UNIVERSITY HEALTH SYSTEM, INC.

Transcription

1 UNIVERSITY HEALTH SYSTEM, INC. The Health Educational and Housing Facility Board of the County of Knox (Tennessee), Revenue Bonds (University Health System, Inc.), Series 2007, $230,350,000 Dated: April 27, Quarterly Reporting Package Including Consolidated Financial Statements For the Year Ended December 31, 2009 (Unaudited) UHS

2 OFFICER'S CERTIFICATE REQUIRED BY SECTION 5.11 OF THE LOAN AGREEMENT DATED APRIL 1, 2007 I, Thomas M. Fisher, Senior Vice President and ChiefFinancial Officer ofuniversity Health System, Inc. ("URS"), hereby celiify as follows: I. This Officer's Certificate is issued under and pursuant to the Loan Agreement dated as ofapril I, 2007 between UHS and The Health, Educational and Housing Facility Board ofthe County ofknox (the "Loan Agreement"). Capitalized terms not defined herein shall have the meanings given to them in the Loan Agreement. 2. The interim financial statements dated as ofdecember 31, 2009 reflect all adjustments (consisting ofnormal recuning accmals and estimated current third-party contractnal allowances) necessary for a fair presentation ofthe results ofoperations for the period specified in the interim financial statements. University Health System, Inc. <~.' ~... 1?,._~.> G By:'} l.!~=-.::.~ ~ L Thomas M. Fisher Senior Vice President and ChiefFinancial Officer 1

3 UNIVERSITY HEALTH SYSTEM, INC AND SUBSiDIARIES CONSOLIDATED BALANCE SHEEl As of December 31, 2009 and December 31, 2008 (UNAUDITED) 12/31/ /31/2008 ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 183,429,423 $ 148,046,337 Current portion of Assets Limited as to Use" 9,383,582 24,219,437 Gross Patient Accounts ReceIvable: Hospital 187,438, ,970,230 Physician Pracllces 10,437,090 9,395,510 University Ambulatory Surgical Center 900,272 1,428,714 Total Gross Patient Accounts Receivable 198,775, ,794,454 Less Estimated Uncolfeclibles and Allowances 143,481, ,997,413 Net Patient Accounts Receivable 55,294,262 57,797,041 Estimated Third Party Settlements 12,564,895 9,771,819 Inventories 5,881,716 5,764,106 PrepaId Expenses and Other Current Assets 4,614,298 7,740,885 Total Current Assets 271,168, ,339,625 Assets limlted as to Use, Less Current PortIon 14,798,115 22,782,061 Plant and Equipment, Net 162,388, ,652,971 other Non-Current Assets: Investment in Affiliated Companies 2,341,003 3,494,056 Deferred Financing Costs, Net 1,807,404 1,876,040 Estimated Fair Value of Interest Rate Swap 0 0 Total Assets $ 452,502,994 $ 432,144,753 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable $ 53,709,844 $ 55,492,953 Accrued Payroll and Related Liabilities 23,749,964 20,513,767 Accrued Expenses and Other Liabilities 9,609,314 8,704,382 Total Due (To}/From SARC 17, ,093 Current portion of Bonds Payable 2,975,000 2,865,000 Current portton of Capltal Leases 621, ,815 Estimated Third-Party SellJements 5,441,671 1,941,671 Other Current LiabilitIes 2,903,631 2,396,391 Total Current LiabiJilies 99,027,577 92,777,072 Long-Term Debt, Less Current PortIon 238,720, ,101,433 Estimated Fair Value of Interest Rate Swap 405,632 15,996,431 Other liabilities 11,342,661 10,900,980 Total L1abllllfes 349,496, ,775,916 Minority Interest 266,684 87,197 Net Assets: Unrestricted 98,559,267 67,897,250 Temporarily Restricted 333, ,697 Permanently Restricted 3,847,187 3,248,693 Total Net Assets 102,739,966 71,281,640 Total Liabilities and Net Assets $ 452,502,994 $ 432,144,753 2

4 Equity UNIVERSITY HEALTH SYSTEM, INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Years Ended December 31, 2009 and December 31,2008 (UNAUDITED) 12/31/ /31/2008 REVENUE: Patient Service Revenue: Inpatient $ 813,986,194 $ 770,908,063 Outpatient 629,673, ,039,358 Gross Patient Revenue 1,443,660,096 1,320,947,421 Deductions from Revenue: Gross Revenue Deductions 939,224, ,867,961 Charity Care 32,909,318 27,140,989 Graduate Medical Education Payments (31,958,862) (26,979,291 ) TnCare Essential Services Payment (9,221,314) (10,075,962) Net Deductlons from Revenue 930,953, ,953,697 Net Patient Service Revenue 512,706, ,993,724 Gain on Sale of Assets, net 155, ,844 Other Revenue 31,499,724 33,342,428 TOTAL REVENUE 544,361, ,495,996 OPERATING EXPENSE: Salaries, Wages, and Benefits 216,755, ,654,979 Supplies and Stores 122,393, ,740,363 Depreciation 19,702,961 19,246,819 Interest 11,459,031 10,783,582 Graduate Medical Education Reimbursement 31,958,862 26,979,291 Purchased Services 62,422,825 63,801,165 Provision for Doubtful Accounts 48,295,143 42,116,581 Insurance and Other 24,946,409 27,147,299 TOTAL OPERATING EXPENSE 537,933, ,470,079 OPERATING INCOME (LOSS) 6,428,468 (1,974,083) NONOPERATING GAINS (LOSSES): Contributions used for purchase of property 1,096, ,657 and equipment Investment Income 3,046,860 6,428,807 Change In Fair Value of Interest Rate Swap 15,590,799 (15,525,922) MInority Interest (75,087) 119,321 Unrealized Gain (Losses) M 2,451,915 (4,472,847) Unrealized Gain (Losses) ~ Bonds 2,060,384 (2,552,099) TOTAL NONOPERATING GAINS, NET 24,171,769 (15,717,083) NET INCOME (LOSS) $ 30,600,237 $ (17,691,166) 3

5 UNIVERSITY HEALTH SYSTEM, INC UNIVERSITY OF TENNESSEE MEDICAL CENTER CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS For the Twelve Months Ended December 31,2009 (UNAUDITED) 2009 Unrestricted Net Assets: Excess of Revenue and Gains Over Expenses $ 30,600,237 Change in Interest in Net Assets of Joint Venture 61,782 Increase in Unrestricted Net Assets 30,662,019 Temporarily Restricted Net Assets: Contributions 206,216 Net Assets Released from Restrictions (8,401 ) Increase in Temporarily Restricted Net Assets 197,815 Permanently Restricted Net Assets: Contributions 608,652 Net Realized Gains on Investments Net Assets Released from Restrictions (10,159) Increase in Permanently Restricted Net Assets 598,493 Increase in Net Assets 31,260,512 Net Assets at Beginning of Period Unrestricted 67,897,248 Temporarily Restricted 135,697 Permanently Restricted 3,248,694 Total 71,281,639 Net Assets at End of Period Unrestricted 98,559,267 Temporarily Restricted 333,512 Permanently Restricted 3,847,187 Total $ 102,739,966 4

6 UTILIZATION Utilization The following table sets forth certain information concerning the utilization of UHS's facilities for the three years ended December 31, Inpatient Utilization Licensed Beds Patient Days: Adult and Pediatric Nurseries: Newborn Intennediate & Intensive Care AdmissionJ2) Percent ofoccupancy (1) (2) Average Daily Census Average Length ofstay (2) Inpatient Surgery Cases Medicare Case Mix Index Outpatient Utilization Emergency Room Visits Admitted Treated and Released Outpatient Surgery Cases Fiscal Year Ended December , , ,212 4,062 3,972 4,224 16,454 15,541 14,866 22,498 22,556 22,917 77,1% 75.6% 74.0% ,142 9,016 8, ,629 43,836 8,421 11,605 48,441 9,055 12,331 52,221 9,603 (1) Calculated based on actual bed days available. (2) Adult and pediatric, excluding newborns. Source: UHS Internal Records 5

7 FINANCIAL INFORMATION The following summary of consolidated statements of operations for fiscal years ended December 31,2008 and 2007 was derived from the audited consolidated financials statements of UHS and subsidiaries that were audited by I<PMG LLP. This summary should be read in conjunction with the consolidated financial statements and related notes. The consolidated statement of operations for the fiscal year ended December 31,2009 are unaudited and are based on UHS internal records. (ODD'S) Condensed Statement of Operations Fiscal Year Ended December 31 (Audited) (Unaudited) Operating Revenue Net Patient Service Revenue $458,555 $480,994 $512,707 Gain (Loss) on Sale of Business Units 18, Other Operating Revenue 25,740 33,342 31,500 Total Revenue 502, , ,362 Operating Expenses Salaries, Wages, and Benefits 196, , ,755 Medical Supplies and Drugs 104, , ,393 Purchased Services 58,496 63,801 62,423 Insurance & Other 26,878 27,147 24,946 Graduate Medical Education Reimbursement 28,661 26,979 31,959 Interest 10,533 10,784 11,459 Depreciation & Amortization 18,215 19,247 19,703 Provision for Doubtful Accounts 38,598 42,117 48,295 Loss on Extinguishment ofdebt 10,479 Total Operating Expenses 493, , ,933 Operating Income 9,801 (1,974) 6,429 Non-Operating Gains, Net 10,897 (191) 8,580 Change in Fair Value ofderivative Investment (876) (15,526) 15,591 Net Income (Loss) $19,822 ($17,691) $30,600 6

8 (ODD's) Condensed Balance Sheet Fiscal Year Ended December 31 (Audited) (Unaudited) Cash & Investments Patient Accounts Receivable, Net Assets Limited as to use Plant & Equipment, Net Other Assets Total Assets $148,019 $148,046 $183,429 53,291 57,448 55,294 59,675 47,001 24, , , ,388 23,381 28,997 27,210 $434,288 $432,145 $452,503 Current Liabilities Other Liabilities Long-Term Debt Net Assets Total Liabilities & Net Assets $86,868 $92,777 $99,028 13,203 25,527 12, , , ,720 88,435 71, ,740 $434,288 $432,145 $452,503 7

9 CAPITALIZATION The table below sets forth the capitalization of UHS as of December 31,2009 and December 31, 2008 (Dollars in OODs) December 31, 2009 Series 2007 Bonds OJ Other Long-Term Indebtedness Total Long-Term Debt Total Unrestricted Net Assets Total Capitalization $227,790 14, ,364 67,897 $310,261 $224,925 16, ,621 98,559 $340,180 Net Long-Term Debt as a Percentage of Total Capitalization 78.1% 71.0% (1) Excludes unamortized discount and unamortized premium. DAYS CASH ON HAND The following table sets forth the unrestricted liquidity of UHS as of December 31,2007, 2008 and Total Unrestricted Cash and Investments (a) Average Daily Cash Operating Expenses (b) Days Cash on Hand (alb) December 31, $148,019 $148,046 1, , $183,429 1,

10 Financial Results For Twelve Months Ended December 31, 2009 and 2008 For 2009, inpatient admissions increased 1.6% over 2008 leveis. For 2009, adult and pediatric patient length of stay decreased from 5.9 for 2008 to 5.8 in The decrease in length of stay is a resuit of the impiementation of several case management initiatives and patient mix. During this period, UHS experienced an increase in its Medicare case mix index from 1.94 in 2008 to 1.99 in The case mix Index is a relative measure of patient acuity. Total surgery volumes increased 1.4% in 2009 compared with the comparabie period in Outpatient surgery cases increased 6.1 % while inpatient cases decreased 3.2%. Emergency room visits increased 7.5% in 2009 and admissions through the emergency room increased 6.3% in the same period. UHS's unrestricted cash and investments (at market value) increased $35.4 million to $183.4 million as of December 31, 2009 over the comparable period in Days cash on hand increased 20.5 days to over this same period. The increase in unrestricted cash has been caused by positive operating performance, strong patient collections and the use of project funds for a significant portion of 2008 and 2009 capital expenditures. Net accounts receivable have declined approximately $2.2 million since December 31, This decline has been due to stronger revenue cycle processes resulting in higher collection levels. Assets limited as to use decreased from approximately $47.0 million as of December 31,2008 to $24.2 million as of December 31, The decrease was caused by the drawdown of project funds for certain capital purchases made during the year. The project fund was funded from the 2007 bond issuance. At December 31, 2009, UHS had approximately $9.2 million remaining in project funds to be used for qualifying capital expenditures in Net assets increased from $71.3 million at December 31, 2008 to $102.7 million at December 31,2009. This $31.4 million increase was primarily caused by the positive operating and investment performance coupled with the improvement In the mark to market on UHS swap transaction. When compared to December 31,2008, the mark-to-market on the swap transaction has improved by approximately $15.6 million. During 2009, UHS recorded positive cash flow of $838 thousand and has accumulated $2.4 million in positive cash flow since its inception in May UHS experienced operating income of approximately $6.4 million for 2009 vs. an operating ioss of $(2.0) million for the comparable period in Results for 2009 have improved over 2008 levels due to stronger patient volumes, lower length-of-stay for inpatients and a higher case mix index for the Medical Center's Medicare patients. UHS has also benefited from several costsaving initiatives which were implemented in late 2008 and early Several of these initiatives have resulted in lower employee benefit and liability expenditures and a slowing of the growth rate in medical supply expenditures. UHS Is experiencing higher bad debt and charity levels in 2009 due to the overall economic climate. For 2009, bad debt and charity write-offs have increased by approximateiy $11.6 million when compared with Non-operating income increased to a gain of $24.2 million for 2009 compared to a loss of $(15.7) million for This change was primarily caused by an improvement in the mark-tomarket on the UHS swap transaction as well as positive investment returns. 9

11 PERCENTAGE OF GROSS PATIENT CHARGES BY PAYOR Medicare MedicaidlTennCare Managed Care/Commercial Self-pay Other Total Fiscal Year Ended December % 43 % 43 % % 100 % 100 % Source: DRS Internal Records 10