2012 Financial Report

Transcription

1 2012 Financial Report Introduction Catholic Health Initiatives (CHI s) operating performance during the fiscal year ended June 30, 2012, was positive. Acquisitions and partnerships created during the year helped CHI to grow and align strategically for the future. In August 2011, CHI acquired Nebraska Heart Hospital and Nebraska Heart Institute to allow CHI to expand cardiac, thoracic and vascular care across the state of Nebraska. In January 2012, CHI contributed its investment in Jewish Hospital and St. Mary s HealthCare, Inc., and St. Joseph Health System, a CHI-sponsored market-based organization (MBO), for a controlling interest in KentuckyOne Health, a new statewide health care network in the state of Kentucky. Throughout the year, CHI also acquired a number of physician practices in the states of Washington, Oregon, Nebraska and Arkansas. During 2012, CHI committed to sell various MBOs in the states of New Jersey, Maryland and South Dakota. The results of operations for these MBOs have been removed from the consolidated statements of operations, and their assets and liabilities are reflected as held for sale on the balance sheets. The discussions that follow represent the continuing operations of CHI and exclude the operations of the MBOs held for sale. Summary of Results CHI s results of operations reflected modest growth over the prior fiscal year and were favorably affected by the resolution of two cost report settlement appeals with the Centers for Medicare and Medicaid Services, a gain recognized on the formation of KentuckyOne Health, and the recognition of meaningful use revenues. The operating margin before restructuring, impairment and other losses for fiscal year 2012 was 3.7 percent, compared to a fiscal year 2011 margin of 3.8 percent. Operating margin before interest, depreciation and amortization was 9.8 percent in fiscal year 2012, compared to 10.1 percent in the prior year. During the fiscal year ended June 30, 2012, CHI recorded nonrecurring expenses of $48 million, primarily related to changes in business operations, including reorganization and severance costs as well as asset impairments. CHI also recognized a total loss of $71 million related to debt extinguishments. The excess of revenues over expenses margin for fiscal year 2012 was 1 percent compared to a margin of 11.7 percent in the prior year. The year-over-year decrease was primarily the result of reduced investment performance and unfavorable changes in the fair value of the interest rate swaps. Although investment performance was positive for the fiscal year, it was not as strong as the prior fiscal year due to poor market conditions. Utilization of Services Overall, utilization metrics improved over the prior year as a result of the acquisition of Jewish Hospital & St. Mary s HealthCare, Nebraska Heart Hospital and Nebraska Heart Institute. Compared to the prior year, inpatient admissions increased 2.5 percent, total outpatient visits increased 3.3 percent and physician visits increased 33.3 percent. The increase in physician visits was primarily due to the more accurate capture of this metric in the current year, as well as to the acquisition of various physician practices throughout the year. Residential days decreased 3.4 percent and longterm care days decreased 2 percent compared to the prior year. The average acute care length of stay was 4.5 days compared to 4.4 days in the prior year. Balance Sheet Total assets increased 8.1 percent to $15 billion at June 30, 2012, primarily the result of acquiring Jewish Hospital & St. Mary s HealthCare. Despite CHI s strong balance sheet and future plans for strategic growth, CHI s debt ratings were lowered subsequent to fiscal year-end from AA to AA-, with stable outlook, by the three debt rating agencies of Moody s Investors Service, Standard & Poor s and Fitch Ratings. The downgrade was anticipated by management due to a large bond issuance in October 2012, and is not expected to affect CHI s financial outlook. Days of total cash (including bad debt expense) decreased to 220 due to the use of cash for various acquisitions throughout the year, and due to CHI s commitment to invest in the infrastructure necessary to compete in the evolving health care environment. If excess cash in First Initiatives Insurance, Ltd., was included, consolidated days of cash on hand would be 1

2 231. CHI s debt-to-capitalization ratio increased to 40.1 percent, the result of a debt offering in November 2011; the acquisition of Jewish Hospital & St. Mary s HealthCare s debt in January 2012; and the subsequent refund and legal defeasance of such debt in April Investments and assets limited as to use remained unchanged, with a balance of $5.9 billion year over year. Although monies were expended to fund OneCare and other strategic initiatives throughout the fiscal year, investment balances were replaced with investments transferred in from the acquisition of Jewish Hospital & St. Mary s HealthCare. The CHI Mission and Ministry Fund provided grants of $3 million for various programs and services during fiscal year In the prior year, $40 million was committed from the Capital Resource Pool to fund initiatives sponsored through the CHI Center for Research and Innovation. During fiscal year 2012, the Capital Resource Pool funded $8 million towards that commitment. Capitalized asset additions were $945 million compared to $847 million in An additional $474 million in non-cash assets were capitalized as a result of the acquisition of Jewish Hospital & St. Mary s HealthCare. Net property and equipment increased 17.6 percent, including capital investment committed to major facility projects, OneCare and other strategic initiatives, and the acquisition of Jewish Hospital & St. Mary s HealthCare. CHI s total debt was $4.7 billion at June 30, 2012, compared to $4.1 billion at June 30, The current portion of debt obligations remained unchanged, with a balance of $1 billion at June 30, 2012 and The current portion of debt obligations is comprised of variable-rate debt with self-liquidity plus the current portion of long-term debt. Variablerate debt with self-liquidity is classified as current because CHI provides financial backing for these obligations in the event the bonds are not successfully remarketed. In November 2011, CHI issued $809 million of fixed-rate, variable-rate and Windows variable-rate bonds. Proceeds were used to refund $224 million of existing debt and to redeem $117 million of commercial paper outstanding. CHI also redeemed $56 million of existing debt. In April 2012, CHI issued $271 million of par value bonds, the proceeds of which were used to refund debt acquired in the acquisition of Jewish Hospital & St. Mary s HealthCare. At June 30, 2012, the projected benefit obligation in excess of the fair value of plan assets for all CHI pension plans increased to $893 million, primarily due to unfavorable investment performance during the fiscal year, changes in actuarial losses and a decrease in the discount rate. The corresponding decrease to net assets for fiscal year 2012 was $619 million, compared to an increase of $405 million in fiscal year Unrestricted net assets decreased 4.7 percent from June 30, 2011, to June 30, 2012, primarily due to the pension plan liability increase described above and partially offset by positive operating results. Restricted net assets increased 10.6 percent as a result of donor contributions, investment performance and the acquisition of Jewish Hospital & St. Mary s HealthCare restricted assets. Statement of Operations CHI reported excess of revenues over expenses in fiscal year 2012 due to positive operating performance. Compared to the prior year, total operating revenues increased 11.4 percent and patient services revenues increased 10.9 percent. The acquisition of Jewish Hospital & St. Mary s HealthCare, Nebraska Heart Hospital and Nebraska Heart Institute, government reimbursement income and rate increases accounted for the majority of the increase. Volumes increased across most service lines due to the acquisition of Jewish Hospital & St. Mary s HealthCare and other physician practices. Normalized for the acquisition of Jewish Hospital & St. Mary s HealthCare, CHI utilization was unfavorable to the prior year for all service lines except physician and home-based visits. Total operating expenses before restructuring, impairment and other losses increased 11.6 percent, slightly greater than the increase in total operating revenues. Approximately half of this increase is attributable to the acquisition of Jewish Hospital & St. Mary s HealthCare. The remaining increase is due to other physician practice acquisitions and OneCare implementation efforts underway across the organization. Employee compensation and benefits represented 47.7 percent of total operating expenses before restructuring, impairment and other losses in 2012, 2

3 a slight increase from the 47.5 percent reported in As a percentage of revenues from patient services, total employee compensation and benefits were 49.1 percent in 2012, compared to 48.6 percent in Total employee compensation and benefits increased 12 percent compared to the prior year, of which approximately half of the increase is due to the acquisition of Jewish Hospital & St. Mary s HealthCare. The remainder of the increase is due to other physician practice acquisitions in Tacoma, Nebraska and Little Rock, and due to new hires and salary increases. Full-time equivalent employees increased 14.1 percent from the prior year. Supply expenses increased 9.5 percent in fiscal year Supplies as a percentage of revenues from patient services decreased to 17 percent from 17.2 percent in Patient bad debts increased 2.7 percent in fiscal year As a percentage of revenues from patient services, patient bad debts decreased to 7.7 percent from 8.3 percent in the prior year. Patient bad debts and charity care, combined as a percentage of revenues from patient services, decreased to 18.5 percent in 2012, compared to 19.3 percent in Interest expense increased 10.6 percent from 2011, primarily due to the assumption of Jewish Hospital & St. Mary s HealthCare debt in January 2012 and the issuance of additional CHI debt in fiscal year Other expenses increased 16.6 percent, including increases in consulting, legal, purchased services, rentals, leases and maintenance. The majority of the increase was related to accelerated OneCare activity and various strategic initiatives associated with clinical and operating excellence. Community Benefit and Charity Care The total cost of community benefit was $715 million in fiscal year 2012, 16.8 percent greater than in Community benefit includes the cost of supplies and labor related to free clinics, donations and other services provided to the poor and to meet community needs. Community benefit also includes the cost of services in excess of reimbursement for Medicaid patients, but does not include unpaid costs of the Medicare program, consistent with guidance issued in 2006 by the Catholic Health Association of the United States. Conclusion CHI s overall financial performance during fiscal year 2012 was positive, reporting an operating margin before restructuring of 3.7 percent, comparable to prior year and well above the internal CHI performance goal. Results across the markets were mixed, with volume shortfalls continuing to challenge operating performance. As CHI continues to invest in delivering quality patient care, this will put downward pressure on earnings from operations. CHI will need to stay agile and focused so that expected benefits can be realized in their entirety and to compensate for the projected impact of health care reform and other changes in the health care marketplace. 3

4 Balance Sheets As of June 30 (in thousands) Cash, net patient accounts receivable and other current assets $ 2,149,158 $ 1,897,072 Assets held for sale 474, ,545 Investments and assets limited as to use 5,936,133 5,889,572 Property and equipment, net 5,347,475 4,546,748 Other 1,104,628 1,062,422 Total Assets $ 15,012,384 $ 13,893,359 Current portion of debt $ 964,538 $ 999,601 Liabilities held for sale 103, ,611 Accounts payable and other current liabilities 1,214,154 1,031,879 Self-insured reserves and other long-term liabilities 1,643, ,694 Long-term debt 3,778,709 3,135,225 Net assets: Net assets attributable to CHI 6,922,466 7,448,161 Net assets attributable to noncontrolling interests 180,863 8,967 Unrestricted 7,103,329 7,457,128 Restricted 204, ,221 Total Liabilities and Net Assets $ 15,012,384 $ 13,893,359 Statements of Operations (in thousands) Year Ended June 30 Revenues from patient services, net $ 9,223,859 $ 8,316,852 Revenues from nonpatient sources 583, ,123 Investment income used in operations 37,169 30,475 Total Operating Revenues 9,844,271 8,836,450 Employee compensation and benefits 4,525,443 4,039,733 Supplies 1,566,367 1,431,037 Depreciation and amortization 473, ,652 Patient bad debts 709, ,218 Interest expense 129, ,179 Other expenses 2,079,833 1,783,501 Total Operating Expenses before Restructuring, Impairment, and Other Losses 9,484,718 8,497,320 Income from operations before restructuring, impairment, and other losses 359, ,130 Restructuring, impairment, and other losses 47,735 20,363 Income from Operations 311, ,767 Investment income 19, ,554 Other nonoperating (losses) gains (236,181) 11,592 Total Nonoperating (Losses) Gains (216,352) 815,146 Excess of Revenues Over Expenses $ 95,466 $ 1,133,913 Excess of Revenues Over Expenses Attributable to Noncontrolling Interest $ 537 $ 3,298 Excess of Revenues Over Expenses Attributable to CHI $ 94,929 $ 1,130,615 4

5 Benefit to the Poor and Broader Community (in thousands) Year Ended June 30 Cost of Community Benefit: Cost of charity care provided $ 248,667 $ 235,756 (Free or reduced-cost health services for people who cannot afford to pay) Unpaid cost of public programs, Medicaid and other indigent care programs 280, ,326 (Cost of services in excess of government reimbursement) Nonbilled services 28,514 23,327 (Clinics, meal programs, etc., provided free or at a low cost) Cash and in-kind donations 3,221 2,950 (Donations of food, equipment, supplies, etc., to address the needs of people who are poor or underserved) Education and research 49,640 33,165 (Cancer prevention outreach, stop-smoking programs, heart disease programs, etc.) Other benefit 52,369 61,362 Total cost of community benefit from continuing operations 663, ,886 Total cost of community benefit from discontinued operations 51,815 20,260 Total Cost of Community Benefit 715, ,146 Unpaid cost of Medicare from continuing operations 368, ,316 Unpaid cost of Medicare from discontinued operations 26,226 22,042 (Cost of services in excess of government reimbursement) Total Unpaid Cost of Medicare 394, ,358 Total Cost of Community Benefit and the Unpaid Cost of Medicare $ 1,109,482 $ 1,073,504 5

6 Statistical Highlights Year Ended June 30 Acute inpatient days 1,674,118 1,591,674 Acute admissions 371, ,875 Acute average length of stay, in days Outpatient emergency visits 1,314,985 1,233,374 Outpatient non-emergency visits 4,019,604 3,932,991 Physician visits 6,208,053 4,655,949 Residential days 534, ,558 Long-term care days 350, ,336 Full-time equivalent employees 61,194 53,644 Employees 72,388 64,153 Acute inpatient revenues as a percentage of total net patient services revenues 45.9 % 47.1 % 6