WILLIS-KNIGHTON MEDICAL CENTER. CONTINUING DISCLOSURES UNDER SEC RULE 15c2-12

Transcription

1 WILLIS-KNIGHTON MEDICAL CENTER CONTINUING DISCLOSURES UNDER SEC RULE 15c2-12

2 WILLIS-KNIGHTON MEDICAL CENTER CONTINUING DISCLOSURES UNDER SEC RULE 15c2-12 FOR THE YEAR ENDED SEPTEMBER 30, 2013 Page INDEX 1 SERVICES AND OPERATIONS 1 Utilization 1 Sources of Revenue 1 Competition and Service Area 2 Primary Service Area 2 Secondary Service Area 3 Bed Complement 4 SUMMARY OF FINANCIAL OPERATIONS 5 MANAGEMENT S DISCUSSION OF OPERATIONS 5 Financial Performance 6 Pension Plan 6 EMPLOYEES OF THE CORPORATION 7 Profile of Top Ten Admitting Physicians 7 Active and Associate Medical Staff, by Specialty 8 Admitting Medical Staff, by Specialty 9 LIABILITY COVERAGE 9 LITIGATION 9 MEDICAL MALPRACTICE HISTORY 9 EMPLOYEE PENSION PLANS AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

3 WILLIS-KNIGHTON MEDICAL CENTER SERVICES AND OPERATIONS Utilization Set forth below is certain statistical information concerning Willis-Knighton, including beds in service, percent of occupancy, patient days, admissions, average length of stay and outpatient visits for each of the five years ended September 30, 2009, 2010, 2011, 2012 and 2013: HISTORICAL UTILIZATION OF WILLIS-KNIGHTON FISCAL YEAR ENDING SEPTEMBER 30 Fiscal Year Ended September Admissions 44,309 43,529 42,192 41,046 38,953 Admissions and Observation Stays 50,274 50,417 51,109 51,343 50,997 Patient Days (Including Observations) 205, , , , ,918 Average Length of Stay in Days (Including Observations) Average Daily Census Average Daily Available Beds Occupancy Percentage of Bed Complement Emergency Room Visits 134, , , , ,981 Outpatient Surgery 18,282 18,435 18,240 18,267 17,727 1 Based on Available Beds Source: Management Reports Sources of Revenue GROSS PATIENT REVENUES BY PAYOR SOURCE AS PERCENTAGES OF TOTAL REVENUES Approximately 60% of Willis-Knighton s gross patient service revenue was derived from the Medicare and Medicaid programs for the fiscal year ended September 30, The table below shows the percentages of Willis-Knighton s gross patient service revenues by payor source for the fiscal years ended September 30, 2009 through 2013: Fiscal Year Ended September Medicare HMO/PPO Blue Cross Workers Compensation Other Commercial Insurance Self-Pay and Other Medicaid Total Source: Management Reports Competition and Service Area Willis-Knighton s primary service area covers an approximate 35 mile radius of Shreveport, Louisiana, comprising the Louisiana parishes of Caddo, Bossier, Webster, Claiborne, Red River, DeSoto and Bienville, which had a year 2010 population of - 1 -

4 approximately 454,000 persons. Over the past year, the primary service area has accounted for approximately 87% of Willis- Knighton s admissions. The secondary service area of Willis-Knighton includes the communities in the southwestern part of Arkansas, certain eastern counties of Texas and the parishes of Sabine, Lincoln and Natchitoches in Louisiana, which communities in the past two years have accounted for approximately 13% of Willis-Knighton s admissions. There are currently four additional acute-care hospitals located in Willis-Knighton s primary and secondary service areas. The table below compares Willis-Knighton and the other hospital facilities located within the primary service area believed by management to be competitive with Willis-Knighton. COMPETING FACILITIES IN THE AREA Primary Service Area Patient Admissions Days With No. Licensed Including Observation Occupancy Market Hospitals, City (Year Ending**) Beds Observation Stays Rate* Share Willis-Knighton Health System, Shreveport & Bossier City (September 30, 2013) ,918 50, Christus Schumpert Medical Center, Shreveport(1)(September 30, 2011) ** ,647 12, Promise Specialty Hospital, Shreveport (September 30, 2010) ** ,620 1, * Based on the Number of Licensed Beds ** Most Current Available Information (1) In May, 2013, Christus Schumpert Medical Center closed their St. Mary campus. Source: AHD Secondary Service Area The hospitals located in the secondary service area include Nachitoches Regional Medical in Natchitoches, Louisiana, with 96 licensed acute care beds and which also houses a 112-bed skilled nursing home, Christus St. Michael s Health System in Texarkana, Texas, with 312 licensed acute care beds, 50 licensed rehab beds, and 30 licensed LTAC beds, and Medical Center of South Arkansas in El Dorado, Arkansas, with 166 licensed beds. Louisiana State University Health Sciences Center (LSUHSC) located in Shreveport is not considered a major competitor because it is a teaching hospital providing care to primarily indigent and Medicaid patients. Although, effective October 1, 2013, full operation of the LSUHSC facility, now known as University Health Shreveport, was transferred to the not-for-profit Bio-Medical Research Foundation of Northwest Louisiana, the purpose and objectives of the facility s operations are substantially unchanged. Willis-Knighton draws patients principally from Shreveport. The following table presents patient origin of Willis- Knighton s 50,997 inpatient admissions for the year ended September 30, 2013: Number Percent of of Admissions Parish/County Admissions Year Ended 9/30/13 Bienville Parish, Louisiana Bossier Parish, Louisiana 13, Caddo Parish, Louisiana 24, Claiborne Parish, Louisiana DeSoto Parish, Louisiana 2, Lincoln Parish, Louisiana Natchitoches Parish, Louisiana Red River Parish, Louisiana Sabine Parish, Louisiana 1, Webster Parish, Louisiana 2, Harrison County, Texas Panola County, Texas Shelby County, Texas Other 3, ,

5 Source: Management Reports Bed Complement Number Percent of of Admissions State Admissions Year Ended 9/30/13 Louisiana 48, Arkansas Texas 2, Other , The WK Medical Center (WKMC) is licensed for 344 beds and operates 233 acute care beds. WK South is licensed for 152 beds and operates 152 acute care beds. WK Bossier Health Center is licensed for 166 beds and operates 152 acute care beds. WK Pierremont Health Center (WKP) is licensed for 190 beds and operates 183 acute care beds. WK Extended Care Center is licensed for 24 beds and operates 24 acute care beds. The available bed complement at the four hospitals and extended care center is as follows: Source: Management Reports AVAILABLE BED COMPLEMENT AS OF SEPTEMBER 30, 2013 Service Number of Beds Medical/Surgical* 293 Obstetrics/Gynecology 54 Psychiatric/Addiction Recovery 36 Transplant Care 23 Step-Down CCU/ICU/PICU 71 Intensive Care/Critical Care 97 Telemetry* 73 Orthopedic/Neurology 48 Skilled Nursing Beds 24 Rehabilitation 25 Total 744 *All beds are telemetry capable at WKMC and WKP The licensed beds complement is as follows: LICENSED BED COMPLEMENT AS OF SEPTEMBER 30, 2013 Service Number of Beds Medical/Surgical 620 Rehabilitation 49 Intensive Care/Critical Care 75 Obstetrics/Gynecology 29 Pediatric 19 Pediatric Intensive Care 9 Psychiatric/Addiction Recovery 51 Skilled Nursing Beds 24 Total 876 Source: Management Reports - 3 -

6 SUMMARY OF FINANCIAL OPERATIONS Statement of Revenues and Expenses. The following selected financial data of the Corporation and its subsidiaries for the five fiscal years ended September 30, 2013 is derived from the audited financial statements of the Corporation. The data should be read in conjunction with the audited financial statements, related notes and other financial information. (Audited) Fiscal Year Ended September Patient Revenues: Inpatient Revenues 1,119,001,878 1,156,630,226 1,144,731,416 1,152,450,795 1,187,342,866 Outpatient Revenues 880,960, ,746,724 1,092,395,129 1,201,335,689 1,303,566,997 Total 1,999,962,265 2,110,376,950 2,237,126,545 2,353,786,484 2,490,909,863 Deductions from Revenues: Medicare Contractual Discounts 576,320, ,566, ,314, ,442, ,335,848 Medicaid Contractual Discounts 153,277, ,235, ,317, ,179, ,951,257 Other Discounts 471,368, ,939, ,990, ,182, ,770,920 Bad Debts 47,410,289 54,196,767 56,886,737 67,120,805 57,364,124 Free Services 28,707,235 30,855,453 38,475,011 39,251,302 57,875,192 Total 1,277,083,335 1,346,793,713 1,429,984,494 1,502,176,268 1,604,297,341 Net Patient Revenues 722,878, ,583, ,142, ,610, ,612,522 Other Revenues: Interest Income 1,956,634 1,563,616 1,600,817 1,698, ,278 Miscellaneous 2,914,012 4,511,785 7,046,665 9,085,775 11,516,814 Total 4,870,646 6,075,401 8,647,482 10,784,047 12,424,092 Total Revenues 727,749, ,658, ,789, ,394, ,036,614 Expenses (Excluding Depreciation and Interest Expense): Physicians Salaries and Fees 72,032,624 83,916,029 92,015,157 99,038, ,117,837 Other Salaries and Benefits 297,255, ,156, ,480, ,077, ,297,774 Insurance 12,287,686 11,538,534 12,533,128 12,124,718 11,674,713 Utilities 9,900,909 9,564,295 10,788,098 11,108,465 12,074,740 Other Expenses 241,033, ,549, ,556, ,209, ,288,828 Total 632,509, ,725, ,373, ,558, ,453,892 Excess Revenues Over Expenses Before Depreciation, Interest Expense, Pension-Related Changes Other than Net Periodic Pension Cost, Rescission of Contribution for Children s Hospital and Income (Loss) of Subsidiaries 95,240,020 97,933, ,415, ,835, ,582,722 Depreciation (Excludes Subsidiaries) ( 43,268,187) ( 43,201,561) ( 46,420,557) ( 46,564,128) ( 47,728,241) Interest Expense ( 3,713,662) ( 1,277,416) ( 1,272,893) ( 1,053,718) ( 710,315) Pension-Related Changes Other than Net Periodic Pension Cost ( 41,101,517) ( 2,520,050) ( 27,257,252) ( 27,182,365) 71,859,477 Rescission of Contribution for Children s Hospital 5,000,000 Income (Loss) of Subsidiaries ( 7,176,571) ( 5,038,722) 2,212,208 ( 162,238) ( 417,113) Total ( 90,259,937) ( 52,037,749) ( 72,738,494) ( 74,962,449) 23, Increase in Net Assets 4,980,083 45,895,710 48,677,397 55,873, ,586,530 Source: Corporation s audited financial statements

7 Existing Indebtedness of the Corporation The Corporation has $164,400,000 of debt outstanding related to the Series 1993, Series 1995, and Series 1997 bond issues at September 30, See Note 13 of the Corporation s September 30, 2013 audited financial statements. Actual Funded Debt Service Coverage. Based on the actual revenues of the Corporation for the fiscal years ended September 30, 2013 and 2012, the following table shows the actual funded debt service coverage for such fiscal years. Actual debt service includes the maximum annual debt service on the Series 1993 Bonds, Series 1995 Bonds, and Series 1997 Bonds, with interest assumed at the rate of 5.17% and 4.31%, respectively, plus Additional Debt and Guaranteed Debt as defined and calculated in accordance with the Loan Agreements. Fiscal Year Ended September Net Revenues Available for Debt Service $126,348,444 $134,530,124 Funded Debt Service: Maximum Annual Debt Service on Series 1993, Series 1995, and Series 1997 Bonds $18,312,850 $20,854,560 Additional Debt Capital Lease Obligations 2,094, ,581 Guaranteed Debt 0 0 Funded Debt Service $20,407,215 $21,481,141 Actual Funded Debt Service Coverage Ratio 6.19x 6.26x Financial Performance MANAGEMENT S DISCUSSION OF OPERATIONS For the year ended September 30, 2013, Willis-Knighton increased its net assets by $145,586,530. The Medical Center's increase in net assets for the year ended September 30, 2013 is positively affected by an approximate $71.9 million credit for pension-related changes other than net periodic pension cost for the year. Excess revenues over expenses before 1) depreciation, 2) interest expense, 3) pension-related changes other than net periodic pension cost, and 4) loss from subsidiaries is $122,582,722 for the year ended September 30, Net patient revenue increased by $35,002,306 during the same period. Willis-Knighton is a member of the Voluntary Hospitals of America and enjoys group purchasing and other expense reduction programs through this affiliation. During the year ended September 30, 2013 Willis-Knighton experienced growth and contraction in the following areas: Admissions and Observation Stays -.68% Patient Days (Including Observations) -.34% Emergency Room Visits +1.75% Births -15.5% Operating Room Procedures -2.8% Cath Lab Procedures (Invasive) -.2% - 5 -

8 Pension Plan. The Corporation has a non-contributory defined benefit pension plan that covers substantially all employees. The plan benefits are based on years of service and the employees highest five consecutive years earnings during the years of covered employment. At a minimum, the Corporation makes annual contributions to the plan equal to amounts of net periodic pension cost. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. At September 30, 2013 the pension plan s assets include 42% in U.S. Government Securities, 55% in equities, 3% in cash and accrued income. These assets are invested in accordance with the Board s investment policy which is periodically reviewed by the Corporation s Board. Employees become vested in accrued benefits after attaining five years of credited service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ( ERISA ). See Note 15 of the Corporation s September 30, 2013 audited financial statements. Effective September 30, 2007, the Medical Center adopted Financial Accounting Standard Board Accounting Standards Codification This standard requires the Medical Center to recognize the underfunded status of its defined benefit pension plan as a liability on its statement of financial position. At September 30, 2013, the plan is underfunded by $18,742,880 under the standard's measurements. Net periodic pension cost included the following components: Fiscal Year Ended September Services Cost-Benefits Earned during the Period $ 15,593,936 $ 13,164,426 Interest Cost on Projected Benefit Obligation 12,553,517 12,089,932 Actual Return on Plan Assets (assumed at 6.25 percent) (12,978,872) (9,462,944) Amortization of Prior Service Costs (1,767,465) (1,767,465) Amortization of Unrecognized Loss 9,118,843 7,669,800 Net Periodic Pension Cost $ 22,519,959 $ 21,693,749 Source: Corporation s Records EMPLOYEES OF THE CORPORATION (as of September 30, 2013) Number of Full-Time Equivalents Area of Service Nursing 1,777 Administration 126 General 2,582 Technical/Physicians 1,325 Total 5,

9 Profile of Top Ten Admitting Physicians The following table presents the age, specialty, and percentage of admissions for the year ended September 30, 2013 attributed to the top 10 Willis-Knighton admitting physicians: Board Number of Percent of Specialty Age Certified Admissions Total Internal Medicine 56 Yes 1, Internal Medicine 55 No 1, Internal Medicine 63 Yes Internal Medicine 61 Yes Internal Medicine 47 No Internal Medicine 39 Yes Internal Medicine 41 No Psychiatry 35 Yes Internal Medicine 33 No Internal Medicine 37 Yes Total 8, Total Willis-Knighton 50, Source: Corporation s Records ACTIVE AND ASSOCIATE MEDICAL STAFF, BY SPECIALTY (Determined as of September 30, 2013) Total Board Specialty/Subspecialty Active Certified Anesthesiology Colon and Rectal Surgery 4 4 Dermatology 5 5 Emergency Medicine Family Practice 8 5 General Dentistry 3 1 General Surgery Internal Medicine Neurology 5 4 Neurosurgery 8 5 Obstetrics and Gynecology Ophthalmology Oral-Maxillofacial Surgery 12 6 Orthopedic Surgery Otolaryngology 5 5 Pathology Pediatric Ophthalmology 1 0 Pediatrics Physical Medicine and Rehabilitation 1 1 Plastic Surgery 3 2 Podiatry 5 4 Psychiatry 6 6 Radiation Oncology 4 3 Radiology Urology TOTAL ACTIVE/ASSOCIATE

10 Source: Corporation s Records ADMITTING MEDICAL STAFF, BY SPECIALTY (Determined as of September 30, 2013) Total Board Specialty/Subspecialty Active Certified Anesthesiology Colon and Rectal Surgery 6 6 Dermatology 7 7 Emergency Medicine Family Practice 9 5 General Dentistry 3 1 General Surgery Gynecology 5 4 Internal Medicine Neurology 10 8 Neurosurgery Obstetrics and Gynecology Ophthalmology Oral-Maxillofacial Surgery Orthopedic Surgery Otolaryngology Pathology Pediatrics Physical Medicine and Rehabilitation 1 1 Plastic Surgery 12 8 Podiatry 8 6 Psychiatry Radiology and Radiation Oncology Urology TOTAL PHYSICIANS Source: Corporation s Records - 8 -

11 LIABILITY COVERAGE Professional and General Liability. The Medical Center self-funds the first $100,000 of each non-physician medical malpractice claim and the first $2,000,000 per occurrence for general liability claims. Current Louisiana law limits damages payable under a medical malpractice suit to $500,000 plus future medical cost per claimant. The Medical Center has purchased insurance to cover the remaining $400,000 of non-physician medical malpractice exposure. The Medical Center has also purchased $10,000,000 of insurance to cover general liability claims in excess of $2,000,000. Worker s Compensation. The Medical Center self-funds its worker s compensation claims. Stop-loss insurance purchased by the Medical Center limits its loss exposure to $500,000 per claim and to $1,000,000 in the aggregate. LITIGATION As of September 30, 2013 there are 182 professional liability claims and 12 general liability claims pending against the Medical Center. Management believes that the liabilities that have been accrued for malpractice and general liability claims, together with its excess liability insurance coverage, are adequate to cover any liabilities that might result from these pending claims. MEDICAL MALPRACTICE HISTORY The Corporation s medical malpractice loss experience for the Fiscal Years 1999 through 2013 is as follows: Paid Number of Claims Paid Losses (Dollars) ,007, ,104, ,763, ,467, , ,111, , ,305, ,591, , ,223, , , , ,431 Source: Corporation s Records EMPLOYEE PENSION PLANS The Corporation has a pension plan covering all of its full-time employees with at least one-year of service. The benefits are based on years of service and the covered employees average compensation. The Corporation s funding policy is to contribute annually between minimum and maximum allowable contributions as required by the Employee Retirement Income Security Act of 1974 (ERISA). Historically, the maximum or near maximum amounts have been contributed. Pension expense for the fiscal years ending September 30, 2013 and September 30, 2012 was $22,519,959 and $21,693,749 respectively. See Note 15 of the Corporation s September 30, 2013 audited financial statements

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