GENESIS HEALTHCARE SYSTEM

Transcription

1 GENESIS HEALTHCARE SYSTEM Quarterly Financial Disclosure Statement As of and for the Six Months Ended June 30, 2013 PLEASE NOTE THAT THIS DOCUMENT INCLUDES MANAGEMENT S DISCUSSION AND ANALSYIS, AS WELL AS UNAUDITED FINANCIAL STATEMENTS. Direct questions regarding disclosure information to: Paul Masterson at pmasterson@genesishcs.org or Michael Norman at mnorman@genesishcs.org

2 Table of Contents Investor Call Invitation 1 Utilization and Other Operating Statistics 2 Sources of Patient Revenue 3 Officer s Certificate 4 Days Cash on Hand (Exhibit A) 5 Unaudited Statement of Operations 6 Unaudited Balance Sheet 7 Management s Discussion and Analysis 8 Construction Project Status Report 11

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4 Table 3.2 Utilization and Other Operating Statistics Six-month period ended June 30, Variance Inpatient Statistics Discharges 8,359 9, % Medical/Surgical 5,843 6, % Hospice % Maternity/Newborn 1,371 1, % Pediatrics % Psychiatric % Patient Days 32,754 36, % Medical/Surgical 24,627 27, % Hospice 891 1, % Maternity/Newborn 3,892 3, % Pediatrics % Psychiatric 2,998 3, % Average Length of Stay (Days) % Medical/Surgical % Hospice % Maternity/Newborn % Pediatrics % Psychiatric % Other Key Operating Statistics Surgery Cases 8,034 7, % Inpatient 1,518 1, % Outpatient 6,516 6, % Cardiac Services 2,219 2, % Catheterizations 1,049 1, % PCI % Electrophysiology % Open Heart % Emergency Care Visits 33,623 35, % First Care Visits 14,927 15, % Births % Imaging Services 77,309 80, % CT Scan 14,718 14, % MRI 3,831 4, % Other 58,760 61, % Laboratory Services 632, , % Outpatient Registration 186, , % Case Mix Index % Medicare Only % Adjusted Discharges 18,020 19, % Physician WRVU's 384, , % Source: Internal hospital statistical data Page 2 of 11

5 Genesis HealthCare System Sources of Patient Service Revenue Fiscal Years Ended December 31, As of June 30, Medicare 48.5% 49.1% 50.7% 49.2% Commerical 27.4% 26.8% 25.4% 26.6% Medicaid 17.4% 17.2% 16.2% 17.0% Self Pay 5.0% 5.2% 5.8% 5.7% Other 1.7% 1.7% 1.9% 1.5% Total 100% 100% 100% 100% Source: Hospital internal product line service reports Page 3 of 11

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7 Genesis HealthCare System Days Cash on Hand - Obligated Group (pursuant to section 5.04 of supplemental master indenture) ($ in thousands) As of June 30, 2013 Cash and Cash Equivalents $ 11,945 Assets Whose Use is Limited or Restricted 349,415 Total Cash and Investments 361,360 Less: Funds held by master trustee 230,334 Funds with liquidity > 12 months 4,556 Unrestricted Cash and Investments $ 126,470 Total Operating Expense $ 210,705 Less: Depreciation and Amortization 9,151 Total Operating Expense $ 201,554 Annualized Total Operating Expense 403,109 Fraction 0.31 Days Cash on Hand Page 5 of 11

8 Genesis HealthCare System Unaudited Statement of Operations (Hospital, Consolidated, and Obligated Group) ($ in thousands) Hospital Consolidated Obligated Group Six-month period ended June 30, Six-month period ended June 30, Six-month period ended June 30, Revenue Net patient service revenue $ 161,985 $ 170,605 $ 185,524 $ 193,907 $ 185,524 $ 193,907 Less provision for bad debt (8,665) (13,070) (11,320) (16,540) (11,320) (16,540) Net patient service revenue less provision for bad debts 153, , , , , ,367 Pharmacy sales and other 6,280 9,432 32,507 36,370 29,958 33,656 Total unrestricted revenue, gains, and other support 159, , , , , ,023 Expenses Salaries and Wages 59,530 57,837 90,372 85,651 89,457 84,732 Employee benefit and payroll taxes 18,539 18,604 22,617 22,312 22,135 21,780 Operating supplies and expenses 31,273 31,819 32,011 32,389 31,822 32,184 Purchase services 12,847 12,865 20,236 19,348 20,499 19,644 Other 19,164 18,941 37,358 38,667 36,611 37,788 Depreciation 8,658 7,118 9,325 7,688 9,151 7,545 Interest expenses 1,028 1,065 1,033 1,085 1,030 1,080 Total Expenses 151, , , , , ,753 Operating Income Before Accelerated Depreciation on Existing Hospital Facility 8,561 18,718 (6,241) 6,597 (6,543) 6,270 Accelerated Depreciation 1,809-1,809-1,809 - Operating Income After Accelerated Depreciation on Existing Hospital Facility 6,752 18,718 (8,050) 6,597 (8,352) 6,270 Other Income (Loss) Investment income 3,791 1,435 5,623 2,340 5,578 2,330 Loss of refunding debt (384) - (384) - (384) - Unrealized gains (losses) on trading securities 83 1, , ,561 Total other income 3,490 2,839 5,323 3,922 5,283 3,891 Excess of Revenue Over Expenses $ 10,242 $ 21,557 $ (2,727) $ 10,519 $ (3,069) $ 10,161 Page 6 of 11

9 Genesis HealthCare System Unaudited Balance Sheet (Hospital, Consolidated, and Obligated Group) ($ in thousands) Assets June 30, 2013 December 31, 2012 June 30, 2013 December 31, 2012 June 30, 2013 December 31, 2012 Current Assets Cash and cash equivalents $ 6,192 $ 7,569 $ 13,203 $ 17,955 $ 11,945 $ 16,554 Accounts receivable 41,921 43,953 53,379 56,412 52,797 56,181 Pledge Receivable 4,579 1,126 4,579 1,126 Estimated third party payor settlements 4,683 4,683 4,683 Inventory 5,082 5,021 9,192 9,250 9,190 9,246 Other assets 11,466 11,939 17,344 17,372 17,255 17,061 Total current assets Hospital Consolidated Obligated Group 69,344 68, , , , ,168 Assets Limited as to Use 315,505 82, , , , ,722 Property and Equipment Net 109, , , , , ,624 Beneficial Interest in Perpetual Trusts 12,869 12,869 12,869 12,869 Other Assets Pledge Receivable 3,452 3,453 Long term investments 3,838 4,170 1,442 1,352 4,210 4,453 Other noncurrent assets 21,850 20,046 9,635 7,020 21,834 18,290 Total Assets $ 520,131 $ 280,222 $ 611,471 $ 372,111 $ 605,212 $ 365,579 Liabilities and Net Assets Current Liabilities Current portion of long term debt 129 3, , ,926 Accounts payable 13,737 14,020 17,376 17,722 18,004 18,351 Estimated third party payor settlements Accrued liabilities and other: Accrued compensation 12,237 16,247 19,542 22,215 19,428 22,066 Other accrued liabilities 4, ,518 1,890 2,480 1,064 Total current liabilities 30,186 35,446 39,605 46,153 40,058 45,763 Long term Debt Net of current portion 301,405 53, ,666 53, ,594 53,092 Fair Value of Interest Rate Swap Agreement 2,582 2,582 2,582 Other Liabilities Pension and postretirement obligations 42,834 41,035 42,834 41,035 42,834 41,035 Deferred revenue 7,703 7,703 7,703 7,718 7,703 7,718 Accrued professional liability 1,571 2,242 7,228 7,652 1,571 2,242 Total Liabilities $ 383,699 $ 142,100 $ 399,036 $ 158,304 $ 393,760 $ 152,432 Net Assets Unrestricted: Net assets 136, , , , , ,823 Noncontrolling interest Temporarily restricted 6,093 7,761 6,093 7,761 Permanently restricted 16,159 15,563 16,159 15,563 Total Net Assets $ 136,432 $ 138,122 $ 212,435 $ 213,807 $ 211,452 $ 213,147 Total Liabilities and Net Assets $ 520,131 $ 280,222 $ 611,471 $ 372,111 $ 605,212 $ 365,579 Page 7 of 11

10 Management s Discussion and Analysis Period Ended June 30, 2013 Operating Results before Accelerated Depreciation. Loss from consolidated operations was $6.2 million in 2013 compared to a gain of $6.6 million in 2012, resulting in an operating margin of -3.0% and 3.1% in 2013 and 2012, respectively. Income from Hospital operations was $8.6 million, a decrease of $10.2 million from the prior year resulting in a Hospital operating margin of 5.4% and 11.2% in 2013 and 2012, respectively. The physician companies 2013 loss was $16.1 million compared to $13.1 million in Increased usage of emergency department locum physician coverage in 2013 cost $1.2 million as of June 30, as compared to $74 thousand for fiscal year Recruiting efforts during late second quarter have been successful and locum costs are anticipated to return to historical levels. Emergency Medicine physician employment will have a net savings of approximately $600,000 in operating expenses. Financial performance has been negatively impacted by several internal and external factors. Industrywide trends of lower inpatient volumes, as noted in Volumes and Market Share below, and decelerated reimbursement growth have put pressure on the hospital operating margin. In addition, price transparency has increased consumer awareness intensifying competition for outpatient, elective imaging and laboratory services. Internally, the financial performance of the physician network continues to struggle as effective management infrastructure and physician alignment is improved. Increases in the number of physicians employed, implementation of Epic EMR, and the short-term productivity reduction related to that implementation contributed to the growth of the physician practice losses. A physician network operational improvement plan has been developed and is currently being implemented; results will be realized later in the year. As part of the physician improvement plan, Regional Practice Administrators have been assigned to monitor and implement necessary changes in physician office operations according to practice specific action plans. The action plans include proper alignment of compensation and physician productivity, revenue cycle improvements, and coding opportunities. In addition, practice operating counsels have been established to govern the physician network. Revenues. Total consolidated operating revenue for 2013 was $206.7 million and $213.7 million in Hospital net patient revenue was $153.3 million and $157.5 million in 2013 and 2012, respectively, a decrease of $4.2 million or 2.7% over prior year. The decrease was primarily due to a 2% Medicare reduction related to sequestration, unrealized inflationary price increases and increased charity, and bad debt adjustments. Volumes and Market Share. Adjusted discharges in 2013 were 18,020, a 5.9% decrease from adjusted discharges in In alignment with industry trends 2013 inpatient discharges decreased by 1,036 or 11.0% from Inpatient service line volume decreases from 2012 to 2013 include: Interventional Cardiology (-29%), Medical Cardiology (-27%), Gastroenterology (-14%), Pulmonary (-8%), and Psychiatry (-13%). The decreases were partially offset by 2013 volume increases of 5% in Obstetrics and 3% in Orthopedics. Outpatient visits increased by 12,971 or 7.5% over prior year, primarily due to volume growth in Chemotherapy of 33.3%, Radiation Oncology of 16.1%, Electrophysiology of 12.6%, outpatient surgery of 2.9%, and Interventional Radiology of 33.6%. Trauma volumes have continued to increase since becoming a Level 2 Trauma Center resulting in a 36.9% increase from 2012 to Outpatient volume increases were offset by volume decreases in ED of 5.9% and urgent care of 4.3%. Decreases in heart catheterization of 12.4% and Percutaneous Coronary Interventional procedures of 24.1% are primarily Page 8 of 11

11 due to industry-wide implementation of Appropriate Care Criteria, guidelines that physicians follow in determining whether an alternate procedure or other medical therapy treatment is more appropriate. Recapture of patient outmigration from its primary service area continues to be a growth opportunity. The System continues to execute on strategic initiatives to grow market share. Genesis physician network has begun tracking internal referrals to identify areas of improvement within the network. The teleneurology program, which is currently being implemented, will reduce the need for patients to be transferred to surrounding facilities due to lack of 24/7 neurology physician coverage. Operating Expenses. Total consolidated operating expenses increased by $5.8 million or 2.8% in Total hospital operating expenses increased by $2.8 million, or 1.9%, in 2013 in comparison to Total Hospital Cost per Adjusted Discharge (CMI Adjusted) increased by $339 or 5.9% in Salaries and benefits attributed to the increase in operating expenses are further explained in Salaries and Benefits below. Salaries and Benefits. Consolidated salaries and benefits increased by $5.0 million or 4.7% over prior year. Hospital salaries and benefits increased by $1.6 million or 2.1% in Hospital Compensation Ratio, an indication of how much of net patient revenue is being consumed by staffing and benefits costs, was 48.7% in 2013 compared to 45.4% in 2012 a decline of 3.3%. Paid Hours per CMI adjusted discharges, a measure of the number of paid hours needed to generate a CMI adjusted discharge, increased from 93 in 2012 to 99 in 2013, an increase of 6. A productivity system was implemented and fully utilized in April 2013 to measure, report, and benchmark staffing productivity at a department level. The productivity system will enable the hospital to better align staffing with volumes. Since inception, departmental leadership has developed action plans and has begun implementation of plans to meet targeted staffing levels based on volumes. Since the distribution of reports (April 2013), the hospital has been able to realize a decrease in paid FTE s of 100 or 4.2%. The hospital anticipates an additional savings of 75 FTE s by the end of third quarter In order to reach the targeted reduction in FTE s, employee benefits incentive program has been offered to employees that are 62 years or older. This program will allow the qualifying employee and spouse to maintain medical and dental insurance coverage for up to three years at the employee rate. Genesis has 200 employees that are qualified for this incentive program, 68 inquiries have occurred, and 18 have submitted their exit date. Physician salaries and benefits increased by $3.3 million compared to prior year. This increase was due to an increase in employed physicians, from 109 in 2012 to 122 in Supply Costs. Consolidated supply costs decreased by $378 thousand or 1.2% compared to prior year. Supply costs related to hospital operations decreased by $546 thousand or 1.7% in Hospital supply cost per adjusted discharge (CMI adjusted) was $1,267 in 2013, an increase of $26 or 2.1% over prior year. Strategic initiatives have been implemented to further reduce supply costs, which include expansion of current purchasing group and vendor standardization. Balance Sheet and Key Performance Indicators. Cash and Investments. Consolidated cash at June 30, 2013 was $13.2 million, a decrease of $4.8 million from December 31, Investments as of June 30, 2013 were $367.4 million an increase of $234.9 million from December 31, The increase was due to the issuance of Hospital Facilities Revenue Bonds, Series 2013 in May June 30, 2013 bond proceeds held by the trustee were $230.3 million. Consolidated days cash on hand remained constant at days at June 30, 2013, as compared to days at December 31, Days cash on hand for the Obligated Group at June 30, 2013 was Page 9 of 11

12 114.5 days. At June 30, 2013 cash required to sustain daily, consolidated operations was $1.1 million, which remained consistent with year-end Accounts Receivable. Consolidated net patient accounts receivable at June 30, 2013 was $53.4 million compared to $56.4 million at December 31, Hospital net patient accounts receivable at June 30, 2013 was $41.9 million and $44.0 million at year-end Days in hospital patient accounts receivable was 49.5 days at June 30, 2013, a decrease of 2.2 days from December 31, 2012 (net patient revenue is reduced by bad debt expense). The Hospital Epic Revenue Cycle application was implemented in October 2012, and Genesis HealthCare s key metric performance continues to be at or near the top 5 Epic customers. Long-term Debt. Total consolidated long-term debt at June 30, 2013 was $301.7 million compared to $53.2 at year-end In May 2013, $295 million of Hospital Facilities Revenue Bonds, Series 2013 were issued to fund facility project and refinance existing debt. The hospital drew $2.0 million on the line of credit since the bond closing date in lieu of using investments and/or affiliate cash to fund operations. As of June 30, 2013, the $4 million line of credit provided to Coshocton County Memorial Hospital remained outstanding. Total outstanding on the line of credit at June 30, 2013 was $6.5 million. Capital Campaign. The Your Hospital. Your Health. capital campaign was launched by the Genesis Foundation in late 2012 with a target to raise $15 million in philanthropic support toward the cost of the Project. Though the collective generosity of employees, physicians, the Board of Directors and the community, the campaign has approximately $15.5 million in pledges and contributions, including approximately $4.3 million cash received. The contributions will be applied toward the Project cost. Affiliations. In 2012, the Corporation entered into a 5-year agreement with Coshocton County Memorial Hospital to provide management services. Coshocton County Memorial Hospital is located 35 miles north-northeast of Zanesville. Under terms of the agreement, the Corporation agreed to provide business and technical resources necessary to maintain quality patient care and a stable financial position. Over the last two fiscal years, Coshocton Hospital has experienced certain operating losses and cash flow deficiencies due primarily to decreased volumes and difficulties encountered in fiscal 2012 during a revenue cycle conversion. Coshocton Hospital has made certain operational changes including staff reductions, stabilization of revenue cycle performance and certain other initiatives in an effort to improve operations. Coshocton Hospital s financial performance and cash flow has stabilized as a result of these initiatives. For the period ended June 30, 2013 Coshocton Hospital is operating at a break-even level. The Coshocton Management Agreement was executed in support of the Genesis initiative to provide patients within its service area access to quality, local healthcare services.. In addition, the collaboration will provide patients with enhanced coordination of care. Currently, additional clinical collaboration is underway. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS MANAGEMENT S AND DISCUSSION ANALYSIS Certain statements included or incorporated by reference in this Management s and Discussion Analysis constitutes forwardlooking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, or similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The obligated group does not plan to issue any updates or revisions to those forward-looking statements if or when changes to its expectations, or events, conditions or circumstances on which such statements are based, occur. Page 10 of 11

13 30 South Wacker Drive Suite 3100 Chicago IL phone fax NEW GENESIS MEDICAL CENTER PROJECT UPDDATE JUNE 30, 2013 Total Amount Expended Of the approved budget of $201,422,185, $15,834,924 has been expended. Description of Work Performed in Quarter 1. Alternacare Complete 4/12/13 2. Model Room Work Began 4/20/13 3. Cut Over of Main Fiber Loop Occurred 4/22/13 4. Good Sam ED Work Began 5/6/13 5. Ground Breaking Ceremony Occurred 5/11/13 6. Mass Excavation Began 5/13/13 7. Mass Excavation Complete 6/17/13 8. Good Sam ED Work Completed 6/30/13 % of Construction Completed The Project is 4% complete. Actual Comparison to Budget The table below compares the Project budget against the cost incurred to date. Item No. Component Board Approved Corporate Budget 11/6/2012 Cost Incurred To Date 1. Land Costs N/A 2. Site Work $ 8,868,100 $ 2,503, New Construction Work $ 68,328,800 $ 746,986 3a. Renovation Construction $ 57,631,600 $ 2,274, FF&E 2 $ 22,336,645 $ 37, Soft Costs $ 18,181,988 $ 10,083, Owner's Construction Items $ 1,291,385 $ 189, Owner's Contingency $ 6,497,667 Subtotal $ 183,136,185 $ 15,834, Owner Purchased IT $ 4,076,000 $ - 9. Owner Purchased Equipment $ 14,210,000 $ - Total $ 201,422,185 $ 15,834, MOB II $ 11,266,000 $ Miscellaneous Office Moves TBD TBD Estimated Construction Completion Date The Project is on schedule to achieve substantial completion by April 27, Page 11 of 11