Ascension Health Alliance

Transcription

1 and Results of Operations The following information should be read with Ascension Health Alliance s audited consolidated financial statements and related notes to the consolidated financial statements. Organizational Changes Effective January 1, 2012, Ascension Health, a subsidiary of Ascension Health Alliance (the System), became sole corporate member of Alexian Brothers Health System (Alexian Brothers), a Catholic healthcare system which operates acute and specialty care hospitals, ambulatory care clinics, physician practices and senior living facilities in Illinois, Missouri, Tennessee and Wisconsin. This transaction resulted in a net increase to unrestricted net assets of approximately $326 million, reflected as contributions from business combinations in the Consolidated Statement of Operations and Changes in Net Assets during the year ended June 30, Furthermore, this addition resulted in a contribution of restricted net assets of approximately $16 million, included in other changes in net assets in the Consolidated Statement of Operations and Changes in Net Assets for the year ended June 30, For the year ended June 30, 2011, and prior to April 2012, the System held a significant portion of its investments in the Ascension Legacy Portfolio (formerly the Health System Depository, or HSD), an investment pool of funds in which the System and a limited number of other nonprofit entities participated. The System did not consolidate the Ascension Legacy Portfolio prior to April Accordingly, the System s investments recorded in the consolidated financial statements consisted only of the System s pro-rata share of the Ascension Legacy Portfolio s investments held for participants prior to April In April 2012, a significant portion of the assets in the Ascension Legacy Portfolio were transferred to the Catholic Healthcare Investment Management Company (CHIMCO) Alpha Fund, LLC (Alpha Fund), a separate legal entity created during the year ended June 30, CHIMCO, a federally registered investment adviser and wholly owned subsidiary of Ascension Health Alliance, manages the Alpha Fund. CHIMCO provides expertise in the areas of asset allocation, selection and monitoring of outside investment managers, and investment risk management. The Alpha Fund members include the investment interests of Ascension Health Alliance and other nonprofit entities. Ascension Health Alliance began consolidating the Alpha Fund in April The consolidation of the Alpha Fund by the System in April 2012 resulted in an increase of net assets of $440 million, representing the interests held by entities other than Ascension Health Alliance as of the date investments were transferred into the Alpha Fund. This $440 million is included in contributions of capital in the Consolidated Statements of Operations and Changes in Net Assets for the year ended June 30, The portion of the Alpha Fund s net assets representing interests held by entities other than Ascension Health Alliance is $589 million at June 30, 2012, and is included in noncontrolling interests in the Consolidated Balance Sheet at June 30, Total net investments under management by CHIMCO are $22.6 billion at June 30, Of the total net investments under CHIMCO management, $9.5 billion of the net investments is included in the consolidated net assets of the System at June 30, 2012, because these net assets are controlled by the System. Although CHIMCO manages an additional $13.1 billion, this amount is not included in the consolidated financial statements, as the System does not control the assets.

2 Volume Trends and Net Patient Service Revenue For the year ended June 30, 2012, Ascension Health Alliance experienced a 5.0% increase in equivalent discharges as compared to the year ended June 30, On a same facility basis, the growth in equivalent discharges was 1.5%. Outpatient revenue as a percentage of total gross patient service revenue was 47.7% for the year ended June 30, 2012, compared to 46.4% for the year ended June 30, Observation days and outpatient visits increased 13.4% and 6.7%, respectively, as compared to the same period of the prior fiscal year. On a same facility basis, the increases were 9.1% and 3.2% for observation days and outpatient visits, respectively. The increase in outpatient visits was primarily driven by a 14.9% increase in physician office visits (an increase of 12.7% on a same facility basis), a result of the continued focus on physician alignment activities across the System. Volume Trends and Key Performance Indicators Year Ended June 30, Volume Trends Equivalent Discharges 1,329,385 1,266,307 Total Admissions 693, ,751 Case Mix Index Acute Average Length of Stay (days) Observation Days 224, ,322 Emergency Room Visits 2,454,455 2,338,716 Surgical Visits (IP & OP) 529, ,905 Physician Office Visits 6,974,451 6,068,836 Key Performance Indicators Operating Margin 5.6% 2.7% Operating EBITDA Margin 10.5% 7.8% The above table reflects certain patient volume information and key performance indicators for the years ended June 30, 2012 and Increases in patient volumes are partially due to the addition of Alexian Brothers to Ascension Health, a subsidiary of Ascension Health Alliance, during the year ended June 30,

3 Income from Operations Ascension Health Alliance For the year ended June 30, 2012, income from operations was $934 million compared to $422 million for the year ended June 30, This change is attributable to increases in revenue, partially offset by increases in expenses, due primarily to the following: Recurring Operations $1.1 billion or 7.2% increase in net patient service revenue (an increase of $527 million or 3.6% on a same facility basis) as a result of the following: 5.0% increase in equivalent discharges compared to the prior year primarily due to the addition of Alexian Brothers, growth from existing facilities, and increases in physician office visits. 2.2% increase in net patient service revenue per equivalent discharge due to favorable managed care and commercial rate adjustments in certain markets. $149 million or 17.7% increase in other revenue primarily due to the American Recovery and Reinvestment Act (ARRA) meaningful use incentive revenue, both federal and state, as well as increases in quality program incentives and state sponsored provider tax revenue programs, offset by lower investment returns reflected in the investment in Via Christi Health, Inc. $1.0 billion or 6.7% increase in total operating expenses, which in addition to focused expense management activities, was also impacted by the following: $483 million or 7.8% increase in salaries and wages due to: the transaction adding Alexian Brothers and the acquisition of a 36-bed hospital in Smithville, Texas physician alignment activities moderate merit increases, and the transition of support from a third party vendor to internal resources for information systems with an offsetting decrease in purchased services. $48 million or 2.1% increase in supplies expense; supplies expense per equivalent discharge decreased 2.7% compared to the prior year, a direct result of management s continued focus on supply chain management. $271 million or 17.4% increase in other expense primarily due to increases in state sponsored provider tax expenses and expenses related to information system improvements. Nonrecurring Operations $298 million of net impairment, restructuring and nonrecurring gains, primarily pension curtailment gains of $414 million, offset by $36 million of long-lived asset impairments, $25 million of restructuring charges, and $55 million of nonrecurring expenses associated with Symphony, the multi-year, System-wide enterprise resource planning initiative. 3

4 Care of Persons Living in Poverty and Community Benefit Programs The unpaid cost of providing care to persons living in poverty and community benefit programs was $1.3 billion, a $59 million or 4.8% increase over the year ended June 30, This increase is primarily attributable to increases in charity care costs as a result of economic conditions in certain markets, further eligibility restrictions and reduced reimbursement in state sponsored Medicaid programs, and increased unreimbursed costs of medical education and community clinics. Higher costs of care of persons living in poverty for the year were offset by improved reimbursement for emergency and trauma programs in certain markets. Nonoperating Gains, Net For the year ended June 30, 2012, nonoperating gains, net were $51 million compared to $1.1 billion for the year ended June 30, This change is attributable to a $1.3 billion decrease in nonoperating investment return as further discussed in Investment Return below as well as a $106 million increase in the loss on interest rate swaps. These items are partially offset by the $326 million of contributions from business combinations related to the addition of Alexian Brothers to the System during the year ended June 30, Investment Return Investment return recognized by the System for the year ended June 30, 2012 was -0.4% for the year ended June 30, 2012, compared to 16.8% for the year ended June 30, While returns were unfavorable to prior year, investment returns for fiscal year 2012 were favorable to comparable benchmarks. Excess of Revenues and Gains over Expenses and Losses Attributable to Controlling Interest The excess of revenues and gains over expenses and losses attributable to controlling interest for the year ended June 30, 2012, was $968 million. This represents a $529 million decline compared to the year ended June 30, This decrease is primarily due to lower investment returns partially offset by the increase in income from operations and contributions from business combinations as previously discussed during the year ended June 30,

5 Balance Sheet Ratios Ascension Health Alliance Ascension Health Alliance has 218 days of cash and investments on hand at June 30, Cash-to-senior debt and cash-to-total debt continue to be strong at 216.6% and 190.1%, respectively, at June 30, 2012, despite the dampened investment returns for the year ended June 30, Balance Sheet Ratios June 30, Days Cash on Hand Net Days in Accounts Receivable Cash-to-Senior Debt 216.6% 232.7% Cash-to-Debt (Senior and Subordinated) 190.1% 199.8% Senior Debt to Capitalization 26.1% 24.2% Debt to Capitalization 28.7% 27.1% 5