Quarterly Report As of December 31, 2018 and for the three and six months ended December 31, 2018

Transcription

1 Quarterly Report As of December 31, 2018 and for the three and six months ended December 31, 2018

2 Table of Contents Part I: Overview... 1 Part II: Leadership Changes... 1 Part III: Strategic Acquisitions... 1 Part IV: Select Financial Data... 2 Part V: Management Discussion and Analysis 1. Summary of Operating Results for the three months ended December 31, Summary of Operating Results for the six months ended December 31,

3 Part I: Overview The Corporation ( INTEGRIS ) is the parent of non-profit and for-profit corporations providing healthcare services primarily centered in metropolitan Oklahoma City, Oklahoma. INTEGRIS services and settings span the continuum of care including acute care hospitals, physician practices, LTACH, home care, research and development, medical education, reference laboratory services and virtual health services. Part II: Leadership Changes Timothy Pehrson, MHA, joined INTEGRIS as President and CEO in August Pehrson comes to Oklahoma from Intermountain Healthcare, widely recognized as an innovative, highquality health system. Pehrson worked at Intermountain for 18 years where he held numerous operational and executive leadership roles. Most recently, Pehrson served in a dual role as Regional Vice President/CEO for the North Region and Vice President of Continuous Improvement for the entire health system. In his role as CEO of the North Region, Pehrson was the market leader of a five-hospital region in Utah and Idaho. Pehrson played a pivotal role in the effort to integrate clinical services and functional areas. Those hospitals were recognized as Truven 100 Top Hospitals 12 times, and one of them received the Everest Award, which was given to 17 hospitals across the country that have the highest performance and the fastest longterm growth over five years. Mike Hatch joined INTEGRIS as the Executive Vice President and Chief Strategy and Transformation Officer in His responsibilities include strategic planning and forecasting, market intelligence and positioning, and growth and development. Prior to joining INTEGRIS, he worked for Intermountain Healthcare for 16 years in various regional and system strategic planning roles. Doug Smith, MBA, joined INTEGRIS as Executive Vice President and Chief Financial Officer in December Smith has 28 years of financial experience in health care, and comes to Oklahoma from Stanford Health Care, where he served as the Vice President of Finance. Prior to his time at Stanford, Smith worked at Intermountain Healthcare for 27 years including various CFO capacities over 12 of Intermountain s hospitals. Smith also has extensive finance experience working with Intermountain s large medical group and health plan. Part III: Strategic Affiliations/Acquisitions INTEGRIS is continuously monitoring and evaluating potential facility expansion, acquisitions, and affiliation opportunities consistent with its strategic goal of creating, maintaining and/or strengthening its position in existing and new markets. Evidence of INTEGRIS s strategic vision is supported by recent acquisitions described below. New Acquisitions / Ventures Deaconess Hospital ( Deaconess ) (Oklahoma City, Oklahoma). On October 1, 2018, INTEGRIS purchased 238 bed Deaconess from Community Health Systems Inc. The addition of Deaconess will relieve critical care bed capacity issues at Baptist Medical Center which turns away 1,200 critical care patients annually. Deaconess is less than one mile from Baptist and is licensed as part of Baptist hospital.

4 INTEGRIS/USPI Health Ventures LLC Effective July 30, 2018 INTEGRIS became majority owner of INTEGRIS/USPI Health Ventures which has majority ownership of two health care joint venture entities described below (HPI and OCOM). Health Partners Investments ( HPI ) (Greater Oklahoma City, Oklahoma). Effective November 1, 2018, INTEGRIS/USPI Health Ventures LLC became majority owner of HPI. HPI is a joint venture hospital company with physician partners focused on orthopedic and spine care at four locations in and around Oklahoma City. INTEGRIS s effective interest in HPI is 26%. Southwest Ambulatory Surgery Center, LLC sole member of Oklahoma Center of Orthopaedic and Multi-Specialty Surgery ( OCOM ) (Oklahoma City, Oklahoma). INTEGRIS has been a long-time member of the OCOM joint venture. As of November 1, 2018, INTEGRIS/USPI Health Ventures LLC became majority owner of OCOM, a joint venture provider of specialty surgery with physician partners. In addition to an ambulatory surgery center with six operating rooms and 10 treatment rooms, OCOM has three imaging centers and a physical therapy rehabilitation facility in the Oklahoma City area. This change effectively raised the INTEGRIS interest from 19% to 25%. INTEGRIS/EMERUS Small Format Community Hospital Joint Venture As of December 31, 2018, construction of four small format hospitals were progressing with expected openings in February, March and May Each hospital will have the INTEGRIS brand, a full service emergency room, approximately 10 beds and INTEGRIS physician offices onsite. Part IV: Selected Financial Data (unaudited) The selected financial data that follows has been prepared by management, based on INTEGRIS s unaudited interim financial statements as of December 31, 2018 and for the threeand six-month periods ended December 31, 2018 and The INTEGRIS Reporting Group includes all entities that are consolidated with the Corporation under GAAP. The results of operations for recently acquired entities that have been accounted for as acquisitions are included in the INTEGRIS Reporting Group and INTEGRIS consolidated financial and operating information from the respective dates of acquisition. A. The following tables provides consolidated balance sheets for INTEGRIS as of December 31, 2018 and December 31, 2017 and, B. The consolidated income statement for INTEGRIS for the 3 months ended December31, 2018 and the utilization statistics for the 3 months ended December 31, 2018 and, C. The consolidated income statement for INTEGRIS for the 6 months ended December31, 2018 and the utilization statistics for the 6 months ended December 31, 2018.

5 A. CONSOLIDATED BALANCE SHEET in ($000s) FISCAL YEAR ENDED JUNE 30, 6 MONTHS ENDED DEC 31, Assets Current Assets Cash and Cash Equivalents $46,793 $38,408 $76,645 $89,887 $8,526 Short Term Investments 219, , , , ,019 Accounts Receivable Patients 186, , , , ,317 Affiliates 0 (0) (0) (0) 208 Current Portion of Notes Receivable Inventories 28,066 32,560 38,234 33,863 46,204 Prepaid Expenses and Other Current Assets 19,436 15,563 17,174 14,658 20,418 Total Current Assets 501, , , , ,692 Assets Whose Use is Limited 816, , , , ,450 Property and Equipment Land and Improvements 61,094 56,556 54,962 55,695 55,240 Building and Leasehold Imporvements 707, , , , ,686 Equipment 791, , , , ,202 Total Property and Equipment 1,559,887 1,586,096 1,623,306 1,600,315 1,641,128 Less Accumulated Depreciation/Amortization (986,079) (903,307) (942,307) (901,103) (987,353) 573, , , , ,775 Plus : Construction In Progress 130,382 62,486 34,313 29,791 68,917 Net Plant, Property and Equipment 704, , , , ,692 Other Assets, Net 75,038 77,670 80,957 79, ,958 Total Assets $2,096,742 $2,147,239 $2,253,632 $2,296,457 $2,203,791 Liabilities and Net Assets Current Liabilities Accounts Payable and Accrued Expenses $325,369 $300,169 $281,845 $314,617 $279,987 Employee compensation and Related Liabilities 72,649 52,513 59,311 55,984 60,350 Due to Affiliates 10,007 7,484 4,962 3,367 8,973 Current Portion of Long-term Debt 12,490 13,055 14,860 14,860 15,525 Total Current Liabilities 420, , , , ,836 Long-term Debt, Less Current Portion 429, , , , ,544 Capital Lease Obligations, Less Current Portion Other Long-term Liabilities 441, , , , ,874 Total Liabilities 1,291,612 1,180,992 1,198,122 1,285,079 1,193,253 Net Assets Total Net Assets 805, ,247 1,055,510 1,011,378 1,010,538 Total Liabilities and Net Assets $2,096,742 $2,147,239 $2,253,632 $2,296,457 $2,203,791 NOTE : Assets Whose Use is Limited - Restricted Donor $198 $193 $187 $197 $186 Captive 67,122 43,539 19,924 51,582 13,943 Construction 24,490 8,720 98, ,378 98,495 Total $91,810 $52,452 $118,606 $155,157 $112,624

6 B. CONSOLIDATED INCOME STATEMENT (in $000s) FISCAL YEAR ENDED JUNE 30, QUARTER ENDED DEC 31, Operating Revenues : Patient Service Revenue $1,526,020 $1,513,381 $1,657,802 $411,932 $517,264 Provision for Bad Debt 137, , ,346 30,605 50,545 Net Patient Service Revenue 1,388,711 1,411,079 1,509, , ,719 Premium Revenue 1,631 2,723 7,917 2,726 1,807 Other Operating Revenue 153, , ,089 40,733 40,937 Total Operating Revenue 1,543,617 1,558,529 1,673, , ,464 Operating Expenses : Salaries and Related Expenses 798, , , , ,073 Supplies and Other Expenses 637, , , , ,873 Professional Fees 41,233 40,837 46,340 10,354 15,414 Depreciation and Amortization 70,191 80,013 90,064 22,128 25,094 Provision for Uncollectible Non-patient Accounts (4) (8) Interest 17,163 16,814 20,191 4,802 5,434 Total Operating Expenses 1,565,005 1,572,201 1,670, , ,137 Income from Operations (21,387) (13,672) 2,760 9,400 16,327 Nonoperating Revenue (expense) : Investment Income, Net (36,824) 128,509 55,055 22,530 (75,650) Equity in Income of Affiliates, Net (2,248) (1,817) (2,807) (947) (956) Other, Net (31,901) (1,037) (1,430) (663) (7,287) Total Nonoperating Revenue, net (70,974) 125,655 50,818 20,920 (83,892) Net Income (92,361) 111,982 53,579 30,320 (67,566) Other Changes in Net Assets : Min. Pension Liability Adjustment 42,123 0 (24,544) 0 0 Other, Net 9,472 (1,155) 892 2,286 2,165 Changes in Net Assets (216,951) 161,117 89,264 32,606 (65,401) Net Assets, Beginning of Period 1,022, , , ,773 1,075,939 Net Assets, End of Period $805,130 $966,247 $1,055,510 $1,011,378 $1,010,538 CONSOLIDATED: UTILIZATION OF FACILITIES FISCAL YEAR ENDED JUNE 30, QUARTER ENDED DEC 31, Available Beds 1,269 1,280 1,247 1,284 1,410 Patient Days 296, , ,082 75,305 81,354 Admissions 50,489 50,658 52,259 13,323 14,148 Average Length of Stay Emergency Room Visits 232, , ,998 58,083 64,647 Outpatient Registrations 552, , , , ,572 Gross Revenue by Payor (in $000s) Medicare $1,989,248 $2,146,499 $2,475,734 $810,234 $906,602 Medicaid 632, , , , ,009 Managed Care 2,366,044 2,481,195 2,873, , ,808 Commercial 37,780 14,755 14,237 3,598 34,580 Other 76,321 71,627 58,712 21, ,504 Private Pay 372, , ,986 94, ,197 $5,474,270 $5,786,424 $6,667,415 $1,692,890 $2,138,700

7 C. CONSOLIDATED INCOME STATEMENT (in $000s) FISCAL YEAR ENDED JUNE 30, 6 MONTHS ENDED DEC 31, Operating Revenues : Patient Service Revenue $1,526,020 $1,513,381 $1,657,802 $816,299 $937,969 Provision for Bad Debt 137, , ,346 72,856 90,273 Net Patient Svc Rev Prior to Accrual of Possible CMS Settlement 1,388,711 1,411,079 1,509, , ,696 Accrual of Possible CMS Settlement Net Patient Service Revenue 1,388,711 1,411,079 1,509, , ,696 Premium Revenue 1,631 2,723 7,917 3,811 3,486 Other Operating Revenue 153, , ,089 77,875 81,309 Total Operating Revenue 1,543,617 1,558,529 1,673, , ,491 Operating Expenses : Salaries and Related Expenses 798, , , , ,461 Supplies and Other Expenses 637, , , , ,806 Professional Fees 41,233 40,837 46,340 20,617 27,641 Depreciation and Amortization 70,191 80,013 90,064 44,193 47,474 Provision for Uncollectible Accounts (4) (8) Interest 17,163 16,814 20,191 9,593 10,401 Total Operating Expenses 1,565,005 1,572,201 1,670, , ,045 Income from Operations (21,387) (13,672) 2,760 (672) 9,446 Nonoperating Revenue (expense) : Investment Income, Net (36,824) 128,509 55,055 43,564 (50,197) Equity in Income of Affiliates, Net (2,248) (1,817) (2,807) (1,246) (1,800) Other, Net (31,901) (1,037) (1,430) (757) (7,057) Loss on Extinguishment of Debt Total Nonoperating Revenue, net (70,974) 125,655 50,818 41,561 (59,053) Net Income (92,361) 111,982 53,579 40,889 (49,607) Other Changes in Net Assets : Min. Pension Liability Adjustment 42,123 0 (24,544) 0 0 Other, Net 9,472 (1,155) Changes in Net Assets (216,951) 161,117 89,264 45,131 (44,973) Net Assets, Beginning of Period 1,022, , , ,247 1,055,510 Net Assets, End of Period $805,130 $966,247 $1,055,510 $1,011,378 $1,010,538 CONSOLIDATED: UTILIZATION OF FACILITIES FISCAL YEAR ENDED JUNE 30, 6 MONTHS ENDING DEC 31, Available Beds 1,269 1,280 1,247 1,284 1,410 Patient Days 296, , , , ,824 Admissions 50,489 50,658 52,259 25,999 27,525 Average Length of Stay Emergency Room Visits 232, , , , ,745 Outpatient Registrations 552, , , , ,954 Gross Revenue by Payor (in $000s) Medicare $1,989,248 $2,146,499 $2,475,734 $1,211,127 $1,327,414 Medicaid 632, , , , ,411 Managed Care 2,366,044 2,481,195 2,873,987 1,388,643 1,586,286 Commercial 37,780 14,755 14,237 9,450 38,277 Other 76,321 71,627 58,712 32,282 16,635 Private Pay 372, , , , ,665 $5,474,270 $5,786,424 $6,667,415 $3,233,533 $3,676,689

8 Part V # 1: Management Discussion and Analysis for the three months ending December 31, 2018 For the three months ending December 31, 2018, the Operating Income was $16.3 million as compared to $9.4 million for the same period in Operating Margin for the period was 3.2% versus 2.2% for the prior year. Total operating revenue for the period was $509 million, an increase of 19.9% in comparison to the same period last year. During the most recent quarter, INTEGRIS Health acquired Deaconess Hospital and entered into two joint ventures which are contributing to increased volumes. For this year over year comparison, INTEGRIS experienced increases in inpatient volumes, surgical volumes, outpatient visits, physician office visits and emergency department visits. Net patient revenue per adjusted discharge increased by 4.50%, despite a slight shift in payer mix from Managed Care and Medicare to Private Pay. Total expenses were higher relative to the prior year by $77.8 million, or 18.7%. The addition of the new ventures is also driving a large portion of the increases. Salaries, wages and benefits were above prior year by 15.2%. Benefit costs alone increased from the prior year by $1.6 million, or 3.7%. Despite these increases, productivity improved over the prior period by 2.24% (FTEs per AADC). Management continues to target the top quartile in staffing efficiency as compared to its peers. Other operating expense lines that were higher than the prior year include professional fees and supply costs. Professional fees were higher due to an initiative targeting managed care recoveries and market-based pricing strategies. Supply costs were higher primarily due to the increase in drug costs due to the higher cost of medications associated with oncology treatments as well as the overall increase in retail pharmacy sales volumes. The organization is continuing its performance improvement strategies that were budgeted for in These strategies include Revenue Cycle, Supply Chain and improved utilization. Performance improvements strategies have realized $9.6 million in annualized savings in the second quarter due to improvements in Revenue Cycle, Clinical Variations and Network Optimizations. Non-operating revenue for the three months was ($83.9) million as compared to the prior year of $20.9 million. The decrease was primarily a result of unrealized losses on the investment portfolio of ($83.6) million. The organization's current asset allocation targets for investments are 60% fixed income and 40% equities/alternatives. The non-consolidating owners interest in the profits of the HPI and OCOM joint ventures are also a new non-operating expense. Net Loss for the three months ending December 31, 2018 was ($67.6) million versus a Net Income of $30.3 million for the prior period. EBIDA for the same time periods were $46.9 million and $36.3 million, respectively. Unrestricted days cash on hand on December 31, 2018 was 182 compared to the prior year of 244 Days Cash on Hand. Primary drivers for the decrease in Days Cash on Hand include an expanded expense base as a result of the recent acquisitions and joint venture activity, as well as decreases in the value of marketable securities during the period.

9 Part V # 2: Management Discussion and Analysis for the six months ending December 31, 2018 For the six months ending December 31, 2018, the Operating Income was $9.4 million as compared to ($0.7) million of Operating Loss in the same period in Operating Margin for the period was 1.0% versus (0.1%) for the prior year. Total operating revenue for the period was $932 million, an increase of 13.0% in comparison to the same period last year. During the most recent quarter, INTEGRIS Health acquired Deaconess Hospital and entered into two joint ventures which are contributing to increased volumes. For this year over year comparison, we experienced increases in inpatient volumes, surgical volumes, outpatient visits, physician office visits and acuity. Net patient revenue per adjusted discharge increased by 3.18%, despite a slight shift in payer mix from Managed Care and Medicare to Private Pay. Total expenses were higher relative to the prior year by $97.2 million, or 11.8%. The addition of the new ventures is also driving a large portion of the increases. Salaries, wages and benefits were above prior year by 10.5%. Benefit costs alone increased from the prior year by $7.3 million, or 8.7%. Despite these increases, productivity improved over the prior period by 1.61% (FTEs per AADC). Management continues to target the top quartile in staffing efficiency as compared to its peers. Other operating expense lines that were higher than the prior year include professional fees and supply costs. Professional fees were higher due to an initiative targeting managed care recoveries and market-based pricing strategies. Supply costs were higher primarily due to the increase in drug costs due to the higher cost of medications associated with oncology treatments as well as the overall increase in retail pharmacy sales volumes. The organization is continuing its performance improvement strategies that were budgeted for in These strategies include Revenue Cycle, Supply Chain and improved utilization. Performance improvements strategies have realized $22.7 million in annualized savings since July 1, 2018 due to improvements in Revenue Cycle, Clinical Variations and Network Optimizations. Non-operating revenue for the six months was ($59.1) million as compared to the prior year of $41.5 million. The decrease was primarily a result of declining investment performance of ($50.2) million. The organization's current asset allocation targets for investments are 60% fixed income and 40% equities/alternatives. The non-consolidating owners interest in the profits of the HPI and OCOM joint ventures are also a new non-operating expense. Net Loss for the six months ending December 31, 2018 was ($49.6) million versus Net Income of $40.9 million for the prior period. EBIDA for the same time periods were $67.3 million and $53.1 million, respectively. Unrestricted days cash on hand on December 31, 2018 was 182 compared to the prior year of 244 Days Cash on Hand. Primary drivers for the decrease in Days Cash on Hand include an expanded expense base as a result of the recent acquisitions and joint venture activity, as well as decreases in the value of marketable securities during the period.