cij> Premier Health April 30, 2015

Transcription

1 cij> Premier Health Premier Health Center 110 N. Main St. Dayton, Ohio premierhealth.com April 30, 2015 Enclosed are the Combined Financial Statements and Supplemental Information of Premier Health Partners (Premier) for December 31,2014. These statements include the financial position, results from operations, and other schedules for MedAmerica Health Systems and Subsidiaries, along with the three other healthcare systems of Premier. Please note that the Supplementary Information section that begins on page 68 includes schedules that break down the financial statements into various systems' components. The MedAmerica Obligated Group component consists ofmedamerica Health Systems Corporation and Miami Valley Hospital within these schedules. Also enclosed is our 2014 Annual repory: to the investment community. If you have any questions or comments, please call me at (937) I will be happy to discuss in more details any of the information that has been provided, and I welcome the opportunity to do so. Sincerely, ~ as ~uncan Vice President & Chief Financial Officer

2 MEDAMERICA HEALTH SYSTEMS ANNUAL REPORT DECEMBER 31, 2014 The management of MedAmerica Health Systems (the System ) is providing this information on behalf of, MedAmerica Health Systems Corporation (the Parent ), Miami Valley Hospital (the Hospital ), and The Bank of New York Mellon as bond trustee for the benefit of the holders and beneficial owners of the County of Montgomery, Ohio Revenue Bonds, Series 2012, 2011, 2009, and 2008 (Miami Valley Hospital). This annual report comprises of the following documents: 1) Combined Financial Statements and Supplementary Information Premier Health Partners, for the Year Ended December 31, 2014 (Please see a separate document) (1) 2) Annual Debt Service Requirements 2 3) Active and Academic Attending Staff 3 4) Top Ten Admitting Physicians 4 5) Personnel 4 6) Resident Staff 5 7) Insurance and Legal Matters 6 8) Apportionment of Net Income 6 9) Service Area Statistics 7 10) Utilization Statistics and Summary Financial Information (Please see Audited 8 Consolidated Financial Statements in place of Summary Financial Information) 11) Payor Mix as a Percentage of Gross Revenue 8 12) Historical Capitalization 9 13) Historical Coverage of Debt Service 10 14) Management Discussion and Analysis ) Liquidity 14 16) Investment Policy 15 17) Investment Income 16 (1) The Combined Financial Statements and Supplementary Information of Premier Health Partners include the Consolidated Financial Statements and Supplementary Information of MedAmerica Health Systems Corporation and Subsidiaries. The Supplementary Information section of this report displays the Financial Statements of MedAmerica Health Systems Corporation and Miami Valley Hospital, which together comprise the Obligated Group. Page 1

3 MEDAMERICA HEALTH SYSTEMS DEBT SERVICE REQUIREMENTS The following table shows the estimated debt service requirement pertaining to the indebtedness of the Obligated Group. Fiscal Year Ending Bonds Other debts (3) Total Debt December 31 Principal (1) Interest (2) Total Principal Interest Service ,200,000 15,356,148 21,556,148 6,414, ,215 28,869, ,370,000 15,051,085 26,421,085 2,855, ,940 30,013,172 MADS ,100,000 14,415,348 21,515, , ,461 22,885, ,350,000 14,043,455 21,393, , ,148 22,358, ,860,000 13,623,905 24,483, , ,201 25,558, ,165,000 13,209,962 24,374,962 1,127, ,065 26,038, ,380,000 12,766,855 24,146,855 1,162, ,977 25,810, ,710,000 12,330,711 24,040,711 1,199, ,551 25,704, ,630,000 11,883,353 14,513,353 1,236, ,734 16,177, ,750,000 11,773,140 14,523,140 1,276, ,466 16,186, ,180,000 11,637,274 20,817,274 1,317, ,691 22,480, ,360,000 11,344,270 20,704,270 1,359, ,346 22,367, ,550,000 11,041,887 20,591,887 1,403, ,371 22,255, ,750,000 10,736,893 20,486,893 1,449, ,695 22,150, ,200,000 10,403,627 24,603,627 1,496, ,252 26,267, ,560,000 9,893,941 24,453,941 1,545, ,971 26,117, ,930,000 9,367,056 24,297,056 1,596,931 66,769 25,960, ,305,000 8,828,688 24,133,688 1,027,332 15,283 25,176, ,710,000 8,265,334 23,975, ,975, ,125,000 7,693,124 23,818, ,818, ,545,000 7,101,678 26,646, ,646, ,995,000 6,363,712 26,358, ,358, ,435,000 5,600,400 26,035, ,035, ,910,000 4,824,551 25,734, ,734, ,385,000 4,027,354 25,412, ,412, ,465,000 3,232,885 8,697, ,697, ,705,000 2,990,427 8,695, ,695, ,050,000 2,718,644 17,768, ,768, ,555,000 2,222,009 24,777, ,777, ,305,000 1,494,288 24,799, ,799, ,090, ,357 24,830, ,830,357 $ 409,625,000 $ 274,982,361 $ 684,607,361 $ 28,130,266 $ 7,192,136 $ 719,929,763 (1) : Principal payments include scheduled mandatory redemption requirement on term bonds. (2) : For the purpose of this table, indebtedness which bears interest at a floating rate (the Series 2008B Bonds, the Series 2008C Bonds, and the Series 2009B Bonds) is assumed to bear interest at the Revenue Bond Index of 4.39% (as of December 31, 2014). For the Series 2011B Bonds and the Series 2011C Bonds, indebtedness assumes to bear interest at 3.225% per annum per the Swap Agreement. For the Series 2012A Bonds and the Series 2012B Bonds, indebtedness assumes to bear interest at 1.748% % Credit Spread and 1.733% % Credit Spread per annum per the Swap Agreement. Assumes Series 2011A Bullet Maturities amortized under Master Indenture provisions (30 years level debt service with interest rate bearing at Revenue Bond Index of 4.39% (as of December 31, 2014)). Amounts shown do not include ongoing costs such as remarketing, trustee and rating fees. Amounts shown do not include guarantee obligations on AMC debt. (3) : Includes capital leases and notes payable. 2

4 MIAMI VALLEY HOSPITAL ACTIVE AND ACADEMIC ATTENDING STAFF December 31, 2014 % of Number Number Board Certified Admissions Admissions Anesthesiology Cardiology % Cardiothoracic Anes Critical Care Med Dermatology Diagnostic Radiology % Emergency Med % Endocrinology Family Practice % Gastroenterology % General Dentistry 17 n/a - - Geriatrics Gyn Oncology Infectious Diseases % Internal Med/Peds Interventional Radiology Interventional Neuroradiology Maternal Fetal Med Medicine, Internal , % Neonatology 7 7 1, % Nephrology % Neurology % Ob/Gyn , % Occupational Med Oncology % Ophthalmology Pain/Anes Pathology Ped Cardiology Pediatrics , % Pedodontics Periodontics Physical Med/Rehab % Podiatry Psychiatry , % Psychology 6 n/a - - Pulmonary med , % Radiation Oncology Rheumatology Urgent Care Medicine SURGERY Cardiovascular/Thoracic % General Surgery , % Neurosurgery % Oral Maxillofacial % Orthopedic Trauma Orthopedic Surgery , % Otorhinolaryngology % Plastic/Reconstructive % Urology % TOTAL , % 3

5 MIAMI VALLEY HOSPITAL TOP TEN ADMITTING PHYSICIANS FOR PATIENTS ADMITTED IN 2014 MD Specialty Inpatient Admissions % of Total Admissions Age Pediatric Medical & Newborn 1, % 59 Hospitalist % 55 Neonatology % 61 Obstetrics/ Genetics % 58 General Surgery % 45 Internal Medicine % 57 Internal Medicine % 68 Neonatology % 43 Orthopedics % 37 Pediatric Medical & Newborn % 53 TOTAL 6, % MIAMI VALLEY HOSPITAL PERSONNEL As of December 31, 2014 the Hospital employed 5,974 people classified as follows: Number of Employees Professionals 3,103 Service Workers 961 Office/ Clerical Personnel 769 Technicians 630 Officials/ Managers 394 Semiskilled/ Unskilled Labor 68 Skilled Craftsmen 49 Total 5,974 4

6 MIAMI VALLEY HOSPITAL RESIDENT STAFF Cardiovascular disease Dentistry Emergency Family Medicine Gastroenterology Geriatrics Hematology/Oncology Infectious Disease Internal Med/Peds Internal Medicine Maternal Fetal Medicine Neurosurgery OB Gyn Ortho Trauma Orthopedic Surgery Pediatrics Plastic Surgery Psychiatry Surgery Surgery-Critical Care

7 MEDAMERICA HEALTH SYSTEMS INSURANCE AND LEGAL MATTERS The Hospital became self-insured for patient comprehensive general and professional liability through a trust on January 1, In 1988, MedAmerica established a captive insurance company in Bermuda (the Captive ) and subsequently assigned the assets and liabilities of the trust to the Captive. On January 1, 2008, the assets and liabilities were assigned to the MedAmerica cell of Premier Health International Insurance Ltd ( PHIIL ), a Bermuda domiciled segregated cell captive insurance company. The MedAmerica cell, which is not a member of the Obligated Group, provides insurance coverage for MedAmerica, the Hospital, MedAmerica s other Subsidiaries, and their respective employees, agents, volunteers and other specifically named parties for claims of professional, general, directors and officers, and employment practice liability. On January 1, 2013, the PHIIL transferred the assets and liabilities of segregated accounts including MedAmerica cell to PHIIL s general account and closed all the segregated accounts. Each of the shareholders of PHIIL has a represented interest of 25%. The PHIIL s general account is funded at levels determined yearly by an independent actuary, based upon claims experience, patient population, services provided, staffing levels and malpractice trends, plus funded reserves for asserted claims. As of December 31, 2014, the PHIIL held funds amounting to $69.2 million, and reserves for known claims and for incurred but not report claims (IBNR) of $42.2 million. Disbursements are made by the PHIIL solely in payment of judgments, settlements or defense costs of claims made against PHIIL or any of its insured subsidiaries, including the Hospital, for liabilities of the Subsidiaries and their other insured s and for related expenses of administration. Should there be insufficient funds to provide coverage for a claim, each shareholder, including MedAmerica, has committed, pursuant to a guarantee, to replenish the PHIIL s general account as required by actuarial recommendations. In the opinion of Management, the ultimate outcome of any pending claim or claims will not have a material adverse effect on the Hospital s or MedAmerica s financial position, and any liability resulting from these or other such insured claims is fully covered by the insurance programs described above. MEDAMERICA HEALTH SYSTEMS ALLOCATION OF NET INCOME Years Ended December 31, 2014 and 2013 The following illustrates amounts (payable) or receivable under the Joint Operating Agreement (JOA). For the year ended December 31, MedAmerica Health Systems (24,519) (3,022) Samaritan Health Partners (744) 15,718 Atrium Health System 30,538 (3,303) Upper Valley Medical Center (5,275) (9,393) Net Allocation - - 6

8 MIAMI VALLEY HOSPITAL SERVICE AREA STATISTICS The table below presents utilization in Miami Valley Hospital's primary and secondary service areas for the non-governmental institutions. Volumes are annualized for 2014 based on 3Q 2014 YTD data STATISTICS MVH PSA MVH SSA Patient % of No. of % of Patient % of No. of % of Disch. Disch. Births Births Disch. Disch. Births Births MVH 28, % 3, % 3, % % KMC 19, % 2, % 2, % % GSH 12, % % 1, % % UVMC 5, % % 1, % % GV 6, % 0 0.0% % 0 0.0% SV 4, % 1, % % % MVH Miami Valley Hospital KMC Kettering Medical Center GSH Good Samaritan Hospital UVMC Upper Valley Medical Center GV Grandview Medical Center SV Southview Medical Center Data source: Ohio Hospital Association Market Share excludes Pediatric Hospitals 7

9 MIAMI VALLEY HOSPITAL UTILIZATION STATISTICS AND SUMMARY FINANCIAL INFORMATION Year Ended December 31, Licensed Beds Beds in Service Admissions 39,368 41,109 Patient Days 185, ,836 Average Length of Stay (in Days) Average Occupancy 63.4% 65.1% Observation Days 19,865 17,548 Outpatient Encounters (excludes emergency) 189, ,385 Emergency Visits 100,624 95,972 Careflight Air Ambulance Program Total Patient Transports 1,307 1,498 Inpatient Surgeries 9,465 9,729 Outpatient Surgeries 14,469 14,154 Case Mix Index - Medicare Case Mix Index - All Payors MIAMI VALLEY HOSPITAL PAYOR MIX AS A PERCENTAGE OF GROSS REVENUES * For the year ended December 31, Medicare 39.8% 39.6% Medicaid 24.3% 19.0% Anthem Blue Cross 13.9% 14.5% United Healthcare 6.7% 9.0% Other Commercial 10.7% 9.0% Self Pay and Other 4.6% 8.9% 100.0% 100.0% *Before contractual allowances and other discounts, and does not correspond to relative percentages of net patient revenue. 8

10 MEDAMERICA HEALTH SYSTEMS HISTORICAL CAPITALIZATION The table below represents MedAmerica s capitalization as of December 31, 2014 and This information was derived from the consolidated financial statements of MedAmerica Health Systems and Subsidiaries. The data should be read in conjunction with the financial statements of Premier Health partners and Affiliates, related notes, and other financial information. MedAmerica Consolidated Capitalization (1) Fiscal Year Ended December 31 (In Thousands) Outstanding Debts (net of premium/ discount) Series 2008A 34,941 38,977 Series 2008B 28,830 28,830 Series 2008C 27,000 27,000 Series 2009B 15,000 15,000 Series 2011A 102, ,437 Series 2011B 42,500 42,500 Series 2011C 42,500 42,500 Series 2012A 78,135 78,135 Series 2012B 47,505 47,505 Guaranteed Atrium Medical Center Debt 179, ,950 Other 28,130 33,432 Total Outstanding Debts $625,994 $639,266 Unrestricted Net Assets 758, ,943 Total Capitalization $1,384,010 $1,507,209 Total Outstanding Debts as a Percentage of Total Capitalization 45.2% 42.4% (1) The combined audited financial statements of Premier Health Partners and Affiliates included in Appendix B include the accounts of Subsidiaries of MedAmerica and other members of Premier, many of which are not Members of the Obligated Group or Designated Affiliates. For the fiscal years ended December 31, 2014 and 2013, the Subsidiaries of MedAmerica that are not Members of the Obligated Group had unrestricted net assets of $66,557 and $56,348, respectively (included above). The other members of Premier are excluded from this table. 9

11 MEDAMERICA HEALTH SYSTEMS HISTORICAL COVERAGE OF DEBT SERVICE The following table sets forth, for the fiscal years ended December 31, 2014 and 2013 the net income of MedAmerica available to cover actual debt service (as described below) in the years shown. Total revenues and investment income (excluding unrealized gains and losses, loss on extinguishment, JOA losses and other adjustments) Total operating expenses (excluding depreciation, amortization and interest) $988,204 $950, , ,446 Net income available for debt service 151, ,824 Actual debt service (1) 26,380 19,570 Coverage of actual debt service (times) Maximum annual pro forma debt service (2) 30,013 33,098 Historical coverage of maximum annual pro forma debt service (times) Maximum annual pro forma debt service including guarantees of 31,879 35,031 Atrium Health System debt (3) Historical coverage of maximum annual pro forma debt service (times) including guarantees of Atrium Health System debt (1) Annual principal and interest payments on long-term debts including capitalized interest. (2) Maximum annual principal and interest payments on long-term indebtedness for any succeeding fiscal year. See page 2 for underlying assumptions. (3) The guarantees by MedAmerica of the AHS debt consists of principal of $86.0 million and related interest on the Series 2010 Bonds for both 2014 and 2013; and principal of $93.3 million in 2014 and $96.0 million in 2013 and related interest on the Series 2008 Bonds. Guarantees are includable at 20% of debt service. 10

12 MedAmerica Health Systems and Subsidiaries Management Discussion and Analysis December 31, 2014 The table below represents the financial results of MedAmerica Health Systems Corporation and its subsidiaries ( MAHS ) for the year ended December 31, 2014 and 2013, respectively. Results of Operations Year Ended December 31, (Dollars in thousands) Total revenue $ 973,654 $ 937,284 Total operating expenses 925, ,498 Income from operations before asset impairment 48,637 14,786 Impairment of long-lived assets (173) (1,038) Income from operations 48,464 13,748 Loss allocation relating to the Joint Operating Agreement (24,519) (3,022) Non-operating gains (losses) (13,747) 67,850 Excess (deficiency) of revenue over expenses $ 10,198 $ 78,576 Operating margin percentage 5.0% 1.6% Cash flow margin percentage 14.0% 11.3% Admissions 39,368 41,109 Admissions and Observation discharges 55,651 53,679 Days of cash on hand MAHS results of operations are influenced by industry trends, Healthcare Reform, State of Ohio initiatives, regional and local economic conditions, and patient volumes. For the year ended December 31, 2014, MAHS outperformed the prior year in both operating margin and cash flow margin relating to revenue growth and the favorable impact of expense management initiatives. MAHS continues to maintain a strong cash position with days of cash on hand at 293 days compared to 278 days in the prior year. MAHS investment income was lower than the prior year due to changes in the financial markets. In 2015 management is continuing various initiatives to manage costs in order to respond to the current economic environment and the impact of healthcare reform. These initiatives are designed to position MAHS financially and allow it to be strategically flexible so it can continue to provide the highest level of patient care and service to our community. 11

13 Total Operating Revenues For the year ended December 31, 2014, operating revenue of $973.7 million increased $36.4 million or 3.9% from prior year. This increase was primarily driven by growth in outpatient business. Key contributors to this growth were surgery, emergency room, imaging, rehabilitation and revenues related to observations. Inpatient admissions decreased by 4.2% while observation discharges were up by 29.5% in 2014 compared to prior year. Management continues to focus, where applicable, on placement of patients in various government programs and continues to improve collection efforts. Operating Expenses For the year ended December 31, 2014, operating expenses of $925.0 million increased $2.5 million or 0.3% for the same period of the prior year. This increase was primarily due to increases in salaries of $5.3 million and supplies of $10.7 million, partially offset by $12.4 million decrease in employee benefits. The increase in salaries was mainly driven by increased volume and growth in physician practice starting from late Higher supply costs were driven by mix of procedures and increase pharmacy expense. The decrease in employee benefits was mainly driven by the effect of cost control initiatives and lower pension expenses. Management strives to control salary expenses by effectively managing to patient volume fluctuations and manages supply expense through product standardization, bulk purchases, contract compliance, and improved utilization. Non-Operating gains / (loss) For the year ended December 31, 2014, MAHS recorded a non-operating loss of $13.7 million compared to a $67.9 million non-operating gain for the same period in the prior year. The non-operating loss for the last year comprised a $25.5 million loss due to mark-to-market adjustment and settlement costs for the interest rate swap, and $7.3 million for community benefits and other expense, partially offset by $19.1 million of investment income. The prior year non-operating gain of $67.9 million comprised investment income of $63.8 million and $17.0 million in mark to market adjustment and settlement cost for the interest rate swap, partially offset by $12.9 million in community benefits and other expense. Cash and Capital Requirements Cash and investments totaled $679.4 million at December 31, 2014 compared to $642.2 million at December 31, 2013, an increase of $37.2 million. This increase was primarily provided by operations and financial investments, partially offset by capital asset additions and investments in healthcare businesses. Days of cash on hand at December 31, 2014 and 2013 were 293 days and 278 days, respectively. MAHS capital requirements are primarily related to medical equipment and construction projects. Management believes that existing cash and cash equivalents, investments, and future cash provided by operating activities should be adequate to meet current cash needs. These sources of liquidity should also be adequate to finance planned capital expenditures, payments on the current portion of long-term debt and other presently known operating needs. 12

14 Other Significant Items In March 2014, management replaced JP Morgan Chase with a liquidity facility from Barclays Bank, PLC to provide liquidity for the Series 2011 B and C bonds expiring on February 26, 2016 and February 27, 2017, respectively. In September 2014, Atrium Medical Center, another member of the Joint Operating Agreement, acquired all operations and assets of a healthcare business for approximately $12.1 million. As a result of this acquisition, there are increases of $7.1 million in goodwill and $1.6 million in intangible assets. In November 2014, management refinanced the 2009B series and entered into a variable rate bond purchase agreement with Fifth Third bank. Under this agreement, MAHS will pay a variable rate equal to 70% LIBOR plus a spread of 0.45% instead of a fixed interest rate. This agreement will expire on November 15,

15 MEDAMERICA HEALTH SYSTEMS LIQUIDITY The following table sets forth MedAmerica s consolidated liquidity in terms of operating cash and board designated funds for capital improvements. Excluded are temporarily and permanently restricted assets, trustee-held bond funds, and self-insurance assets. For the year ended December 31, Cash and cash equivalents 67,752 66,958 Board-designated funds for capital improvements 611, ,271 Total 679, ,229 Days of Cash on Hand

16 MEDAMERICA HEALTH SYSTEMS INVESTMENT POLICY The investment objective of Pension and Operating Investment Programs is a rate of growth sufficient to provide for achievement of MedAmerica s financial goals and capital needs. The portfolio consists of fixed income investments and common stock to reduce the risk associated with changing market conditions. Depending on the type of fund, target allocations range from 30% to 80% in equity investments, 15% to 55% in fixed income investments, 0% to 40% in alternative strategies, 0% to 10% in real assets and 0% to 100% in cash. The decision to rebalance portfolios will be made as appropriate. MedAmerica operates with a philosophy of using fee-based investment professionals to manage its assets at all points in time. The various investment managers retained by MedAmerica operate within the general constraints of the approved Statement of Investment Objectives and Policy. Except as specifically directed in writing by Premier Health Partners Finance Committee, each investment manager is given complete discretion to manage and trade MedAmerica assets under the manager s respective style as that manager determines to be appropriate, within the constraints of the operating guidelines and objectives established for that manager. The primary investment performance goal of each manager is that the total investment return, net of fees, should outperform its respective benchmark over a typical market cycle at volatility levels in line with the respective benchmark. The investment performance goal for the Pension Plan investments is that the return be sufficient to meet the needs of the pension benefit obligations. The secondary performance objective for each investment manager is that the intermediated investment results should be in the top 50% of the peer universe, measured by a funds evaluation service. The investment manager s performance is reviewed monthly by management with an extensive quarterly review performed by the Investment Consultant, the Investment Review Committee, and the Chairman of the Finance Committee. A presentation is made twice a year by the independent Investment Consultant to the Premier Health Partners Finance Committee. In addition, the following events will trigger an automatic formal review: disappointing relative or risk-adjusted performance, fund management changes, deviation from investment methods basic to historical records, or relative performance in excess of expectations. Pending the results of the review, a manager may be placed on a watch-list or terminated. 15

17 MEDAMERICA HEALTH SYSTEMS INVESTMENT INCOME Investment income has historically been a significant source of additional revenue for MedAmerica and is included in non-operating income. The major components of non-operating income, including investment income, are summarized as follows: Consolidated Non-operating Gains/ (Losses) (In Thousands) Interest income, net of investment fees 7,914 5,548 Realized gains on investments 19,148 24,004 Unrealized gains on investments (8,587) 32,934 Unrealized gains on interest rate swaps (21,713) 20,841 Other expenses (10,509) (15,477) Total (13,747) 67,850 16