UTILIZATION AND PAYOR MIX Quarter Ended September 30 Year Ended September 30 2010 2011 2010 2011 Hospital Licensed Beds Average Staffed Beds Average Daily Census Average % Occupancy 284 70% 257 63% 285 70% 273 67% Discharges Average Length of Stay Patient Days 6,532 4.0 26,083 5,712 4.1 23,671 25,721 4.0 103,924 24,286 4.1 99,495 Medicare Case-Mix Index Total Case-Mix Index 1.4871 1.3130 1.5820 1.3847 1.5217 1.3343 1.5396 1.3584 Adjusted Case Mix Weighted Discharges 14,767 15,613 59,089 60,323 Surgeries Inpatient surgeries Outpatient Surgeries (Note 1) Total Surgeries 1,443 2,924 4,367 1,233 2,876 4,109 5,718 11,812 17,530 6,191 12,399 18,590 Emergency Department Visits 18,807 18,902 74,326 73,349 Outpatient Discharge Equivalents 6,191 5,530 18,564 20,121 Outpatient Registrations 78,959 88,543 318,705 334,355 Hospital Payor Mix (Based on Gross Revenue) Medicare Managed Care Medicaid Commercial Insurance Self Pay and Other 49.6% 39.0 5.8.8 4.8 100% 49.1% 39.4 6.6 1.0 3.9 100% Note 1: Outpatient surgical procedures at Hospital and DSC
CONSOLIDATED HISTORICAL CAPITALIZATION AND INVESTMENT POSITION The table below sets forth the consolidated capitalization and investment position of Northwest Community Healthcare and all its subsidiaries as of September 30, 2009, 2010, and 2011. Northwest Community Hospital Foundation, Northwest Community Health Services, Inc., NCH Casualty Insurance SPC, Ltd., and NPC-CyberKnife, LLC, which are not Obligated Group members, are included in the following table, and account for approximately 2% of consolidated net assets. The table also shows the historical ratios of long-term debt (net of current portion) to total capitalization, which is defined as long-term debt plus unrestricted net assets, ratios of unrestricted cash and investments to long-term obligations and days cash on hand. September 30, 2009 September 30, 2010 September 30, 2011 Unrestricted Cash and Investments: Cash, Investments & Board Designated Funds (1) $398,858,487 $361,232,890 $347,537,648 Total Unrestricted Cash and Investments $398,858,487 $361,232,890 347,537,648 Long-Term Obligations (net of current maturities): Series 2008 A Bonds Series 2008 B/C Bonds Series 2002B Bonds Capital Lease Obligation $153,380,000 81,000,000 54,400,000 -- $151,940,000 78,265,000 53,100,000 1,154,478 $150,415,000 75,500,000 51,700,000 903,181 Total Long-Term Obligations (net of current maturities) $288,780,000 $284,459,478 $278,518,181 Unrestricted Net Assets $454,506,651 $451,633,523 $408,812,196 Total Capitalization $743,286,651 $736,093,001 $687,330,377 Ratio of Long-Term Obligations to Capitalization 38.9% 38.6% 40.5% Ratio of Unrestricted Cash and Investments to Long-Term Obligations 138% 127% 125% Days Cash on Hand 325 296 260 Note (1): Investments are carried at market value.
MANAGEMENT S DISCUSSION OF FINANCIAL & OPERATING PERFORMANCE Fiscal Year 2010 vs. Fiscal Year 2011 Utilization Trends The Hospital s discharges decreased by 6% from 2010 to 2011. The average length of stay increased slightly from 4.0 to 4.1 days while the overall case mix index increased from 1.3343 to 1.3584 from 2010 to 2011. Adjusted case mix weighted discharges, which take into account outpatient activity, increased 2% from 2010 to 2011. During 2011, outpatient registrations increased 5% reflecting the effectiveness of our physician alignment strategy. Emergency visits at the Hospital decreased 1% to 73,349 in 2011. The first phase of the Emergency Department expansion was completed in September 2009 with the opening of additional ED space on the first floor of the new patient care tower. Additional construction completed in August 2011 added an additional 13,000 square feet to the ED. Inpatient surgical procedures in the Hospital s 11-suite surgery center increased from 2010 to 2011 by 8%, while the outpatient procedures, including DSC, increased 5% over the same time frame. During 2011, Medicare charges decreased slightly to 49.1% of total charges. Additionally, Medicaid increased from 5.8% of charges in 2010 to 6.6% in 2011. Self-pay charges decreased from 4.8% in 2010 to 3.9% of 2011 charges. Financial Performance Total operating revenue increased by $52.0 million (11%) from 2010 to 2011. The new NCH Medical Group which was acquired by Health Services in September, 2010, accounts for $23 million of the net revenue growth. Total expenses increased by $51 million from 2010 to 2011. Salaries and benefits increased 9%, or $22 million, due primarily to recognizing one full year of salary and benefits in Health Services for the medical group. On December 31, 2009, the Hospital amended its defined-benefit retirement plan to eliminate all future benefit accruals, including participants credited service, final average earnings and final average compensation amounts used to calculate plan benefits. Depreciation and amortization expense increased by $7 million from 2010 to 2011 due to the new patient tower placed in service in May, 2010. Operating losses decreased from a 3.0% operating loss in 2010 to a 2.5% operating loss in 2011. Operating EBIDA (earnings before interest, depreciation and amortization) was $29.4 million in 2010 and $40.5 million in 2011. Operating EBIDA margin was 6.3% and 7.8% in 2010 and 2011, respectively. Net nonoperating revenue was $19.6 million in 2010 compared to net nonoperating expense of $3.3 million in 2011. Included in 2010 results was investment income of $20.3 million.
During 2009, a new five year strategic and financial plan was adopted which included a goal of reducing operating expenses by $100 million over five years. Initiatives began in 2009 to accomplish this and include: freezing benefit accruals under the Corporation s defined-benefit pension plan as of December 31, 2009; a one-year salary freeze for all employees; reviews and elimination of certain non-essential programs; efforts to reduce length of stay; and supply procurement reviews. In 2011, these and other new initiatives resulted in additional net revenue of $9.2 million and cost reductions of $13.3 million. Balance Sheet The Corporation had consolidated unrestricted cash and investments of $347.5 million as of September 30, 2011. This amount represents a decrease of 3.8% from the prior year. Consolidated days cash on hand decreased from 296 days in 2010 to 260 days in 2011. The Obligated Group had 271 days cash on hand as of September 30, 2011. Capital expenditures were $35 million in 2011, down from $57.1 million in 2010. During the year, work was completed on the Hospital s new emergency department which opened in August, 2011. Physician Alignment Strategy With various issues (shift in payor mix, reduced volumes, etc.) negatively influencing operating performance, NCH made a change in its strategic direction during 2010. To better influence the entire spectrum of service delivery, methods to more closely align with physicians have been explored. As a result, NCH acquired a 32 member primary care physician group on September 1, 2010. This acquisition allows NCH a platform for future employed physician growth. By the end of 2011, there were 49 primary care physicians in the group including a hospitalist program. During 2011, the group s immediate care, imaging and physical therapy services became part of the Hospital s outpatient operations.
NORTHWEST COMMUNITY HEALTHCARE OBLIGATED GROUP HISTORICAL DEBT SERVICE COVERAGE RATIO FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2011 Income Available for Debt Service, as defined in MTI $49,432,077 Debt Service Requirements on Funded Indebtedness, as defined in MTI $13,911,172 Ratio of Line 1 to Line 2 3.55 Per Section 7.23 of Standby Bond Purchase Agreement, the Ratio of Line 1 to Line 2 shall not be less than 1.10
NORTHWEST COMMUNITY HEALTHCARE OBLIGATED GROUP CALCULATION OF UNRESTRICTED DAYS CASH ON HAND AS OF SEPTEMBER 30, 2011 Obligated Group Cash & Liquid Investments, as defined in Reimbursement Agreement $338,322,251 Obligated Group Total Operating Expenses $499,134,191 Less: Depreciation & Amortization ( 42,891,644) Operating Expenses $456,242,547 Divided By Days in Period 365 Expense Per Day $ 1,249,980 Days Cash on Hand 271
NORTHWEST COMMUNITY HEALTHCARE OBLIGATED GROUP DEBT TO CAPITALIZATION RATIO AS OF SEPTEMBER 30, 2011 Funded Indebtedness, as defined in MTI $277,615,000 Funded Indebtedness Plus Unrestricted Net Assets $706,191,223 Debt to Capitalization Ratio.39 Per Section 5.23 of the Reimbursement Agreement, ratio shall not be more than.65