MINUTES OF THE REGULAR MEETING OF THE BOARD OF DIRECTORS, QUALITY AND CHARITY CARE TRUST, INC. In Open Session

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1 MINUTES OF THE REGULAR MEETING OF THE BOARD OF DIRECTORS, QUALITY AND CHARITY CARE TRUST, INC. In Open Session The Quality and Charity Care Trust Board of Directors met at 4:23 p.m., on November 19, 2015, in the Jefferson Room, Grawemeyer Hall, with the members present and absent as follows: Present: Absent: From the University: Others Attending: Sec. Audrey Haynes, Chair Mrs. Marie Abrams Ms. Susan Howarth Dr. Stephanie Mayfield (via teleconference) Ms. Shannon Tivitt Dr. David Dunn, Vice Chair Mr. Daniel Frockt Ms. Ellen Hesen Mr. Glenn Bossmeyer Ms. Anne Rademaker Mr. Gary Mans Mr. Ken Marshall Mr. Jake Beamer Ms. Kristin McDonner, Crowe Horwath I. Call to Order Having determined a quorum present, Chair Haynes called the meeting to order at 4:23 p.m. Action Item: Approval of Minutes, May 5, 2015 Mrs. Abrams made a motion, which Ms. Tivitt seconded, to approve the minutes of May 5, The motion passed. II. Introduction of New Board Members Due to unforeseen circumstances, new board members were unable to attend and therefore no introductions took place. III. Orientation of New Board Members Ms. Tivitt reminded the board of the work of the Ad Hoc Committee on Policies and Procedures, as developed by the recent audit of the QCCT, and presented the attached

2 slides as an orientation for new and all current board members. Chair Haynes asked the slides be presented at the next meeting of the board. IV. Approval of Audited Financial Statements Ms. Howarth introduced Ms. McDonner of Crowe Horwath and Ms. Rademaker of the University and thanked them for their work on the audited financial statements. She then explained the fiscal affairs and financial statements are in good order and the QCCT received an unmodified opinion, the best opinion, and signifies a clean audit. Total funding for the QCCT was $4.5M with $1.7M coming from the Commonwealth of Kentucky, $1.4M from Louisville Metro Government, and $1.4M from the University of Louisville. Regarding expenditures, Ms. Howarth noted all amounts collected from all sources were remitted back to the University Medical Center (UMC), and final remission was made in August Ms. McDonner echoed Ms. Howarth s comments regarding the unmodified opinion of the audit, stating there were no adjustments or internal control matters to report. Chair Haynes thanked Ms. Howarth, Ms. McDonner, and Ms. Rademaker for their reports. Mrs. Abrams made a motion, which Dr. Mayfield seconded, to approve the Chair s recommendation that the Board of Directors accept the attached audit reports for the Quality and Charity Care Trust, Inc. for the year ended June 30, 2015 as prepared by Crowe Horwath. The motion passed. V. Presentation/Review of Report to LRC and KY Finance Update of QCCT Account Chair Haynes referenced a letter from the KY Secretary of Finance and Administration regarding an update on the monies in the QCCT Account. She noted the indigent care numbers had drastically reduced and Mr. Marshall reiterated the uninsured rate before the Affordable Care Act was 25%, but currently stands at approximately 5%. Mrs. Abrams reminded the board these percentages were the same in May VI. Discussion of State Budget QCCT Language/Recommendation Chair Haynes explained the QCCT asked the Legislative Research Commission (LRC) for an extension in submitting its annual report to the LRC to allow for correct claims data. The attached report was submitted in October.

3 Chair Haynes then read the language regarding the submission from a letter from the Secretary of the Finance and Administration Cabinet (attached). The Chair reminded members of the Trust it should consider this or similar language to be included in future budgets, specifically if the state changes the way it provides Medicaid benefits. She then opened the floor to discussion and questions. Mrs. Abrams asked Chair Haynes to share that information to the incoming governor and his administration including the House and Senate Appropriations and Revenue Committee Chairs. Chair Haynes agreed and added it be shared with the Louisville delegation. VII. Discussion of Officers/Nominating Committee Chair Haynes noted the governor-elect will have the opportunity to make new appointments to the QCCT Board of Directors, but until such time the current state representatives and officers (Haynes, Mayfield, and Tivitt) would remain on the Board. Ms. Tivitt concurred, stating with validation from legal counsel, members remain on the Board until their successors are named. The Chair then posed two options regarding the Nominating Committee: (1) appoint at this meeting 2-3 board members to the Nominating Committee and elect officers at the April 2016 meeting; or (2) wait until the governor-elect makes his appointments, have an orientation for new members, followed by a Nominating Committee meeting and election of officers. Ms. Tivitt saw no reason to elect officers in April unless new appointments were made. She stated she would be happy to stay on the board and help with the transition of new members. Mrs. Abrams and Ms. Howarth concurred the best option was to keep the current officers until successors to the Board were named. VIII. Chair Haynes stated the Board would follow this procedure and she and Ms. Tivitt would help in the transition. Other Business Having no other business to come before the Board,

4 IX. Adjournment Ms. Tivitt made a motion, which Mrs. Abrams seconded, to adjourn the meeting at 4:55 p.m. Approved by: _ Signature on File Assistant Secretary

5 QCCT Policies and Procedures November 19, 2015

6 Mission statement Established in 1983, The Quality and Charity Care Trust Incorporated (QCCT) is a non-profit corporation that oversees and administers funding to provide for health care needs of indigent patients primarily from in Jefferson County, Kentucky through the University of Louisville and its partners.

7 Adoption of a code of ethics In all matters entrusted to the Board of Directors of the QCCT, the Board, individually and collectively, is committed: to uphold the public trust in the QCCT; to carry out its responsibilities in accordance with the laws of the Commonwealth; to act with care and make informed decisions; to comply with QCCT policies applicable to the Board of Directors; to refrain from actions which put a Director s personal or professional interests in conflict with that of the QCCT and to abstain from any action or vote where appropriate; and, to avoid the use of Director appointment to obtain any private benefit.

8 Conflict of interest Policy "We, the Board Directors of The Quality and Charity Care Trust Incorporated (QCCT), resolve that no member of the Board of Directors shall participate in any discussion or vote on any matter in which he or she or a member of his or her immediate family has potential conflict of interest due to having any involvement regarding the matter being discussed. When such a situation presents itself, the director must declare his or her potential conflict, disqualify himself or herself, and be excused from the meeting until discussion is over on the matter involved. The Chair of the meeting is expected to make inquiry if such conflict appears to exist and the board member has not made it known."

9 Adoption of a financial disclosure policy Use the current Conflict of Interest Statement Form but change the title to Financial Disclosure Form Year

10 Written procurement policy, including who has the authority to enter into agreements on behalf of the QCCT board QCCT will adhere to the University of Louisville s Purchasing Policies (which complies with Model Procurement Code under KRS 164A.560). In addition, any service agreement or contract requires board vote.

11 Policy on how concerns or allegations about the QCCT board or use of QCCT funds are received, investigated, and addressed The QCCT requires all directors, officers, contractors, staff and volunteers to observe the highest standards of business and personal ethics in the conduct of their duties and responsibilities. As representatives of the QCCT, such individuals must practice honesty and integrity in fulfilling responsibilities and complying with all applicable laws, regulations and policies.

12 (cont.) The QCCT encourages complaints, reports or inquiries about illegal practices or serious violations of the QCCT s policies, including illegal or improper conduct by the QCCT itself, by its leadership, or by others on its behalf. The QCCT prohibits retaliation by or on behalf of the QCCT against directors, officers, staff or volunteers for making good faith complaints, reports or inquiries under this policy or for participating in a review or investigation under this policy.

13 (cont.) Complaints, reports or inquires should describe in detail the specific facts demonstrating the bases for the complaints, reports or inquiries, and should be directed to any of the following offices: University of Louisville Office of Audit Services Louisville Metro Office of Internal Audit Kentucky Finance and Administration Cabinet Office of Policy and Audit The Attorney General of the Commonwealth of Kentucky The Kentucky Auditor of Public Accounts

14 Policy concerning the loss or theft of financial information and access to information technology, which is especially important to QCCT given the sensitive nature of information received. QCCT will adopt the University of Louisville s Information Security and Technology Policies and Procedures. In addition, any breach of QCCT data/information will be reported to the Chair immediately with a follow up detailed report to the full Board once the breach has been investigated.

15 Orientation for new board members At the annual board meeting each November, the agenda will include a general overview regarding QCCT and a review of QCCT policies and procedures to ensure new and current board members are oriented on their role as board members.

16 Board Oversight and administration of funds received under the Trust Agreement The Revised Quality and Charity Care Trust Agreement ( signed 11/14/14) outlines the terms and administering of funds

17 RECOMMENDATION TO QUALITY AND CHARITY CARE TRUST, INC. BOARD OF DIRECTORS CONCERNING AUDITED FINANCIAL STATEMENTS November 19, 2015 RECOMMENDATION: The Chair recommends: That the Board of Directors accept the audit reports for the Quality and Charity Care Trust, Inc. for the year ended June 30, 2015 as prepared by Crowe Horwath. BACKGROUND: A copy of the audit is attached. Board Action: Passed: _X Did not Pass: Other: Date: Approved by: _ Signature on File Assistant Secretary

18 THE QUALITY AND CHARITY CARE TRUST, INC. Auditor s Report and Financial Statements June 30, 2015 and 2014 and Supplemental Schedule for the Year Ended June 30, 2015

19 THE QUALITY AND CHARITY CARE TRUST, INC. June 30, 2015 Table of Contents: Independent Auditor s Report...1 Management's Discussion and Analysis (Unaudited)...3 Financial Statements as of and for the years ended June 30, 2015 and 2014: Statements of Assets and Liabilities...6 Statements of Changes in Balance Due to the University Medical Center, Inc....7 Notes to Financial Statements...8 Supplemental Schedule of Indigent Patient Charges Funded by the Trust...13 Page

20 Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR S REPORT Board of Directors The Quality and Charity Care Trust, Inc. Louisville, Kentucky Report on the Financial Statements We have audited the accompanying financial statements of The Quality and Charity Care Trust (the Trust ), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Trust s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Trust, as of June 30, 2015, and the changes in balance due to the University Medical Center, Inc. for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

21 Other Matters The financial statements of the Trust as of June 30, 2014, were audited by other auditors whose report dated November 7, 2014, expressed an unmodified opinion on those statements. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 3 through 5 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Trust s basic financial statements. The accompanying supplemental schedule of Indigent Patient Charges Funded by the Trust is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental schedule of Indigent Patient Charges Funded by the Trust is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the 2015 basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the 2015 basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 2015 basic financial statements or to the 2015 basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental schedule of Indigent Patient Charges Funded by the Trust is fairly stated, in all material respects, in relation to the 2015 basic financial statements as a whole. Louisville, Kentucky November 5, 2015 Crowe Horwath LLP 2

22 THE QUALITY AND CHARITY CARE TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) INTRODUCTION The following discussion provides an overview of the financial position and activities of the Quality and Charity Care Trust, Inc. (Trust) as of and for the years ended June 30, 2015, 2014, and This discussion has been prepared by management and should be read in conjunction with the financial statements and related notes, which follow this section. ORGANIZATION AND ACTIVITIES OF THE QUALITY AND CHARITY CARE TRUST The Trust is a Kentucky non-stock, not-for-profit corporation organized in April 1983 in connection with a trust agreement originally entered into in January 1983, and last amended in November 2014 (Agreement). Parties to the trust agreement include the Louisville/Jefferson County Metro Government, formerly the City of Louisville, Kentucky and Jefferson County, Kentucky, (Louisville Metro Government), the Commonwealth of Kentucky (Commonwealth), the University of Louisville (University) and University Medical Center, Inc. (UMC). The purpose of the Trust is to manage government funds received and to disburse such funds to UMC for providing hospital care services to economically disadvantaged patients through the University of Louisville Hospital (Hospital). The Trust may also invest cash held temporarily in tax-exempt securities. The business and affairs of the Trust are under the supervision, management and control of the Board of Directors. The nine member Board of Directors consists of three members appointed by the Board of Trustees of the University or members of the University staff serving at the pleasure of the Board, three Directors appointed by the Governor of the Commonwealth, two Directors appointed by the Mayor of Louisville Metro Government, and one Director appointed by the Louisville Metro Board of Health. Each Director is elected for a one-year term. Beginning with the fiscal year ended June 30, 2015, the Agreement changed the method of reimbursement from a fixed advance payment to a reimbursement basis requiring submission of patient records to the Commonwealth prior to distribution of the funds to the Trust. USING THE FINANCIAL STATEMENTS The Trust financial report includes two financial statements: the statements of assets and liabilities and the statements of changes in balance due. These financial statements are prepared in accordance with Government Accounting Standards Board (GASB) principles as prescribed by GASB Statement No. 34, Basic Financial Statements Management s Discussion and Analysis for State and Local Governments, as amended by GASB Statement No. 37. The Trust is considered a fiduciary fund that serves in a custodial capacity for the primary purpose of receiving and disbursing funds in accordance with the Agreement. The Trust financial 3

23 statements are reported separately as an agency fund and are not part of the financial statements of the University, the Louisville Metro Government, the Commonwealth or UMC. FINANCIAL HIGHLIGHTS Total maximum annual funding provided from government sources as specified by the Agreement amounted to $16.0 million for the year ended June 30, 2015, of which $4.5 million was authorized for reimbursement by the Commonwealth. STATEMENT OF ASSETS AND LIABILITIES As of June 30, 2015, the Trust s total assets were $2.8 million compared to $17 thousand as of June 30, 2014, and to $20 thousand as of June 30, The increase resulted from the receivable established for the reimbursement of the last six months of indigent care authorized by the Commonwealth. These funds were received in August STATEMENT OF CHANGES IN BALANCE DUE TO THE UNIVERSITY MEDICAL CENTER, INC. The purpose of this statement is to provide a summary of activity affecting the liability due to UMC for the fiscal years ended June 30, 2015 and As an agency fund, the Trust does not earn profits or own assets that would result in an accumulation of net position as defined by financial reporting standards. Its sole purpose is to collect and disburse funds as specified by the Agreement. RECEIPTS For the fiscal year ended June 30, 2015, combined receipts from the Commonwealth and the Louisville Metro Government received by the Trust were $4.5 million, $25.3 million less than the $29.8 million reported for the year ended June 30, 2014, and $25.1 million less than the $29.6 million reported for the year ended June 30, The decrease in governmental receipts resulted from the revised agreement and the implementation of the expanded Medicaid program. INTEREST RECEIVED FROM INVESTMENT OF FUNDS No interest was reported for the year ended June 30, 2015 compared to $6 thousand earned in the years ended June 30, 2014 and Due to the reimbursement process prescribed by the revised agreement, no initial investment was made for the year ended June 30, DISBURSEMENTS TO UNIVERSITY MEDICAL CENTER, INC. For the fiscal year ended June 30, 2015, the Trust remitted $4.5 million to UMC as compared to $29.8 million for the year ended June 30, 2014, and to $29.6 million for the year ended June 30, The decreased amount in the fiscal year ended June 30, 2015, is a result of a change in funding determined by the revised Agreement. 4

24 ECONOMIC FACTORS IMPACTING FUTURE PERIODS The annual Trust funding required from the Louisville Metro Government and the Commonwealth was established by the Agreement as last revised in November However, in the biennial budget passed by the Commonwealth, the amount of distributions to the Trust was limited and the funding process was changed. During the fiscal year ended June 30, 2016, the Agreement calls for funding from the Commonwealth, Louisville Metro Government, and the University of up to $4.0 million, $3.0 million, and $5.0 million, respectively. Reimbursements from the three sources will be allocated according to the percentage of maximum contribution during the year. 5

25 The Quality and Charity Care Trust, Inc. Statements of Assets and Liabilities June 30, 2015 and ASSETS Cash and cash equivalents $ - $ 17,367 Due from governmental funding 2,759,201 - Total assets $ 2,759,201 $ 17,367 LIABILITIES Due to University Medical Center, Inc. $ 2,757,305 $ 17,367 Due to University of Louisville 1,896 - Total liabilities $ 2,759,201 $ 17,367 See notes to financial statements 6

26 The Quality and Charity Care Trust, Inc. Statements of Changes in Balance Due Years Ended June 30, 2015 and Balance due - beginning of year $ 17,367 $ 19,513 Receipts: Government funding 4,459,970 29,788,168 Interest income - 5,834 Total receipts 4,459,970 29,794,002 Disbursements: Distributions to University Medical Center, Inc. - indigent care 1,698,873 29,777,561 Administrative expenses 19,263 18,587 Total disbursements 1,718,136 29,796,148 Balance due - end of year $ 2,759,201 $ 17,367 See notes to financial statements 7

27 1. Organization and Purpose a. Incorporation The Quality and Charity Care Trust, Inc. Notes to Financial Statements As of and for the Years Ended June 30, 2015 and 2014 The Quality and Charity Care Trust, Inc. (Trust) is a non-stock, not-for-profit corporation affiliated with the Louisville/Jefferson County Metro Government, formerly the City of Louisville, Kentucky and Jefferson County, Kentucky (Louisville Metro Government), the Commonwealth of Kentucky (Commonwealth), the University of Louisville (University), and University Medical Center, Inc. (UMC). The Trust was incorporated in April 1983 in connection with a trust agreement entered into in January 1983, amended in January 1994 (the Trust Agreement), revised on February 6, 1996, November 1, 2012 and then on November 18, 2014 (Revised Trust Agreement) between the Louisville Metro Government, the Commonwealth, the University and UMC. The purpose of the Trust is to manage government funds received and to disburse such funds to UMC for providing hospital care services to economically disadvantaged patients through the University of Louisville Hospital (Hospital). The 2012 revision of the Trust was one in a series of events in which certain hospital facilities and operations were leased and assumed via a management contract. Concurrently therewith, certain affiliation and other agreements were entered into between the University s School of Medicine and other parties involved in the use and operation of such facilities. In November 2012, the University entered into an academic affiliation agreement with KentuckyOne Health, Inc. (KentuckyOne), UMC, and the Commonwealth; and UMC entered into a joint operating agreement with KentuckyOne, which replaced the previous academic affiliation agreement that had begun in February Under the joint operating agreement, KentuckyOne agreed to manage the Hospital in a manner consistent with the Revised Trust Agreement. b. Terms and Funding The Revised Trust Agreement provides for an initial term from July 1, 2014, through June 30, 2016, and such term shall continue for subsequent Trust Years thereafter, subject to the availability of government funding. Trust Years shall mean any consecutive twelve-month period beginning on the first day of July and ending the last day of June. The funds available to the Trust from the government sources are set forth in the Revised Trust Agreement for the term. The governments funding is paid to the Trust within thirty days of receipt and approval of the reports by the Commonwealth as required by the Revised Trust Agreement. 8

28 c. Hospital Facilities In November 2012, the University and the Commonwealth amended and restated the lease agreement with UMC, which replaced the previous lease agreement that had begun in February Trust Agreement The principal provisions and the capitalized terms below as defined in the Revised Trust Agreement are as follows: a. Funding Provisions Funding of the Trust is provided within thirty days of receipt and approval by the Commonwealth of the quarterly Reimbursement Request Certification reports detailing the amount of expenditures approved for the Cost of Care for those eligible under the Revised Trust Agreement. After the entire amount of funding available to the Trust has been exhausted, as discussed above, UMC is committed to continue to provide medically necessary Hospital Care, to the extent facilities are available, to all Indigent and Medically Needy individuals at its own expense. No portion of funding provided to the Trust by the Louisville Metro Government may be used to provide Hospital Care for persons who are not residents of Jefferson County. After 10% of the total funds provided by the Commonwealth and Louisville Metro Government have been expended to provide medically necessary Hospital Care to Indigent and Medically Needy individuals who are not residents of Jefferson County, UMC is under no further obligation to provide Hospital Care to non-residents of Jefferson County. b. Payment/Billing Provisions UMC is obligated to provide medically necessary Hospital Services, to the extent facilities are available, to all Indigent and Medically Needy individuals. The Revised Trust Agreement restricts payments from the Trust to UMC for services rendered at a discount rate specific to the department providing services. For the year ended June 30, 2015, the average discount rate was 22.0%. During the fiscal year ended June 30, 2014, the presiding Trust Agreement restricted payments from the Trust to UMC for services rendered at a rate of 21.3% of standard billed charges, as established by the most recent Medicare cost-to-charge ratio report. 9

29 UMC submits quarterly the Reimbursement Request Certification with the Data Submission Requirements as provided in the Revised Trust Agreement to the Commonwealth, Louisville Metro, the University and the Board of Directors. To the extent there is a cash balance in the Trust at the end of any Trust Year, such balance shall remain in the Trust for use in the next succeeding Trust Year to pay for Hospital Care provided to Indigents and Medically Needy in accordance with the terms of any future Agreement. Any remaining balance in the Trust at the termination of the Trust shall be retained for a period of one year. Thereafter, any remaining balance shall be returned to Louisville Metro Government and the Commonwealth in the same proportion that the Trust was funded for the final Trust Year prior to termination. 3. Technical Interpretations To provide guidance for implementation of the original Trust Agreement, Humana Corporation, the original provider of Hospital Care, prepared a document dated August 30, 1984, commonly referred to as the Technical Interpretations. This document has not been formally incorporated into the Revised Quality and Charity Care Trust Agreement but was formally approved by the Board of Directors of the Trust. The Technical Interpretations principally: Provide guidance on the mathematical methodology to be used for calculating Billed Charges (net of collections from other sources) for billing to the Trust. Provide that charges related to individuals suspected in the judgment of UMC to be Indigent or Medically Needy may be billed to the Trust on a tentative basis in the year in which service is provided. Charges related to patients who are ultimately determined not to be Indigent or Medically Needy are then credited back to the Trust in the year in which the determination is made. Conversely, charges related to patients who are initially believed not to qualify as Indigent or Medically Needy may, upon subsequent determination of qualification, be billed to the Trust in the year in which the determination is made. 4. Basis of Presentation and Summary of Significant Accounting Policies In addition to the accounting methods described in the Revised Trust Agreement and the Technical Interpretations, the following are the significant accounting policies followed by the Trust. a. Basis of Presentation The financial statements of the Trust are prepared on the accrual basis of accounting. These financial statements are prepared in accordance with Government Accounting 10

30 Standards Board (GASB) principles as prescribed by GASB Statement No. 34, Basic Financial Statements Management s Discussion and Analysis for State and Local Governments, as amended by GASB Statement No. 37. The Trust is considered a fiduciary fund that serves in a custodial capacity for the primary purpose of receiving and disbursing funds to benefit UMC. The Trust s financial statements are reported separately as an agency fund and are not part of the financial statements of the University, the Louisville Metro Government, the Commonwealth or UMC. b. House Bill No. 1 The Kentucky General Assembly signed into law House Bill No. 1 (HB1) on May 26, HB1 provides continued coverage of hospital charges in excess of the fourteen-day limit to Medicaid patients and additional funding to hospitals to improve access of medical care for low-income individuals and families by way of the Kentucky Hospital Care Program (KHCP). In response to HB1, UMC modified the procedure under which charges are billed to the Trust to exclude those charges associated with KHCP-applicable patients. c. Cash and Cash Equivalents The Federal Deposit Insurance Corporation s (FDIC) insurance limit is $250,000. At June 30, 2015 and 2014, the Trust s interest-bearing cash account was fully covered by FDIC limits. d. Income Taxes The Trust is exempt from federal and state income taxes as a not-for-profit charitable corporation. e. Annual Settlements Annual settlements are made within 45 days of each Trust year-end for the difference between calculated net charges and government funding received by UMC. f. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of receipts, disbursements and other changes in balance due to UMC during the reporting period. Actual results could differ from those estimates. 11

31 5. Related Party The Trust is a corporation affiliated with the University. The Trust has its own Board of Directors but is administered by officers and employees of the University, among others. No portion of administrative costs associated with such officers and employees is charged to the Trust. 12

32 University of Louisville Hospital The Quality and Charity Care Trust Inc. Supplemental Schedule of Indigent Patient Charges Funded by the Trust I II III IV V Net Charges Maximum Eligible Amounts in Excess of Eligible for Trust for Trust Maximum Reimbursement Reimbursement Reimbursement Indigent and/or Medically Needy Net Charges Amounts Reimbursed to UMC from Trust Year Ended June 30, 2015 $23,307,940 $4,459,970 $16,000,000 ($11,540,030) $1,698,873 I - Represents the aggregate amount of each patient's charges at 100% of the billed charges established by UMC for the hospital care provided to the patient (which equal the amounts reflected on detailed patient bills); less the aggregate total of amounts applied to each patient's bill from a variety of sources (excluding reimbursement from the Trust) including but not limited to cash receipts, contractual discounts, reversal of transactions previously processed for year end in-house or discharged but not yet final billed patients and corrections of errors. II - Represents the mathematical result of multiplying Column I by the cost-to-charge percentage, as limited by allowable reimbursement for individuals who are not residents of Jefferson County, as specified in the Revised Trust Agreement. III - Represents the maximum allowable charges to be reimbursed by the Trust, as defined in the Revised Trust Agreement. IV - Represents Column II minus Column III. V - Represents the amount reimbursed by the Trust, net of Trust expenditures. 13

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34 Report on the Effect of Reductions to the Quality and Charity Care Trust Fund for Fiscal Year Summary This report serves to fulfill the requirements contained in House Bill 235, the appropriations bill for the Executive Branch for the biennium. The Quality and Charity Care Trust (QCCT) Fund is administered through an agreement among the Commonwealth of Kentucky, the Louisville Metro Government, and the University of Louisville Medical Center (attached as an addendum to this report). House Bill 235 provided for reimbursement to the QCCT Fund in fiscal year in an amount not to exceed $16 million: $6 million from the General Fund as a necessary government expense, $5 million from the Louisville Metro Government, and $5 million from the University, for fiscal year The amount provided to the QCCT Fund in fiscal year was $29.8 million. House Bill 235 added new requirements to the receipt of funds by the QCCT; requiring the University of Louisville to submit documentation demonstrating financial need for reimbursement related to providing hospital care services to indigent and medically needy patients through the QCCT. The QCCT agreement was revised to reflect these new requirements. HB 235 further required the Cabinet for Health and Family Services to conduct an annual study of the effect of the reduction in contributions to the QCCT on the delivery of indigent care in Jefferson County, and to submit a report to the Interim Joint Committee on Appropriations and Revenue. The results of the study confirm that the reduction in contributions to the QCCT as compared to state fiscal year levels did not negatively impact the delivery of indigent care in Jefferson County in State Fiscal Year As anticipated, implementation of the Affordable Care Act, and particularly the Medicaid expansion, significantly decreased the University s indigent health care burden. During State Fiscal Year the University of Louisville Medical Center incurred expenses 1

35 eligible for reimbursement of $4,459,970 under the revised QCCT agreement. Due to the timing of the receipt and review of the data, $1,700,768 was reimbursed by the Commonwealth to the QCCT in fiscal year and the remaining $2,759,202 was reimbursed early in fiscal year The eligible expenses of $4,459,970 were well within the amounts provided in HB 235. Data Used for Determining Reimbursement and the Annual Report To meet the above requirements, the University of Louisville provided, on a quarterly basis, two files which detailed their total charges for the uninsured as well as those patients whose insurance was insufficient to cover their medical expenses. Upon receipt of those files, and pursuant to the QCCT agreement, the data underwent the analysis outlined below. Charges Were Converted to Cost Since billed charges by hospitals do not accurately reflect the underlying costs associated with treatment, the billed charges were converted to estimated costs. The cost calculation utilized the most recent Medicare Cost Report completed by the hospital, which was provided by the University of Louisville pursuant to the QCCT agreement. Medicaid Enrollees Were Eliminated Per the agreement, persons currently enrolled in Government sponsored insurance are not also eligible for QCCT expenditures. The patient identities in the files were checked against Medicaid enrollment. Enrollees were removed from consideration only if they were enrolled at the time of treatment. In those cases, their costs were no longer considered, but the Medicaid report was returned to the University of Louisville so the hospital could pursue appropriate billing and reimbursement. 2

36 Medicaid Eligible Persons Were Eliminated The QCCT agreement specifies that both persons enrolled in government insurance programs, and persons eligible for such programs are not eligible for QCCT funding. Eligibility for Medicaid and Qualified Health Plans which are subsidized is based upon client income and household size. Since the University of Louisville did not collect this information at intake, and had no means to effectively collect the information afterwards, they elected, with the agreement of the Commonwealth, to have government insurance eligibility estimated by a third party vendor. The University of Louisville contracted with PARO 1, a predictive modeling company, to estimate the household size, income level, and government insurance eligibility status for the patients. Those individuals that were presumed to be eligible for Medicaid, based on the judgment of the PARO, had their costs eliminated from consideration. PARO also estimated that multiple patients were eligible for Qualified Health Plans. However, these costs were still included in the QCCT expenditures since QHPs cannot be issued retro-actively. Those patients who were eligible, but not enrolled, in Medicaid could apply for Medicaid at the time of treatment or at any point within the next three months and have their costs paid by Medicaid. Those patients who were eligible for QHPs could also apply for insurance, but their insurance policies would not cover their immediate visit or reimburse for retro-active costs incurred. For this reason, costs incurred by people eligible for QHPs were not excluded. PARO also included a charity score in their estimates, indicating patients that they believed did not fall within the definition of medically needy. Within the QCCT agreement, medically needy is defined as: an individual who at the time of presentation for admission or at the time of discharge or within one year thereafter has income from all sources more than that required to be eligible for assistance in acquiring health care under the Affordable Care Act, is determined to require medical care, and does not have sufficient income, resources, or other means of paying for all of the cost of care rendered in connection with his hospital 1 3

37 care. Additionally, criteria are included in Appendix B of the agreement that further delineate when an individual is not medically needy. The costs for persons who were deemed by the University s consultant to fall outside the definition of medically needy were also excluded. Patient Addresses Were Examined The QCCT agreement specifies that only Kentucky residents are eligible for QCCT funding, and that 90% of funds must be expended on residents of Jefferson County. For this reason, out-of-state patients were excluded from consideration and, the maximum allowed payment, by quarter was set so that 90% of total expenditures were rewarded for Jefferson County residents. Results The University of Louisville submitted 11,275 patient accounts for consideration with dates of service between July 1, 2014 and June 30, The University experienced more than $20.4 million in costs from the 11,275 patient accounts. Non-residents of Kentucky accounted for $5.8 million. About $14.6 million in costs were incurred by Kentucky residents. o Of that amount, approximately $6.8 million in Kentucky residents costs were incurred for patients who were enrolled in, or eligible for, Medicaid. The University was provided the means to bill for those individuals currently enrolled in Medicaid and was encouraged to attempt to enroll those persons who were eligible for Medicaid but not enrolled. About $2.6 million was for patients who earned sufficient income such that they could not be considered to be medically needy. Approximately $0.7 million in Kentucky resident costs were not reimbursed due to a requirement in the QCCT agreement that 90% of funds must be expended on residents of Jefferson County. 4

38 The remaining $4,459,970 was reimbursed under the revised QCCT agreement. Due to the timing of the receipt and review of the data and normal lag time for healthcare claims processing, $1,700,768 was reimbursed to the QCCT in fiscal year and the remaining $2,759,202 was reimbursed in fiscal year The reduction in contributions to the QCCT as compared to state fiscal year levels did not negatively impact the delivery of indigent care in Jefferson County in state fiscal year As anticipated, implementation of the Affordable Care Act, and particularly the Medicaid expansion, significantly decreased the University s indigent health care burden. The table below depicts both scenarios submitted by the University of Louisville, as well as the corresponding case costs, as determined by the Medicare Cost Report. Cases Costs Out-of-State 1,417 5,805,100 Enrolled in Medicaid 3,195 4,512,497 Eligible for Medicaid 2,067 2,329,204 Not Medically Needy 1,499 2,608,364 Eligible for QCCT - Jefferson 2,687 4,013,973 Eligible for QCCT - Other Kentucky County 410 1,118,742 Total Costs 11,275 20,387,879 Eligible Costs 4,459,970 5

39 The eligible categories are depicted in shades of blue below. The remaining cases were not eligible for reimbursement from the QCCT as they did not meet the requirements outlined above. Analysis of Cases Submitted for Consideration for QCCT Eligible for QCCT - Jefferson 2,687 Eligible for QCCT - Other Kentucky County 410 Not Medically Needy 1,499 Out of State 1,417 Eligible for Medicaid 2,067 Enrolled in Medicaid 3,195 Uncompensated Spending by Service Type This section disaggregates costs of the above groups (Out-of-state, Enrolled in Medicaid, etc.) by cost center. The first table shows the absolute costs attributed to each group, by cost center. For example, of the $4,013,973 in costs for Jefferson County residents eligible for QCCT, $804,902 was incurred in the Emergency Room and $207,972 was in the labor and delivery room. The second table displays the same data using percentages. Any category which represents at least 5% of the column total is shaded in blue. This allows the reader to quickly understand which cost centers are being used most extensively by differing patient groups. For example, the intensive care unit is being heavily utilized by out-of-state patients, but not by any of the other groups. 6

40 Service Category Eligible for QCCT - Jefferson Eligible for QCCT - Other County Eligible for Medicaid Enrolled in Medicaid Not Medically Needy Out of State Adults and Pediatrics 998, , ,469 1,306, ,588 1,716,556 Anesthesiology 99,861 31,644 48,905 92,836 74, ,624 Burn Intensive Care Unit 31,489 3,909-2,434 2,760 31,411 Coronary Care Unit 42,035 10,773 27,133 20,122 29,947 35,554 Drugs Charged to Patients 187,591 61, , , , ,043 Electrocardiology 17,940 6,725 12,927 7,607 26,875 33,807 Electroencephalography 6,497 1,318 5,786 5,848 3,374 7,566 Emergency 804, , , , , ,347 Endoscopy 9,785 2,230 2,815 1,651 10,832 5,251 Implantable Devices Charged to Patients 209,044 54,563 53,184 62, , ,200 Intensive Care Unit 59,369 39,709 37,004 62,930 54, ,168 Labor and Delivery Room 207,972 19,446 70, ,165 78,933 21,402 Laboratory 340,655 76, , , , ,233 Medical Supplies Charged to Patients 217,513 68, , , , ,746 Neonatal Intensive Care Unit 16,425 85,188 1, , ,523 62,417 Nuclear Medicine - Diagnostic 1,743 2, ,811 5,529 3,535 Nursery 23,143 1,419 6,319 75,259 6, Observation 3,555 1,020 1,331 8,207 3,905 18,625 Operating Room 328, , , , , ,278 Physical Therapy 37,025 16,354 13,579 17,665 26,363 97,260 Radiology-Diagnostic 208,529 68, , , , ,456 Radiology-Therapeutic 16,041 21,742 11,747 10,013 30,108 5,052 Recovery Room 51,785 16,462 19,204 41,364 27,694 88,423 Renal Dialysis 13,214-2, ,257 10,937 6,333 Respiratory Therapy 30,465 13,044 19,544 52,145 40,209 79,338 Whole Blood & Packed Red Blood 49,707 4,919 36,806 48,128 72,787 47,498 Grand Total 4,013,973 1,118,742 2,329,204 4,512,497 2,608,364 5,805,100 7

41 Service Category Eligible for QCCT - Jefferson Eligible for QCCT - Other County Eligible for Medicaid Enrolled in Medicaid Not Medically Needy Out of State Adults and Pediatrics 24.89% 24.39% 17.62% 28.95% 19.69% 29.57% Anesthesiology 2.49% 2.83% 2.10% 2.06% 2.84% 3.39% Burn Intensive Care Unit 0.78% 0.35% 0.00% 0.05% 0.11% 0.54% Coronary Care Unit 1.05% 0.96% 1.16% 0.45% 1.15% 0.61% Drugs Charged to Patients 4.67% 5.46% 4.87% 4.46% 5.41% 5.70% Electrocardiology 0.45% 0.60% 0.55% 0.17% 1.03% 0.58% Electroencephalography 0.16% 0.12% 0.25% 0.13% 0.13% 0.13% Emergency 20.05% 11.98% 30.74% 15.29% 18.12% 10.13% Endoscopy 0.24% 0.20% 0.12% 0.04% 0.42% 0.09% Implantable Devices Charged to Patients 5.21% 4.88% 2.28% 1.38% 4.21% 5.65% Intensive Care Unit 1.48% 3.55% 1.59% 1.39% 2.10% 9.18% Labor and Delivery Room 5.18% 1.74% 3.04% 12.52% 3.03% 0.37% Laboratory 8.49% 6.85% 10.69% 7.28% 8.14% 5.41% Medical Supplies Charged to Patients 5.42% 6.13% 6.12% 4.95% 5.32% 5.03% Neonatal Intensive Care Unit 0.41% 7.61% 0.08% 2.25% 4.08% 1.08% Nuclear Medicine - Diagnostic 0.04% 0.18% 0.01% 0.04% 0.21% 0.06% Nursery 0.58% 0.13% 0.27% 1.67% 0.25% 0.02% Observation 0.09% 0.09% 0.06% 0.18% 0.15% 0.32% Operating Room 8.19% 9.39% 7.25% 6.76% 9.80% 11.36% Physical Therapy 0.92% 1.46% 0.58% 0.39% 1.01% 1.68% Radiology-Diagnostic 5.20% 6.09% 6.76% 4.01% 5.84% 5.19% Radiology-Therapeutic 0.40% 1.94% 0.50% 0.22% 1.15% 0.09% Recovery Room 1.29% 1.47% 0.82% 0.92% 1.06% 1.52% Renal Dialysis 0.33% 0.00% 0.10% 2.22% 0.42% 0.11% Respiratory Therapy 0.76% 1.17% 0.84% 1.16% 1.54% 1.37% Whole Blood & Packed Red Blood 1.24% 0.44% 1.58% 1.07% 2.79% 0.82% Grand Total % % % % % % 8