the organization's coi coordinator and escalated to the coi committee if necessary. 2. Annually, each member of management completes an annual conflict of interest disclosure questionnaire electronically. The disclosure questionnaire is reviewed the legal, organizational integrity, internal audit, and human resources departments. 3. There is an ongoing requirement that members of management complete another disclosure questionnaire at any point during his/her employment when a new potential conflict of interest arises. If a member of management completes a disclosure questionnaire as a result of a new potential conflict of interest, that disclosure”

“The spectrum health system board of directors (through its executive committee) uses the following process for determining compensation of the top management official, other officers, and key employees at priority health. Labor market data reflecting comparable organizations and jobs (prepared by independent firms) are relied upon. Competitive assessment reports are provided to the executive committee in advance of meetings. The competitive assessment report is prepared by a nationally known independent executive compensation firm and was based on the following independent surveys of health care executives at comparable health systems, health plans, and medical groups: * american medical group association: 2012 medical group compensation & financial survey * integrated healthcare strategies: 2012 health care executive compensation survey * mercer human resources consulting: 2012 executive compensation survey * mercer human resources consulting: 2012 integrated health networks compensation survey * medical group management association: 2012 management compensation survey * sullivan, cotter and associates: 2012 survey of manager and executive compensation in hospitals and health systems * sullivan, cotter and associates: 2012 physician compensation and productivity survey report * towers watson: 2012/2013 hospital and healthcare management compensation report * towers watson: 2012/2013 top management compensation report * warren: 2012 compensation survey compensation adjustments are approved by executive committee members, consistent with the spectrum health compensation philosophy described below. Minutes of committee discussions and decisions are prepared to memorialize executive committee decisions based upon the above data. Cash compensation data relied upon by the executive committee is national and reflects the compensation paid to executives in comparable jobs in comparably-sized healthcare organizations. Spectrum health recruits nationally for its executives. Benefits data reflect national healthcare market practices. Geographic pay differential and cost of living data indicates consistency with national data. This process is intended to assist spectrum health in qualifying for the rebuttable presumption of reasonableness (intermediate sanctions regulations) and complying with the potential spectrum health excess benefit transaction policy for those individuals in the group who are disqualified persons. The opinion submitted from the third party independent consulting firm is in accordance with the provisions of treasury regulations section 53.4958-6(c)(2) and is also intended to satisfy the professional advice requirement of treasury regulations section 53.4958-1(d)(4)(iii).”

“See explanation provided for form 990, part vi, line 15a.”

“The organization's articles of incorporation and statutory financial statements are on file with the state of michigan and available to the public on the state's website. The organization's bylaws and internal policies are generally not made available to the public. The overall system consolidated financial statements are provided at www.spectrumhealth.org in the section titled "about us." financial performance is discussed at an annual public meeting held and posted to www.spectrumhealth.org annually (under the section titled "about us").”

“There are no individuals reported due to the integration with spectrum health system. Refer to the disclosure for form 990, part v, line 2a for further detail.”

“The organization's financial statements are audited annually by an independent accounting firm. The "no" response to this question relates to the fact that the gaap basis financial statements were prepared on a consolidated basis and not on a stand alone basis. The organization is audited annually on a stand alone basis and issued financial statements on a stand alone basis which are prepared in accordance with sap (statutory accounting principles), as required by regulatory authorities. The figures in this form 990 reconcile to the financial statements prepared under statutory accounting principles as submitted to the state of michigan.”

“All employees of priority health choice were employed during the year by spectrum health system (38-3382353) and leased back to priority health choice. Salaries and wages, employee benefits and payroll taxes are allocated to priority health choice via a management fee. The salaries and wages reported in part ix statement of functional expenses reflect the portion of salaries and wages allocated to priority health choice. Spectrum health system filed all applicable irs tax filings including forms w-2 and w-3 on behalf of priority health choice.”

“The organization's financial statements are audited annually by an independent accounting firm. The organization issued gaap basis financial statements which are prepared on a consolidated basis and not on a stand alone basis. The organization is audited annually on a stand alone basis and issued financial statements on a stand alone basis which are prepared in accordance with sap (statutory accounting principles), as required by regulatory authorities. The figures in this form 990 reconcile to the financial statements prepared under statutory accounting principles as submitted to the state of michigan.”