El Paso County Hospital District d/b/a University Medical Center of El Paso A Component Unit of El Paso County, Texas Auditor s Report and Financial

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1 Auditor s Report and Financial Statements

2 Contents Independent Auditor s Report on Financial Statements and Supplementary Information... 1 Management s Discussion and Analysis... 4 Financial Statements Balance Sheets Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to Financial Statements Required Supplementary Information Schedule of Funding Progress for Pension Plan Other Information Combined Balance Sheet Information Combined Statements of Revenues, Expenses and Changes in Net Position Information Combined Statements of Cash Flows Information... 57

3 Independent Auditor s Report on Financial Statements and Supplementary Information Board of Managers El Paso County Hospital District El Paso, Texas We have audited the accompanying financial statements of El Paso County Hospital District d/b/a University Medical Center of El Paso (the Medical Center), and its aggregate discretely presented component units, collectively, a component unit of El Paso County, Texas, which are comprised of the balance sheets as of, and the related statements of revenues, expenses and changes in net position and cash flows for the years then ended, and the related notes to the financial statements. 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 audits. We conducted our audits 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.

4 Board of Managers El Paso County Hospital District Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Medical Center and its aggregate discretely presented component units as of, and its respective changes in its financial position and its cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 14, in 2013, the Medical Center changed its method of accounting for certain items previously reported as assets and liabilities and to recognize certain items that were previously reported as assets and liabilities as expenses and revenues in accordance with GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. As discussed in Note 14, in 2013, the Medical Center adopted GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. Application of this standard resulted in certain entities previously presented as blended component units now being presented as discretely presented component units. Our opinion is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and pension information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the 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 audits 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.

5 Board of Managers El Paso County Hospital District Page 3 Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The other information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Dallas, Texas December 20, 2013

6 Management s Discussion and Analysis Years Ended (In Millions) Introduction This management s discussion and analysis of the financial performance of El Paso County Hospital District (the Medical Center) provides an overview of the Medical Center s financial activities for the years ended. It should be read in conjunction with the financial statements of the Medical Center. Unless otherwise indicated, amounts are in millions. Financial Highlights In April 2013, Standard and Poor s affirmed the bond rating at AA- with a Stable outlook and Fitch Ratings affirmed the bond rating at AA rating and a Stable outlook. The Medical Center s property tax rate was $ in 2013 and $ in In 2013, the Medical Center issued $134.3 million in new bonds to construct and equip new outpatient medical clinic sites, renovate existing hospital inpatient floors and acquire new medical equipment for the main campus. The Medical Center placed in service over $292 million in assets with the opening of the El Paso Children s Hospital (El Paso Children s) and Women s Tower in February 2012 and renovations throughout the Medical Center completed in June Total assets and deferred outflows of resources increased by $159.5 million (29.0%) between 2012 and 2013 and total assets increased by $3.9 million (.7%) between 2011 and Net position decreased $5.5 million (2.4%) between 2012 and 2013 and net position decreased $1.4 million (.6%) between 2011 and The decrease in net position is attributable to increased operating expenses in 2012 and Operating revenues increased $11.0 million or 4.2% between 2012 and 2013 primarily from an increase in net patient revenue ($6.5 million) and an increase in net contract revenue attributable to El Paso Children s Hospital (El Paso Children s) ($9.7 million) and the associated facility lease, medical equipment and information technology lease and purchased service agreements. El Paso First HealthPlans, Inc. experienced an increase in membership of approximately 3.5% from 2012 to

7 Management s Discussion and Analysis Years Ended (In Millions) Using this Annual Report The Medical Center s financial statements consist of three statements a balance sheet; a statement of revenues, expenses and changes in net position; and a statement of cash flows. These statements provide information about the activities of the Medical Center, including resources held by the Medical Center but restricted for specific purposes by creditors, contributors, grantors or enabling legislation. The Medical Center is accounted for as a business-type activity and presents its financial statements using the economic resources measurement focus and the accrual basis of accounting. The Balance Sheet and Statement of Revenues, Expenses and Changes in Net Position One of the most important questions asked about any hospital s finances is Is the hospital as a whole better or worse off as a result of the year s activities? The balance sheet and the statement of revenues, expenses and changes in net position report information about the Medical Center s resources and its activities in a way that helps answer this question. These statements include all restricted and unrestricted assets and all liabilities using the accrual basis of accounting. Using the accrual basis of accounting means that all of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Medical Center s net position and changes in them. The Medical Center s total net position the difference between assets, deferred outflows of resources and liabilities is one measure of the Medical Center s financial health or financial position. Over time, increases or decreases in the Medical Center s net position are an indicator of whether its financial health is improving or deteriorating. Other nonfinancial factors, such as changes in the Medical Center s patient base, changes in legislation and regulations, measures of the quantity and quality of services provided to its patients, and local economic factors should also be considered to assess the overall financial health of the Medical Center. The Statement of Cash Flows The statement of cash flows reports cash receipts, cash payments and net changes in cash and cash equivalents resulting from four defined types of activities. It provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash and cash equivalents during the reporting period. 5

8 Management s Discussion and Analysis Years Ended (In Millions) The Hospital District Management of the Medical Center is responsible for the discretely presented component units of the Medical Center, El Paso First HealthPlans, Inc. (the Health Plan ) and the University Medical Center Foundation of El Paso (the Foundation ), which collectively comprise the Hospital District. While presentation of combined financial statements is not in accordance with accounting principles generally accepted in the United States of America (GAAP), management believes it is important for readers of the financial statements to comprehend the combined activities of these component units. The combined financial position and results of operations of the Hospital District are presented in the following tables. Table 1: Assets and Deferred Outflows of Resources, Liabilities and Net Position (Restated - (Restated Note 14 ) Note 14 ) Assets and Deferred Outflows of Resources Current and other assets $ $ $ Capital assets, net Deferred outflows of resources Total assets and deferred outflows of resources $ $ $ Liabilities Long-term debt, including current maturities $ $ $ Other liabilities Total liabilities Net Position Net investment in capital assets Restricted Unrestricted Total net position Total liabilities and net position $ $ $

9 Management s Discussion and Analysis Years Ended (In Millions) Table 2: Operating Results and Changes in Net Position (Restated - (Restated Note 14 ) Note 14 ) Operating Revenue Net patient service revenue $ $ $ Premium revenue Medicaid supplemental program revenue Net contract revenues Other revenue Total operating revenues Operating Expense Salaries and employee benefits Medical claims expense Purchased services Professional fees Supplies and other Intergovernmental transfers Depreciation Total operating expenses Operating Loss (65.0) (63.1) (61.9) Nonoperating Revenues, Net Change in Net Position $ 1.1 $ 3.3 $ 3.9 7

10 Management s Discussion and Analysis Years Ended (In Millions) The Medical Center s Net Position A summary of the Medical Center s balance sheets are presented in the following table: Table 3: Assets and Deferred Outflows of Resources, Liabilities and Net Position (Restated - (Restated Note 14 ) Note 14 ) Assets and Deferred Outflows of Resources Current and other assets $ $ $ Capital assets, net Deferred outflows of resources Total assets and deferred outflows of resources $ $ $ Liabilities Long-term debt, including current maturities $ $ $ Other liabilities Total liabilities Net Position Net investment in capital assets Restricted Unrestricted Total net position Total liabilities and net position $ $ $ Total assets and deferred outflows of resources increased $159.5 million or 29.0% between 2012 and Current and other assets increased $166.6 million or 115.1% primarily as a result of unexpended bond proceeds in connection with the 2013 debt issuance. The proceeds from the issuance are held in a repurchase agreement. Another contribution to this growth is an increase in the Medicaid Supplemental Revenue receivable of $20.1 million. 8

11 Management s Discussion and Analysis Years Ended (In Millions) Capital assets decreased $17.5 million or 4.3% primarily due to a full year of depreciation on the Master Facility Expansion and the El Paso Children s construction projects that were placed into service in The Medical Center refunded a substantial portion of the 2005 bonds and incurred a loss of approximately $10.6 million as a result. The balance of the deferred loss is $10.4 million at September 30, 2013, and is included as a deferred outflow of resources. From a cash standpoint, the refunding generated a net present value savings of $9.0 million. Total liabilities increased $164.9 million or 50.8% primarily due to the issuance of the 2013 bond issue, the proceeds of which will be used to construct and equip new outpatient medical clinic sites, renovate existing hospital inpatient floors and acquire new medical equipment for main campus. Total assets increased $3.9 million or.7% between 2011 and Current and other assets decreased $17.2 million or 10.6% primarily as a result of cash reserves and bond funds expended on construction projects. Capital assets increased $21.1 million or 5.5% primarily due to the Master Facility Expansion and the El Paso Children s construction projects. Total liabilities increased $5.3 million or 1.7% primarily due to the timing of UPL Program payments. Operating Results and Changes in the Medical Center s Net Position The following table presents a summary of the Medical Center s revenues and expenses for each of the years ended September 30, 2013, 2012 and

12 Management s Discussion and Analysis Years Ended (In Millions) Table 4: Operating Results and Changes in Net Position (Restated - (Restated Note 14 ) Note 14 ) Operating Revenue Net patient service revenue $ $ $ Medicaid Supplemental Program revenue Net contract revenues Other revenue Total operating revenues Operating Expense Salaries and employee benefits Purchased services Professional fees Supplies and other Intergovernmental transfers Depreciation Total operating expenses Operating Loss (71.3) (67.5) (73.1) Nonoperating Revenues, Net Decrease in Net Position $ (5.5) $ (1.4) $ (7.1) Operating revenues increased $11.0 million or 4.2% between 2012 and Medicaid Supplemental Revenue decreased $3.2 million or 4.4% primarily due to the continued implementation of the Medicaid Transformation Waiver Program and changes to federal funding levels. Net contract revenues increased $9.7 million or 70.8% for El Paso Children s Hospital services and the associated facility lease, medical equipment and information technology lease and purchased service agreements. 10

13 Management s Discussion and Analysis Years Ended (In Millions) Net patient service revenue increased $6.5 million or 4.4% primarily due to growth in adult services and associated payments for these services. Uncompensated care increased to $336.9 million in 2013 ($222.8 million in charity care - a 13.4% increase from 2012 and $114.1 million in bad debt expense a 12.1% decrease from 2012) from $326.2 million in 2012 ($196.4 million in charity care and $129.8 million in bad debt expense) - an overall increase of 3.3%. Operating revenues increased $30.9 million or 13.3% between 2011 and Medicaid Supplemental Revenue increased $16.8 million or 29.6% primarily due to the implementation of the Medicaid Transformation Waiver Program and increased federal funding levels. Net patient service revenue remained consistent between 2012 and Uncompensated care increased to $326.2 million in 2012 ($196.4 million in charity care - a 1.7% increase from 2011 and $129.8 million in bad debt expense - an 8.4% increase from 2011) from $312.8 million in 2011 ($193.1 million in charity care and $119.7 million in bad debt expense) - an overall increase of 4.3% The following table presents the relative percentages of gross charges billed for patient services by payer for the fiscal years ended September 30, 2013, 2012 and 2011: Table 5: Payer Mix by Percentage Years Ended September 30 Payer Change 2011 Change Medicare 21% 18% 3% 17% 1% Medicaid 16% 19% -3% 22% -3% Commercial 5% 6% -1% 5% 1% Charity 26% 24% 2% 24% 0% Self-pay 18% 22% -4% 22% 0% HMO/PPO 6% 5% 1% 5% 0% Other 8% 6% 2% 5% 1% 100% 100% 100% 11

14 Management s Discussion and Analysis Years Ended (In Millions) Operating expenses increased $14.8 million or 4.5% between 2013 and Salaries and employee benefits expense increased $4.4 million or 3.1% due to higher staffing associated with growth and expansion in adult service lines and the impact of converting certain physicians from contractors to employees. This changed contributed to a decrease in professional fees expenses of $2.4 million or 63.2%. Supplies and other expenses increased $1.4 million or 1.8% primarily due to increase in operating room supply costs and pharmaceutical prices for certain drugs. Depreciation expense increased by $4.6 million or 16.8% due to full year of depreciation expense on the El Paso Children s and Master Facility Expansion completed in February Purchased services expense increased by $.4 million or 1.2% as a result of an increase in computer fees and repairs and maintenance expenses associated with a fiscal year 2012 expansion and growth in systems, licenses and associated service support for the medical equipment. Intergovernmental transfer expense increased $6.4 million or 14.7% due to additional physician contracts that became part of the Private UPL Program, which required additional funding. Operating expenses increased $25.3 million or 8.2% between 2012 and Salaries and employee benefits expense increased $5.1 million or 3.7% due to higher staffing associated with growth and expansion in adult service lines and shift of doctor expenses from physician fees to direct employees of the Medical Center. Professional fees expense decreased $2.1 million or 35.6% as a result of shift of doctor expenses from contractors to direct employees of the Medical Center. Depreciation expense increased by $9.8 million or 55.7% due to opening El Paso Children s and Master Facility Expansion in February Purchased services expense increased by $3.0 million or 9.4% as a result of an increase in utilities, computer fees and repairs and maintenance expenses associated with opening of El Paso Children s and the Master Facility Expansion. Intergovernmental transfer expense increased $8.0 million or 22.4% due to additional physician contracts that became part of the Private UPL Program, which required additional funding. 12

15 Management s Discussion and Analysis Years Ended (In Millions) Net nonoperating revenues decreased $0.3 million or 0.5% between 2013 and Property tax revenue increased $2.4 million or 3.5% from Debt issuance costs of $1.8 million were incurred in 2013 due to the issuance of the 2013 bonds. Interest expense increased by $3.1 million or 37% due to full year of expense for the El Paso Children s bond issue. Net nonoperating revenue was consistent between 2012 and Property tax revenue increased by approximately $6.0 million or 9.3% from 2011 to Interest expense increased $6.8 million or 450% due to ceasing of interest expense capitalization for construction assets that were placed in service in February Capital Assets The following table presents a summary of the Medical Center s capital assets as of September 30, 2013, 2012 and 2011: Table 6: Capital Assets (Restated - Dollar (Restated Note 14 ) Change Note 14 ) Land and land improvements $ 10.3 $ 10.3 $ 0.0 $ 10.1 Building and leasehold improvements Equipment Construction in progress Accumulated depreciation (268.0) (236.1) (31.9) (208.7) Property, plant and equipment, net of accumulated depreciation $ $ $ (17.5) $

16 Management s Discussion and Analysis Years Ended (In Millions) Capital assets decreased $17.5 million or 4.3% between 2013 and The decrease is due to annual depreciation expense exceeding current year additions of new equipment. The Medical Center invested $14.4 million of which over $1.2 million was used to construct a new Digestive Center of Excellence in the main hospital campus. The Medical Center spent an additional $1 million to prepare for Phase 2 of Meaningful Use certification and implement the preliminary upgrades needed for ICD10 compliance effective in The balance of additions was for routine annual capital purchases. Capital assets increased $21.1 million or 5.50% between 2012 and The Medical Center invested $48.5 million in new additions, of which $39.5 million was for the Master Facility Expansion Project, Infrastructure Improvement and El Paso Children s construction projects. The remaining capital purchases were for an additional MRI and CT Scan unit for the expanded Radiology area and annual routine capital purchases. Long-term Debt Long-term debt consists of the following: Series 2013, $134.3 million Combination Tax and Revenue Certificates of Obligation Series 2013, $110.4 million General Obligation Refunding Bonds (of the previously issued Series 2005 Combination Tax and Revenue Bonds) Series 2009, $25.8 million Refunding Bonds Series 2008A, $120.1 million General Obligation Bonds Series 2005, $4.1 million Combination Tax and Revenue Bonds Long-term debt, including current maturities, at September 30, 2013, totaled $409.8 million and increased 61.6% from 2012 primarily due to the 2013 bond issue. Long-term debt represents 83.7% of the total liabilities at September 30, Long-term debt, including current maturities, at September 30, 2012, totaled $253.5 million and decreased 1.9% from 2011 primarily due to scheduled principal payments. Long-term debt represents 78.1% of total liabilities at September 30, 2012 More detailed information about the Medical Center s long-term debt is presented in the notes to the financial statements. 14

17 Management s Discussion and Analysis Years Ended (In Millions) Economic Factors and Key Challenges The Medical Center s board and senior management considered many factors while forecasting its fiscal year 2014 budget. One of the most significant concerns taken into consideration while planning the budget is the status of the economy, which takes into account market forces and environmental factors, such as: Medicaid Transformation Waiver In December 2011, the Health and Human Services Commission ( HHSC ) received federal approval of a waiver that allows the state to expand Medicaid managed care while preserving hospital funding, provides incentive payments for health care improvements and directs more funding to hospitals that serve large numbers of uninsured patients. The Texas Healthcare Transformation and Quality Improvement Program (the Transformation or Waiver ) allowed the state to expand Medicaid managed care while preserving federal hospital funding historically received as Upper Payment Limit ( UPL ) Program payments (supplemental payments to make up the difference between what Medicaid pays for a service and what Medicare would pay for the same service). This program will be the basis for the supplemental payments in 2012 through This system replaced the UPL Program payment methodology with two funding pools the Uncompensated Care ( UC ) pool and Delivery System Reform Incentive Payment ( DSRIP ) pool. UC Pool Payments are designed to help offset the costs of uncompensated care provided by the hospital or other providers. DSRIP Pool Payments are incentive payments to hospitals and other providers that develop programs or strategies to enhance access to health care, increase the quality of care and improve the health of the patients and families served, and improve the cost-effectiveness of the care provided. Preliminary estimates from HHSC indicates approximately $500 million is available for Region 15 DSRIP funding for the five year period ending Of these amounts, the Medical Center is entitled to $217 million of the $500 million. Under the transformation waiver, eligibility to receive UC pool or DSRIP pool payments requires participation in a regional health care partnership. Within a partnership, participants include governmental entities providing public funds known as intergovernmental transfers ( IGTs ), Medicaid providers and other stakeholders. Participants will develop a regional plan that identifies partners, community needs, the proposed projects to meet those needs and funding distribution. Each partnership must have one anchoring entity (of which the Medical Center is the anchoring entity for Region 15), which acts as a primary point of contact for HHSC in the region and is 15

18 Management s Discussion and Analysis Years Ended (In Millions) responsible for seeking regional stakeholder engagement and coordinating development of a regional plan. Since 2007, under the UPL Program, the Medical Center has participated with a local health care provider for payment of health care services provided to indigent patients being performed at the Medical Center. The 2014 budget assumes that this program will continue at its current funding and expense alleviation level under the Waiver program. HHSC has had challenges in timely implementing the Waiver program and has delayed certain Medicaid Supplemental payments throughout 2013 and Consequently, the delayed payments have necessitated that the Medical Center implement a cash conservation plan which is projected to extend until the second quarter of fiscal Health Policy Governor Rick Perry announced that Texas will opt-out of a provision of the Affordable Care Act that would have extended Medicaid coverage to nearly 2 million of the state s 6.2 million uninsured citizens. That means that an estimated 135,000 uninsured El Pasoans who would have qualified for Medicaid under the expansion will likely remain uninsured. Funding for the Women s Health Program in Texas (family planning) remains in jeopardy after state officials earlier this year acted to exclude Planned Parenthood from participating in the program in violation of federal guidelines. The $40 million-a-year program gets 90% of its funding from the federal government. Texas now must absorb that cost or eliminate the program. El Paso Children s Hospital El Paso Children s commenced operations in February They received Joint Commission accreditation on March 8, 2012, received their Medicare provider number in late May 2012 and received their Medicaid number in late June Included in the Medical Center s operating revenues are service and lease-type agreements with the El Paso Children s which approximate $30.1 million (prior to the allowances for uncollectible amounts) and include the following: Contractual services agreement Facility lease agreement Medical equipment (new and transferred) lease agreement IT lease agreement Administrative services agreement Pre-opening costs agreement Working capital advance agreement 16

19 Management s Discussion and Analysis Years Ended (In Millions) Certain of these agreements have an initial six-month no payment provision and the remaining have an initial one-year no payment provision enabling El Paso Children s to establish their billing and collection processes before they begin making payments on these agreements. El Paso Children s began making payments on these agreements in August 2012 and as of September 2013 paid over $30 million. The Medical Center also provides for an allowance for uncollectible accounts based upon review of outstanding receivables, current economic conditions and cash flows of El Paso Children s. Contacting the Medical Center s Financial Manager This financial report is designed to provide our citizens, customers and creditors with a general overview of the Medical Center s finances and to demonstrate the Medical Center s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the El Paso County Medical Center, Fiscal Services Office, 4815 Alameda Avenue, El Paso, Texas Report of Management s Responsibility The management of the Medical Center is responsible for the preparation and integrity of the financial information presented in this report. The basic financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board and include amounts based on judgments and estimates made by management. Management also prepares the other information included in the report and is responsible for its accuracy and consistency with the financial statements. The 2013 and 2012 financial statements have been audited by the independent accounting firm of BKD, LLP, as stated in their reports, who was given unrestricted access to all financial records and related data, including the minutes of all meetings of the board of managers. The board of managers, through its Finance Committee (the Committee ), provides oversight to the financial reporting process. Integral to this process is the Committee s review and discussion with management of the monthly financial statements and the external auditors for the annual financial statements. The Medical Center maintains a system of internal control over financial reporting, which is designed to provide reasonable assurance that transactions are executed as authorized and accurately recorded and that assets are properly safeguarded, and also to provide reasonable assurance to our management and the board of managers regarding the reliability of our financial statements. The internal control system includes: A documented organizational structure and division of responsibility. Established policies and procedures that are regularly communicated and that demand highly ethical conduct from all employees. 17

20 Management s Discussion and Analysis Years Ended (In Millions) The Medical Center s Compliance Department monitors the operation of the internal control system and reports findings and recommendations to management and the board of managers as appropriate. Corrective actions are taken to address control deficiencies and other opportunities for improvement as they are identified. El Paso County Hospital District /s/ James N. Valenti James N. Valenti President and Chief Executive Officer /s/ Michael L. Nuñez Michael L. Nuñez, CHFP, CPA Chief Financial Officer 18

21 Balance Sheets (Restated, Note 14) Component Units Component Units Medical El Paso Medical El Paso Assets and Deferred Outflows of Resources Center First Foundation Eliminations Total Center First Foundation Eliminations Total Current Assets Cash and cash equivalents $ 37,827 $ 23,568 $ - $ - $ 61,395 $ 48,775 $ 19,072 $ - $ - $ 67,847 Short-term investments Held by trustee for self insurance, current portion 1, ,685 1, ,936 Patient accounts receivable, net 30, ,850 19, ,911 County appropriation - property taxes receivable, net 1, ,999 1, ,628 Uncompensated care funds receivable 37, ,456 17, ,318 Supplies 6, ,147 5, ,679 Contract receivable, net 31, ,870 25, ,119 Prepaid expenses and other 6,332 2, ,770 5,084 2, ,560 Due from component units 1,619 16,243 - (17,862) - 1,319 17,115 - (18,434) - Total current assets 155,785 42, (17,862) 181, ,742 38, (18,434) 147,004 Noncurrent Cash and Investments Held by trustee for debt service 2, ,074 1, ,441 Held by trustee for self-funded insurance 2, ,791 3, ,546 Held by trustee for project construction 150, ,779 7, ,656 Held by Foundation - - 2,593-2, ,182-1,182 Internally designated Restricted for medical claims , , ,891 13, ,182-15,520 Less amount required to meet current obligations 1, ,685 1, , , , ,206 11, ,182-13,584 Capital Assets, Net 386,911 1, , ,465 1, ,446 Other Assets Contract receivable , ,637 Other , ,988 Total other assets ,743 6, ,625 Deferred Outflows of Resources 10, , Total assets and deferred outflows of resources $ 708,656 $ 45,593 $ 3,884 $ (17,862) $ 740,271 $ 549,216 $ 41,473 $ 2,404 $ (18,434) $ 574,659 See Notes to Financial Statements

22 Balance Sheets (Restated, Note 14) Component Units Component Units Medical El Paso Medical El Paso Liabilities and Net Position Center First Foundation Eliminations Total Center First Foundation Eliminations Total Current Liabilities Accounts payable and accrued expenses $ 59,630 $ 14,955 $ 5 $ - $ 74,590 $ 49,710 $ 16,416 $ 2 $ - $ 66,128 Current maturities of long-term debt 6, ,725 5, ,211 Estimated self-insurance costs - current 1, ,685 1, ,936 Due to component units 16,274 1, (17,862) - 17, (18,434) - Total current liabilities 84,314 16, (17,862) 83,000 74,108 17, (18,434) 73,275 Estimated Self-insurance Costs , ,081 Long-term Debt 403, , , ,314 Other Long-term Liabilities 1, , Total liabilities 489,450 16, (17,862) 488, ,494 17, (18,434) 323,661 Net Position Net investment in capital assets 136,097 1, , ,368 1, ,349 Restricted - expendable 2, ,972-5,746 1, ,680-3,821 Restricted - non-expendable Unrestricted 81,035 26, ,990 70,913 21, ,578 Total net position 219,206 29,486 3, , ,722 24,346 1, ,998 Total liabilities and net position $ 708,656 $ 45,593 $ 3,884 $ (17,862) $ 740,271 $ 549,216 $ 41,473 $ 2,404 $ (18,434) $ 574,659 See Notes to Financial Statements 19

23 Statements of Revenues, Expenses and Changes in Net Position Years Ended (Restated, Note 14) Component Units Component Units Medical El Paso Medical El Paso Center First Foundation Eliminations Total Center First Foundation Eliminations Total Operating Revenues Net patient service revenue $ 155,398 $ - $ - $ - $ 155,398 $ 148,933 $ - $ - $ - $ 148,933 Premium revenue - 123, , , ,327 Medicaid Supplemental Program revenue 70, ,380 73, ,589 Net contract revenues 23, ,393 13, ,700 Other revenue 25,929 1,309 3,978 (10,419) 20,797 27,906 1,222 2,403 (13,767) 17,764 Total operating revenues 275, ,239 3,978 (10,419) 393, , ,549 2,403 (13,767) 376,313 Operating Expenses Salaries and employee benefits 147, (409) 146, , (3,032) 139,715 Medical claims expense - 102, , , ,232 Purchased services 35,167 12, (8,469) 40,187 34,758 11, (8,711) 38,932 Professional fees 1, ,406 3, ,847 Supplies and other 80,480 4,051 1,767 (1,541) 84,757 79,151 3,998 3,603 (2,024) 84,728 Intergovernmental transfers 50, ,263 43, ,740 Depreciation 32, ,733 27, ,198 Total operating expenses 346, ,183 2,675 (10,419) 458, , ,969 4,521 (13,767) 439,392 Operating Income (Loss) (71,305) 5,056 1,303 - (64,946) (67,541) 6,580 (2,118) - (63,079) Nonoperating Revenues (Expenses) Investment return (58) Interest expense (11,342) (11,284) (8,268) (8,268) County appropriation - property taxes, net 73, ,080 70, ,637 Tobacco settlement 1, ,392 1, ,322 Debt issuance costs (1,829) (1,829) Miscellaneous - other 4, ,514 2, ,489 Total nonoperating revenues, net 65, ,083 66, ,333 Capital Distributions (12,825) - 12,825 - Changes in Net Position (5,516) 5,140 1,513-1,137 (1,424) (6,180) (1,967) 12,825 3,254 Net Position, Beginning of Year, Restated (Note 14 ) 229,128 30,526 3,897 (12,825) 250,726 Cumulative Effect of Change in Accounting Principle (2,982) (2,982) Net Position, Beginning of Year, As Restated 224,722 24,346 1, , ,146 30,526 3,897 (12,825) 247,744 Net Position, End of Year $ 219,206 $ 29,486 $ 3,443 $ - $ 252,135 $ 224,722 $ 24,346 $ 1,930 $ - $ 250,998 See Notes to Financial Statements 20

24 Statements of Cash Flows Years Ended 2012 (Restated Note 14 ) Operating Activities Receipts from and on behalf of patients $ 143,654 $ 139,006 Payments to suppliers and contractors (152,114) (144,234) Payments to employees (145,437) (141,607) Cash received from contract revenues and other operating activities 21,217 18,450 Cash received from uncompensated care related activities 50,242 64,095 Net cash used in operating activities (82,438) (64,290) Noncapital Financing Activities County appropriations supporting operations 62,803 59,442 Cash received from tobacco settlement 1,392 1,322 Capital distribution from the Health Plan - 12,825 Other cash received 1,475 1,360 Net cash provided by noncapital financing activities 65,670 74,949 Capital and Related Financing Activities Payment of financing costs (1,829) - Proceeds from issuance of bonds payable 279,931 - Principal paid on bonds payable (132,321) (4,835) Interest paid on bonds payable (11,119) (12,138) County appropriations to acquire or retire debt for acquisitions of capital assets 9,906 11,154 Purchase of capital assets (18,475) (61,199) Net cash provided by (used in) capital and related financing activities 126,093 (67,018) Investing Activities Payments received from El Paso Children s 23,503 4,950 Funding to El Paso Children s - (19,570) Interest on investments Purchase of investments (148,026) - Proceeds from disposition of investments - 22,711 Payments to Health Plan under line of credit (17,000) - Advances from Health Plan under line of credit 16,000 17,000 Net cash provided by (used in) investing activities (125,353) 25,178 Decrease in Cash and Cash Equivalents (16,028) (31,181) Cash and Cash Equivalents, Beginning of Year 61,418 92,599 Cash and Cash Equivalents, End of Year $ 45,390 $ 61,418 See Notes to Financial Statements 21

25 Statements of Cash Flows (Continued) Years Ended Supplemental Cash Flows Information 2012 (Restated Note 14 ) Capital assets acquisition included in accounts payable located in payables to suppliers and contractors $ 2,125 $ 6,229 Equipment provided to El Paso Children s $ - $ 1,457 Reconciliation of Cash and Cash Equivalents to the Balance Sheets Cash and cash equivalents in current assets $ 37,827 $ 48,775 Cash and cash equivalents in current portion of cash and investments held for self-funded insurance reserves 1,685 1,936 Cash and cash equivalents in noncurrent cash and investments 5,878 10,707 Total cash and cash equivalents $ 45,390 $ 61,418 Reconciliation of Operating Loss to Net Cash Used in Operating Activities Operating loss $ (71,305) $ (67,541) Depreciation 32,015 27,426 Provision for uncollectible accounts 114, ,832 Changes in operating assets and liabilities Patient accounts receivable, net (125,023) (138,447) Estimated third party payer settlements (805) (1,312) Accounts payable and accrued expenses 12,907 8,860 Other assets and liabilities (44,311) (23,108) Net cash used in operating activities $ (82,438) $ (64,290) See Notes to Financial Statements 22

26 Notes to Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Reporting Entity The El Paso County Hospital District (the Medical Center) is a component unit of El Paso County, Texas (the County). The Commissioner s Court of the County appoints the Medical Center s governing body (the Board of Managers ) and approves the Medical Center s budget, tax rate and issuance of bonded debt. The Medical Center is charged with the legal responsibility to provide medical and hospital care to all County residents regardless of their ability to pay based upon Board approved eligibility guidelines. The accompanying financial statements present the Medical Center and its component units, entities for which the Medical Center is considered to be financially accountable. Blended component units are, in substance, part of the primary government s operations, even though they are legally separate entities. Thus, blended units are appropriately presented as funds of the primary government. Discretely presented component units are reported in a separate column in the financial statements to emphasize that they are legally separate from the government. Blended component unit. The Medical Center is the sole corporate member of Thomason Cares, Inc. (Thomason Cares). Thomason Cares was incorporated as a Texas not-for-profit corporation and has been certified under the Medical Practices Act of Texas as Section 501(a) not-for-profit health organizations. Thomason Cares operates as a physician group practice of primary care physicians. It primarily employs physicians for the Medical Center s outpatient clinics. Thomason Cares does not issue separate financial statements. Discretely presented component units. The Medical Center is the sole corporate member of El Paso First HealthPlans, Inc. (the Health Plan). The Health Plan is organized as a health maintenance organization (HMO) licensed only in Texas, to provide prepaid health coverage to employees and dependents of various organizations in its service area. The Health Plan has agreements with health care providers in its service area to provide health care to its members. Payments under these agreements include predetermined, prepaid periodic fee and prospectively determined rates and discounts from established charges. The Health Plan has a Certificate of Authority from the Texas Department of Insurance (TDI) and commenced insurance operations in October The Health Plan is reported as a discretely presented component unit of the Medical Center since the Health Plan s Board of Directors is appointed by the Medical Center s Board of Managers and the Medical Center can impose its will on the Health Plan. Separately issued financial reports are available for the Health Plan and may be obtained by contacting El Paso First Health Plans, Inc Westmoreland, El Paso, Texas

27 Notes to Financial Statements The Medical Center is the sole corporate member of the University Medical Center Foundation of El Paso (the Foundation). The Foundation is a designated Section 501(c)(3) charitable organization for the Medical Center and El Paso Children s Hospital (El Paso Children s). The Foundation s purpose is to provide support for the Medical Center and El Paso Children s in fulfilling their vital mission of providing patient care, education of health care professionals, research and community service for the County. The Foundation is reported as a discretely presented component unit of the Medical Center since the Foundation s Board of Directors is appointed by the Medical Center s Board of Managers and the Medical Center can impose its will on the Foundation. Separately issued financial reports are available for the Foundation and may be obtained by contacting the El Paso County Hospital District, Fiscal Services, Office, 4815 Alameda Avenue, El Paso, Texas In 2013, the Medical Center implemented Governmental Accounting Standards Board (GASB) Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34, which became effective for reporting periods beginning after June 15, As a result, the Medical Center reported the Foundation and the Health Plan as discretely presented component units in the financial statements for the years ended. Previously, the Health Plan and the Foundation were presented in the Medical Center s financial statements as blended component units. See Note 14. Unless otherwise noted, the following notes do not include the Health Plan or the Foundation. Basis of Accounting and Presentation The financial statements of the Medical Center have been prepared on the accrual basis of accounting using the economic resources measurement focus. Revenues, expenses, gains, losses, assets and liabilities from exchange and exchange-like transactions are recognized when the exchange transaction takes place, while those from government-mandated nonexchange transactions (principally federal and state grants and county appropriations) are recognized when all applicable eligibility requirements are met. Operating revenues and expenses include exchange transactions and program-specific, government-mandated nonexchange transactions. Governmentmandated nonexchange transactions that are not program specific (such as county or state appropriations), investment income and interest on capital assets-related debt are included in nonoperating revenues and expenses. The Medical Center first applies restricted net position when an expense or outlay is incurred for purposes for which both restricted and unrestricted net position are available. 24

28 Notes to Financial Statements Use of 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Medical Center considers all liquid investments with original maturities of three months or less to be cash equivalents. At, cash equivalents consisted primarily of money market funds. Authorized Investments The Medical Center s Board of Managers has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act (Section 2256, Texas Government Code). Under the Public Funds Investment Act, the Medical Center is authorized to make investments in (1) obligations of the United States or its agencies, (2) direct obligations of the state of Texas or its agencies, (3) obligations of political subdivisions rated not less than A by a national investment rating firm, (4) certificates of deposit and (5) other instruments and obligations authorized by statute. For the fiscal years ended, management of the Medical Center believes that it has complied with the provisions of the Public Funds Investment Act and the Medical Center s investment policies. County Appropriations Property Taxes The Medical Center received approximately 21% of its support from County appropriations funded by property taxes in both 2013 and These funds were used as follows: Percentage used to support operations 86.4% 84.2% Percentage used for debt service on bonds 13.6% 15.8% Total 100.0% 100.0% 25