New York Society for the Relief of the Ruptured and Crippled, Maintaining the Hospital for Special Surgery

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS September 2017

2 New York Society For the Relief of Consolidated Financial Statements For the period ended Descriptions Page Consolidated Statements of Financial Position... 1 Consolidated Statements of Operations and Changes in Net Assets Consolidated Statements of Cash Flows... 5 Notes to Interim Consolidated Financial Statements

3 Consolidated Statements of Financial Position Assets Current assets: Cash and cash equivalents Receivables: Patient care, less allowance for doubtful accounts ( $20,364; 2016 $15,933) Insurance claims receivable Other receivables (Unaudited) (Audited) September 30 December Liabilities and net assets Current liabilities: $ 57,248 $ 95,157 Accounts payable and accrued expenses Accrued salaries and related liabilities Current portion of long-term debt 104, ,287 Due to third-party payors- net 11,738 11,738 Insurance claims liabilities 31,591 30,997 Other current liabilities 148, ,022 current liabilities (Unaudited) (Audited) September 30 December $ 73,006 $ 78,074 31,125 41,397 43,126 41,653 3,873 3,873 11,738 11,738 20,187 22, , ,487 Investments Inventories Prepaid expenses and other current assets Pledges receivable Assets limited to use Due from affiliates - net current assets insur::u1ct clain1s n.:,cei'l abk ~ Other tloncuttcnr assets Due irnm afl:iliates net n;ct;ivahlc- Assets limited as to use invcstrnet}ts a~ss~ts oi current Fund~ Ir:u..: 440, ,106 Long-term debt 9,310 8,292 Insurance claims liabilities, net of current portior 7,694 6,331 Other noncurrent liabilities, including due to 12,893 15,507 third-party payors - net 2,648 5,625 liabilities 12,150 10, , ,464 Net assets: Unrestricted: Unrestricted Designated for quasj~endowment Noncontro!ling interest in subsidiaries 61Al2 61,4U rota! unrestricted i2,764 10,946 Temporarily restricted: 1 t,07t!l071 15,949 i8,845 and 64,821 63, l.i5,l23 n::stricted 52.44'7 45, , ,675 Totaf net asset::; $ 1,609,282 $ 1,550,641. liabilitiec; and asset,: 239, ,199 61,412 61, , , , , , ,131 3,719 3,719 (162) 1, , ,829 6J,U ,341 50,117 86,385 74, , , , , ,172 $ 1,609,282 $ 1,550,641 note\ Page 1

4 Consolidated Statements of Operations and Changes in Net Assets Operating revenue Net patient service rc:vt~nue Other operating revenue Net assets released restricttons for operations operating revenue (Unaudited) (Unaudited) Nine Months Ended September $ 699, ,893 13, ,184 $ 637, ,668 12, ,807 Operating expenses Salaries and wages Employee benefits Supplies and other Interest expense Depreciation and amortization Bad debt expense operating expenses 354,536 98, ,732 6,425 47,034 6, , ,205 91, ,630 6,798 43,256 6, ,959 Operating income before research operations and change in unrestricted interesl in The Hospital for Special Surgery Fund, Inc., bequest and operating loss attributable to noncontrolling in subsidiary 43,451 25,848 Research operations: Net assets restrictions for research operations Operating expenses,. including depreciation (2017. $2,629; 2016 $2,417) Net research operations 26,168 31,396 (5,228) 26,396 30,571 (4,175) Change in unrestricted interest in The Hospital for Special Fund, Inc. Bequest Operating income before operating loss attributable to noncontrolling interest in subsidiary Operating Joss to noncontrolling interest in subsidimy Operating income $ 6,736 44,959 2,141 47,100 $ 6,087 27, ,609 Continued on pages 3 and 4. Page 2

5 Consolidated Statement of Operations and Changes in Net Assets (continued) For the Period Ended Unaudited Unrestricted "'oncontrolling Quasi- Interest in Unrestricted Endowment Subsidiaries Unrestricted Temporarily Restricted Plant Replacement Specific and Temporarily Permanently Purpose Expansion Research Restricted Restricted (!n Thousands} Operating Income (from page 2) Noncontrolling members' capital contribution Operating Joss attributable to noncontrolling interest in subsidiary Net assets released from restrictions tor capital expenditures Changes in net unrealized gains and losses on investments Changes in defined benefit pension and other postr<!lirement plan liability to be recognized in future penods Contributions, including research grants Designated tor quasi-endowment Investment activity, including net investment income of 51,747, net realized gain of $3,185 and change m net mrealized gains and losses and equity in earning> alternative investments of$!8,565 Net assets released from restrkiions for: Research operations Capital expeoditun:s Operating e.:<-pt:r1ses T ntai net ~bst:~ n::lcased fr-:.:nn rest; icnoo s croral change Ill net asse\s $ 47,100 $ - $ - $ 47,100 $ (2,141) (2,141) 9,674 9,674 18,522 18,522 75,296 (2,141) 73,!55 556,!31 '1, % ,427 $ 3,719 5 (162) $ 634,984 $ - $ - $ ,439 7.! (I,Hl2) 1!!,3571 {U,J.\1!) (14,440) (S,357} 5,966 (6, 7'76) -~7,1~,3 50,! 1'1 63,ll9 $ 43.3-l.l $ - $ - $ - $ 16,227 30,953 5,952 16,236 23,497 (26,168) (26.168) (215) (9,674) (U,338) t26,jll3) (49, Hit!} 6,080 5, ,.\05 18t,.~75 BL $ 186,845 $ 137,720 $ 47,100 (2,141) 9,674 18,522 36,905 23,497 (26,168) (9,674) (!3.338) (49,180} 84,.377 );75.!'11 959,549= Page 3

6 Consolidated Statement of Operations and Changes in Net Assets For the Period Ended September 30, 2016 Unaudited Unrestricted Unrestricted Quasi Endowment Noncontrolling Interest in Subsidiaries Unrestricted Temporarily Restricted Plant Replacement Specific and Purpose Expansion Research Temporarily Restricted Permanently Restricted Operating Income (from page 2) Noncontrolling members' capital contribution Operating loss attributable to noncontrolling interest in subsidiary Net assets released from restrictions for capital expenditures Changes in net unrealized gains and losses on investments Changes in defined benefit pension and other postretirement plan liability to be recognizoo in futw e periods Contributions, including research grants Net Asset r~'classification Investment activity, including net investment income of $!,649, net realized gain $1,908 and change in net unrealized gains and losses and equiry in eamings a!temative investment<; of $5,050 Net assets released from restrictions for: Research operations Capital expenditure> Operating expen,;es rota.! net as~ets _rekast:d front restrictions N<:i ass<:ots at December 3l, 2(1 i 5 Net assets Sept::"T tb"""f 30, $ 28,609 $ - $ $ 28,609 $ (849) (849) 4,490 4,490 5,479 5,479 38,5'18 (849} 37,729 - $ - $ 7,813 7,232 2,301 i3 {l,526) (1,797) (12,532) (14,058) {1,797) (3,944) SA48 18,196 6,343 (26,396) (l,hi7) (27,563) (3,024) $ - $ 33,241 7,212 8,657 (26~196) (4,490) (12,532) (43,418} ( 1,520) 7,.212 $ 28,609 (849) 4,490 5,479 40,453 8,657 (26,.'96) (4,490) (12,532) (43,418) 43,421 Faye 4

7 Consolidated Statements of Cash Flows (Unaudited) (Unaudited) Nine Months Ended September Operating activities Change in net assets $ 84,377 $ 43,421 Adjustments to reconcile change in net assets to net cash provided by operating activities: Change in unrestricted interest in The Hospital for Special Surgery Fund, Inc. (6,736) (6,087) Depreciation and amortization 49,509 45,673 Amortization of bond premium (199) (224) Change in net unrealized gains and losses on investments and equity in earnings of alternative investments (45,592) (11,890) Realized gains on investments (5,181) (2,168) Contributions to permanently restricted net assets (5,952) (7,212) Contributions restricted to acquisition of plant assets net (1,439) (7,232) Employer contributions to pension plan (31,500) (28,900) Changes in operating assets and liabilities: Receivables, net (4,030) (7,534) Net due from affiliates 396 2,115 Pledges receivable, net 5,510 (1,678) Accounts payable and accrued expenses and accrued salaries and related liabilities (15,340) (15,065) Other noncurrent liabilities, including due to third-party payors 32,298 18,917 Other assets and liabilities, net (6,764) (4,890) Net cash provided by operating activities 49,357 17,246 Investing activities Additions to property, plant and equipment (93,077) (67,669) Net (decrease) increase in investments 5,715 (2,355) Net decrease in assets limited as to use 1,540 10,906 Net cash used in investing activities (85,822) (59,118) Financing activities Principal payments on long-term debt (33,875) (32,790) Proceeds from long-term borrowings 25,040 19,993 Contributions restricted to acquisition of plant assets - net 1,439 7,232 Contributions to permanently restricted net assets 5,952 7,212 Net cash used (provided) in financing activities (1,444) 1,647 Net decrease in cash and cash equivalents (37,909) (40,225) Cash and cash equivalents at beginning of year 95,157 89,867 Cash and cash equivalents at end of period $ 57,248 $ 49,642 See accompanying notes. Page 5

8 Notes to Consolidated Financial Statements 1. Organization and Significant Accounting Policies Organization The accompanying consolidated financial statements include the accounts of New York Society for the Relief of (the "Hospital"), HSS ASC of Manhattan, LLC (Manhattan ASC), HSS Westside ASC, LLC (Westside ASC), and TJA Orthopedic Surgery, P.C. but do not include the Hospital's separately incorporated affiliates: HSS Properties Corporation ("Properties"), The Hospital for Special Surgery Fund, Inc. ("Fund"), HSS Horizons, Inc. ("Horizons"), HSS Ventures, Inc. and Medical Indemnity Assurance Company, Ltd. ("MIAC"). The Manhattan ASC is a limited liability company organized under the laws of the State of New York. The Manhattan ASC was formed in 2014 and will offer outpatient orthopedic surgery services in cohaboration with a group of Hospital surgeons. The Hospital owns 51% of the Manhattan ASC and the remaining 49% is owned by certain members of the Hospital's surgical staff. The Hospital has consolidated its non-controlling interests relating to the investment in the Manhattan ASC These non-controlling interests represent the portion of the Manhattan ASC not controlled by the Hospital, but are required to be presented in the Hospital's consolidated financial statements. Operations of the Manhattan ASC commenced September The Westside ASC is a limited liability company organized under the laws of the State of New York. The Westside ASC was formed in 2016 and will offer outpatient orthopedic surgery services collaboration with a group of Hospital surgeons. The Hospital owns 67% of the Westside ASC and remaining 33% is owned by certain members of the Hospital's surgical staff The Hospital has consolidated its non-controlling interests relating to the investment in the Westside.ASC These non-controlling interests represent the portion of the Westside ASC not controlled by the Hospital, but are required to be presented in the Hospital's consolidated financial statement~. Operations of the Westside ASC are expected to commence during the first quarter of 201 (). In 2016, the Hospital executed a Collaboration Agreement with The Stamford Hospital (SH), an acute care hospital in Stamford, Connecticut, and Stamford Health, Inc. (SHI), the sole member of SH. Under the Collaboration Agreement, the Hospital will manage the SH Department of Orthopedic Surgery, including certain discrete orthopedic space and activities within the main building ofsh (which shall be known as HSS Orthopedics at Stamford Hospital and within SH's Tully Center (\vhich shall be known as HSS Orthopedics at Tully) that SH will operate. Page 6

9 Notes to Consolidated Financial Statements (continued) l. Organization and Significant Accounting Policies (continued) ttnder the tenm; of Collaboration Agreement, only SH-credentialed surgeons employed by or otherwise contractually affiliated with TJA Orthopedic Surgery, P.C. (PC), a New York professional servi.ce corporation owned by a designee of the Hospital will be permitted to perform surgery at HSS Orthopedics at Stamford Hospital and HSS Orthopedics at Tully. The PC's activities within HSS Orthopedics at Tully commenced in March 2017 and activities within HSS Orthopedics at Stamtord Hospital are expected to commence November The Hospital presumes that users of this financial information have read or have access to the Hospital's audited financial statements and that the adequacy of additional disclosures needed for a fair presentation may be determined in that context. The audited financial statements of the Hospital tor years ended December 31, 2016 and 2015 are on file, with a nationally recognized securities infonnation repository, Digital Assurance Certification LLC, in accordance with the llospital's tlnancing agreement with the Dormitory Authority of the State of New York, and the contained therein is incorporated herein. Accordingly, footnotes and other disclosures that would substantially duplicate the disclosures contained in the Hospital's most recent audited tlnancial statements have been omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the results have been included in the accompanying financial statements. All such adjustments are considered by management to be of a normal, nature. Patient volumes and net operating revenues are subject to seasonal variations caused by a number of factors, including, but not necessarily limited to, climate and weather conditions, vacation pattems of hospital patients and admitting physicians and other factors relating to the timing hospital procedures. Monthly operating results are not necessarily representative operations tor a full year for various reasons, including levels of occupancy and other patient volumes, interest rates, unusual or non-recurring items and other seasonal fluctuations. Thes1~ same considerations apply to all year-to-year comparisons. Page 7

10 Notes to Consolidated Financial Statements (continued) 1. Organization and Significant Accounting Policies (continued) Use of f~stimatj:s The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, such as estimated uncollectible for accounts receivablt) for serv1ces to patients, the fair values of alternative investments, insurance claims liabilities and receivables and estimated receivables from and payables to third-party payors, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, Estimates also affect the reported amounts of revenue and expenses during the reporting period. The allowance for doubtful accounts, the fair value of investments that are not readily marketable, insurance claims liabilities and receivables and the estimated net amount due to third-party payors, among other accounts, require significant use of estimates. Actual results could differ from those estimates. Management believes that amounts recorded based on estimates and assumptions are rea.<;onable and any differences between estimates and actual should not a mate1ial effect on the Hospital's consolidated financial position. Tax Status The Hospital is a Section 501(c)(3) organization exempt from Federal income tax under Section 501(a) of the Jntema1 Revenue Code and is exempt from New York state and local income taxes. The Manhattan ASC and Westside ASC are New York limited liability companies classified as partnerships U Fed(~ral income tax purposes. Events Subsequent to Subsequent events have been evaluated through October 12, 2017, which is the date the consolidated financial statements were issued. No subsequent events have occurred that require disclosure in or adjustment to the financial statements. Page 8

11 Notes Consolidated Financial Statements (continued) 2. Contingencies The Hospital 1s a dt~fendant in certain legal actions arising out of the normal course of its operations, the final outcome of which cannot presently be determined. Hospital management is ofthe opinion that the ultimate liability, if any, with respect to all ofthese matters will not have a material on Hospital's consolidated financial position. 3. Benefit Plans The Hospital contributed $31.5 million and $28.9 million, to its defined benefit pension plan for the periods ended and 2016, respectively. Pension expense pertaining to the defined benefit pension plan was approximately $16.6 million and $19.1 million, respectively, for the same 4. Fair Value Measurements For assets and liabilities required to be measured at fair value, the Hospital measures fair value based on the that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are applied based on the unit of account from the Hospital's perspective. Page9

12 Notes to Consolidated Financial Statements (continued) 4. Fair Value Measurements (continued) The unit of account detennines what is being measured by reference to the level at which the asset or liability is aggregated (or disaggregated) for purposes of applying other accounting pronouncements, The Hospital fi)hows a valuation hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: I- Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2 Observable inputs that are based on inputs not quoted in active markets, but corroborated by market data. Level 3 - Unobservable inputs are used when little or no market data is available. The fair value the lowest priority to Level 3 inputs. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. In determining fair value, the Hospital uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers nonperformance risk in its assessment of value. Page 10

13 Notes to Consolidated Financial Statements (continued) 4. :Fair Value Measurements (continued) Financial instruments, excluding the defined benefit plan assets, carried at f.'lir value as of are classified in the table below in one of the three categories described above: Levell Level2 Level3 Cash and cash equivalents Marketable equity securities (aj Money market mutual tunds (hl I'. 1 f' l fc) :quay mutua um s Fixed income mutual funds <ctj Fixed mcome st~curities (e) $ 66,691 $ 25, , ,336 24,528 70,106 $ $ $ 66,691 25, , ,336 24,528 70,106,--- $475,221 Financial instruments, excluding the defined benefit plan assets, carried at fair value as of December arc classified in the table below in one of the three categories described above: Levell Level2 Level3 (In Thousand,,) and cash equivalents Marketable equity securities <aj Money market rnutual funds (b) Equity mutual funds <cj Fixed mcome funds ldj Fixed income s~;:curities (e) $ 104,185 $ 22, , ,728 24,265 69,746 $497, $ $ 104,185 22, , ,728 24,265 69,746 $497,168 The Hospital' alternative investments, excluding alternative investments in the defined benefit plan, of approxin1ately $210.7 million and $185.2 million for the periods ending September 30, 17 and December 31, 2016, respectively, are reported using the equity method of accounting and, therefore, are not included in the tables above. Page 11

14 Notes to Consolidated Financial Statements (continued) 4. Fair Value Measurements (continued) Defined assets, carried at fair value as of are classified in the table below in one of the three categories described above: Levell Levell Level3 Money market mutual funds (bl Equity mutual funds (d Fixed income mutual funds (di 40,969 36,810 98,726 $176,505 40,969 36,810 98,726_ $176,505 asset Private investments measured at net \i) {g} 107,080 3,435 $ 287,020 Defined benefit plan assets, carried at fair value as of December 31, 2016 are classified in the table below in one of the three categories described above: Levell Levell Level3 Monev market mutual funds (bl - mutual (c) Fixed income mutual funds (dl Alternative investments measured at net asset vahu: : Funds Ui Private ~"'";+" igl 20,013 25,475 94,218 $139,706 20,013 25,475 94, $139,706 93,390 3,007 $ 236,103 Page 12

15 Notes to Consolidated Financial Statements (continued) 4. Fair Value Measurements (continued) (a) Includt~s States" cap common stock of corporations primarily domiciled in the United (b) Includes investments in mutual funds that invest primarily in short-term debt securities, including U.S Treasury bills, commercial paper and certificates of deposit. investments in domestic and international equity mutual funds and exchange traded funds. (c) Includ<:~s (d) Investment in a t1xed income mutual fund which maintains a diverse portfolio of shortterm high quality bonds activity managed across the mortgage backed security, U.S. Treasury, corporate and international fixed income sectors. (e) Fixed securities, consisting of credit mortgage and asset backed securities and Government obligations. (f) Consists of the following: 1. Hedge funds and common collective trust funds of common stock of corporations primarily domiciled in the United States. 2. Hedge funds of common stock of corporations primarily domiciled outside of the United States, including emerging market countries. 3 Hedge fund investments consisting primarily of publicly traded equity holdings both long and short positions. 4. Hedge fund investments which are designed to provide returns largely independent of overall market movement, with lower correlations to domestic stock and bond markets. Underlying strategies can include credit, event driven, value and various arbitrage strategies. (g) Venture capital, buyout. and distressed debt partnerships. Page 13

16 Notes to Consolidated Financial Statements (continued) 4, Fair Value Measurements (continued) The f()llowing is a description of the Hospital valuation methodologies for assets measured at fair value. for Level 1 is based upon quoted market prices. The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthennore, while the Hospital believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the value of certain financial instruments could result in a different estimate of fair value at the reporting date. The following is a summary of investments, including alternative investments reported using the equity method and the nature of restrictions on the Hospital's ability to redeem its investments at the measurement date, any unfunded capital commitments and investments strategies of the investees as of, including the defined benefit plan: Unfunded Redemption Fair Value Commitments Notice Period Funds Availabilit~ U.S. large/small cap $ 54,252 n/a 0-30 days 1 month to I.25 years International equity 54,615 n/a days 1 week to 9 months Long/sh01t 121,476 n/a days I month to 2.5 years Multi- strategy 72,828 n/a days 3 months to 1.25 yrs Real assets 2,884 n/a 0-45 days 3 months to 9 months Private 15,133 14,099 n/a 6 months to 12 years $ 321,188 $ 14,099 Page 14

17 Notes to Consolidated Financial Statements (continued) 4. Fair Value Measurements (continued) The carrying values and fair values of the Hospital's financial instruments that are not required to be carried at fair value arc as follows: 09/30/17 12/31/16 Fair Carrying Fair Carrying Value Value Value Value Long-tem: debt $ 287,340 $ 282,223 $ 296,966 $ 290,852 The fair value of the Hospital's long-term debt is based on discounted cash flow analysis, using current borrowing ratl~s fbr similar types of debt and is classified as Level 2 within the valuation hierarchy. Page 15