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BOARD FINANCE COMMITTEE * WEDNESDAY, DECEMBER 2, 2015 4: Meeting Palomar Medical Center, 2185 Citracado Parkway, Escondido, CA Raymond Family...

  •  Analyze the financial performance and financial condition of Palomar Health.  
  • Provide recommendations to the board of directors about how Palomar Health can achieve is strategic objectives with financial success.

APA, Please reference to review 

Board Finance Committee Report (1).pdf

BOARD FINANCE COMMITTEE
* WEDNESDAY, DECEMBER 2, 2015
4:00 p.m. Meeting
∗ Palomar Medical Center, 2185 Citracado Parkway, Escondido, CA
Raymond Family Conference Center, 2nd Floor1 1 PLEASE TURN OFF CELL PHONES OR SET THEM TO SILENT MODE
UPON ENTERING THE MEETING ROOM
CALL TO ORDER ...................................................................................................................... Time Form A
Page
.............. ........... Target
4:00 Public Comments2 ................................................................................................................ ......... 15 ............ 4:15 Information Item(s) ........... 5 ............ 4:20 1. * Approval: Minutes – Wednesday, October 28, 2015 (ADD A-Pp5-9) ............................... ........... 2 .......... 2 4:22 2. * Approval: Summary of Executed, Budgeted, Routine Physician Agreements (ADD BPp10-21)................................................................................................................................ ........... 3 .......... 3 4:25 3. * Approval: October 2015 & YTD FY2016 Financial Report (ADD C-Pp22-37) ......... ......... 10 .......... 4 4:35 Public Comments2 ................................................................................................................ ......... 15 ............ 4:50 ADJOURNMENT ....................................................................................................................... ................ ............ 4:50 Board Finance Committee – Voting Members
Jerry Kaufman, PT MA, Director – Chair
Jeff Griffith, EMT-P, Director
Aeron Wickes, MD, Director
Bob Hemker, CEO
Jeff Rosenburg, MD, CoS PMC & PHDC
Paul Neustein, MD, CoS POM
Board Finance Committee – Alternate Voting Members
Board Alternate:
CoS Alternate – PMC & PHDC:
CoS Alternate POM:
Dara Czerwonka, MSW
Frank Martin, MD
Charles Callery, MD
Board Finance Committee – Non-Voting Members
Diane Hansen, EVP Finance
Frank Beirne, EVP Operations
Alan Conrad, MD, EVP Physician Alignment
Maria Sudak, CNO PMC
June Gower, CNO POM & PHDC NOTE: If you have a disability, please notify us 72 hours
prior to the event so that we may provide reasonable accommodations. ∗ Asterisks indicate anticipated action. Action is not limited to those designated items.
Maps with directions to the Palomar Medical Center and to the Raymond Family Conference Center are attached as Agenda
Pp i-iii
2
5 minutes allowed per speaker with a cumulative total of 15 minutes per group. For further details & policy, see Request for
Public Comment notices available in meeting room.
1 1 i ii iii Minutes
Finance Committee – Wednesday, October 28, 2015 TO: Board Finance Committee MEETING DATE: Wednesday, December 2, 2015 FROM: Tanya Howell, Secretary BY: Diane Hansen, EVP Finance Background: The minutes of the Board Finance Committee meeting held on
Wednesday, October 28, 2015, are respectfully submitted for approval (Addendum A). Budget Impact: N/A Staff Recommendation: Staff recommends approval of the Wednesday, October 28,
2015, Board Finance Committee minutes. Committee Questions: COMMITTEE RECOMMENDATION:
Motion:
Individual Action:
Information:
Required Time: Form A - Minutes.doc 2 Executed, Budgeted, Routine Physician Agreements
Board Summary Report
TO: Board Finance Committee MEETING DATE: Wednesday, December 2, 2015 BY: Diane Hansen, EVP Finance Background: The following Executed, Budgeted, Routine Physician Agreements became effective
during the months of August & October of 2015. The standard Form A and Abstract Table for each
agreement are included in Addendum B. PHYSICIAN TYPE OF AGREEMENT
AUGUST 2015 • Escondido OB/GYN Medical Group, Inc.,
dba North County Women’s Specialists Obstetrics & Gynecology On-Call Services Agreement –
PMC • Richard Just, MD Investigational Review Committee Chair Agreement
OCTOBER 2015 • Brian Le, MD • Erwin Omens, MD • X-Ray Medical Group Radiation
Oncology, Inc. Staff Recommendation: Emergency Ophthalmology Call Coverage Agreements –
POM
Radiation Oncology Agreement Approval COMMITTEE RECOMMENDATION:
Motion:
Individual Action:
Information:
Required Time: 3 October 2015 YTD FY2016 Financial Report
TO: Board Finance Committee MEETING DATE: Wednesday, December 2, 2015 FROM: Diane Hansen, EVP Finance Background:
The Board Financial Report (unaudited) for October 2015
and YTD FY2016 is submitted for the Finance Committee’s approval
(Addendum C). Budget Impact: N/A Staff Recommendation: Approval Committee Questions: COMMITTEE RECOMMENDATION:
Motion:
Individual Action:
Information:
Required Time: Form A - Financial Report.doc 4 $''(1'80$ 5 B
A
C O A R D
F I N A N C E C O M M I T T E E M E E T I N G
T T E N D A N C E
R O S T E R & M E E T I N G M I N U T E S
A L E N D A R
Y E A R 2 0 1 5 MEETING DATES:
1/28/15 2/25/15 3/25/15 4/22/15 5/27/15 6/24/15 7/29/15 P E P P P P P P P P E E P E E P P P P E E P P P P P P P E P P P E P P P P P E P P P PAUL NEUSTEIN, MD, COS POM E P P E E P E P E E E JEFF ROSENBURG, MD, COS PMC & PHDC
DARA CZERWONKA, MSW – BOARD ALTERNATE E P P P P P P P E P E E ALT GUEST ALT ALT MEMBERS
DIRECTOR JERRY KAUFMAN, PT MA – CHAIR E DIRECTOR JEFF GRIFFITH, EMT-P E DIRECTOR AERON W ICKES, MD
BOB HEMKER, PRESIDENT & CEO LINDA GREER, RN – 2 ND BOARD ALTERNATE 2/4/15 8/26/15 ALT 10/28/15 P
ALT ALT CHARLES CALLERY, MD, COS ALTERNATE POM ALT FRANK MARTIN, MD, COS ALTERNATE PMC/PHDC
STAFF ATTENDEES ALT DIANE HANSEN, EVP FINANCE 9/30/15 P P P P P P P FRANK BEIRNE, EVP OPERATIONS P P P P P P P P P E P E ALAN CONRAD, MD, VP PHYSICIAN ALIGNMENT
JUNE GOWER, RN, PHD, INTERIM CNO PHDC & POM P E E E E CHERYL OLSON, INTERIM VP POM/PHDC P MARIA SUDAK, RN, INTERIM VP PMC/CNO PMC E E P P P E P E P P E TANYA HOWELL – SECRETARY P P P P P P P P P P P KIM COLONNELLI, RN, CNO PHDC & POM E P P E
P P JODI MANSFIELD, INTERIM EVP OPERATIONS
INVITED GUESTS P
P
P
P
P
SEE TEXT OF MINUTES FOR NAMES OF GUEST PRESENTERS 1 6 BOARD FINANCE COMMITTEE – MEETING MINUTES – WEDNESDAY, OCTOBER 28, 2015 1. AGENDA ITEM
• CONCLUSION/ACTION FOLLOW UP/RESPONSIBLE PARTY FINAL? DISCUSSION CALL TO ORDER
• nd The meeting – held in the Raymond Family Conference Center on the 2 Floor of Palomar Medical Center, 2185 Citracado Parkway, Escondido, CA – was called to order at
4:02 p.m. by Chair Jerry Kaufman, who reminded everyone to turn off or silence their cell phones

The agenda was posted at the District’s Administrative Offices, and the full agenda packet was posted on the Board Meetings page of the District’s web site on Wednesday,
October 21, 2015, which is consistent with legal requirements. Notice of posting was also made via email to the Board and staff members.
ESTABLISHMENT OF QUORUM

Quorum comprised of Directors Kaufman and Wickes, CEO Bob Hemker and PMC Chief of Staff Jeff Rosenburg; Director Czerwonka arrived after the votes on items 1 and 2
PUBLIC COMMENTS
• There were no public comments INFORMATION ITEM(S)
• None 1. MINUTES – WEDNESDAY, SEPTEMBER 30, 2015 • MOTION: By Mr. Hemker, seconded by Director Wickes and carried to approve the Minutes
from the Wednesday, September 30, 2015, meeting – 4-0 by the Committee, 2-0 by Board
members; Absent: 2 • Ms. Hansen pointed out that the template still bore the date Wednesday, August 26, 2015, in the minutes header, noting that
set of minutes
SUMMARY OF EXECUTED BUDGETED ROUTINE PHYSICIAN AGREEMENTS
MOTION: By Director Wickes, seconded by Mr.
Hemker and carried to recommend approval of the
executed budgeted routine physician agreements as
presented – 4-0 by the Committee, 2-0 by Board
members; Absent: 2
No discussion 3. SEPTEMBER 2015 & YTD FY2016 FINANCIAL REPORT 2. Y correction had already been made to the original
Forwarded to the November 9, 2015,
Board of Directors meeting with a
recommendation for approval Y MOTION: By Director Czerwonka, seconded by
Director Wickes and carried to recommend
approval of the September 2015 and YTD
FY2016 Financial Report as presented. 5-0 by
the Committee, 3-0 by Board members; Absent:
1 N
Forwarded to the November 9, 2015, Board of Directors
meeting with a recommendation for approval
• Additional information on the decrease in surgeries
will be provided by Ms. Hansen and Mr. Beirne at
next month’s meeting
• Ms. Hansen will review ER Visits and will provide the
Payor Mix for those cases at next month’s meeting
Utilizing an updated presentation, Ms. Hansen presented the financial report for September 2015 and YTD FY2016, noting that she had added a slide.
• FINANCIAL PERFORMANCE DASHBOARD (SLIDE 3)
• MONTH-TO-DATE
o Adjusted Discharges: 4,162 vs. a budget of 4,085, a positive variance of just slightly under 2%
o Acute Patient Days: 9,842 vs. a budget of 10,199, a negative variance of 3.5% This is consistent from last month to this, and it means that LOS as budgeted is lower than anticipated, which is good news as we move to value-based purchasing
o ADC: 328 vs. a budget of 340, a negative variance of 12
o Operating Income: $637K vs. a budget of $454K
o Net income: Net loss of $444K vs. a budgeted net loss of $729K, a positive variance of $285K Ms. Hansen commented that this was a good, solid financial performance for the month
• YEAR-TO-DATE
o Adjusted Discharges: 12,661 vs. a budget of 12,527, a positive variance of 1.07%
2 7 BOARD FINANCE COMMITTEE – MEETING MINUTES – WEDNESDAY, OCTOBER 28, 2015 1. AGENDA ITEM
• CONCLUSION/ACTION FOLLOW UP/RESPONSIBLE PARTY FINAL? DISCUSSION
o
o • • Acute Patient Days: 29,921 vs. a budget of 31,277, a negative variance of $1,356
ADC: 325 vs. a budget of 340 Reflective of the negative variance in patient days
o Operating Income: $1.79M vs. a budget of $1.52M, a favorable variance of $270K
o Net Income: Net loss of $2.025M vs. a budgeted net loss of $2.017M, a negative variance of 7,500 Much better than last year Shows that we are maintaining consistent performance
o Operating Expenses/Adjusted Discharges: $12.07K vs. a budget of $12.15, a slight positive variance of .65%
o EBIDA Margin %: 11.36 vs. a budget of 11.58%, a slight negative variance of .22%
o EBIDA Dollars: $18.9M vs. a budget of $19.3M, a negative variance of $329K
KEY VOLUMES (SLIDE ADDED AFTER PACKET DISTRIBUTION – ATTACHMENT 1)
o Ms. Hansen stated that she didn’t get all the indicators in for this month’s packet, as she will also be adding them for ALOS, Case Mix Index, Labor Productivity and DCOH
o Surgeries MTD: 1,626 vs a budget of 1,663 YTD: 4,944 vs. a budget of 5,023, a slight negative variance of 79 for the first quarter Some of the changes are based on the transition, as we lost some outpatient surgeries because the physicians took their cases elsewhere How can we make that up and how might it grow as we move to the new campus? Frank Beirne, EVP Operations, said that the variance could be attributable to something as simple as how we allocated the case count
(a) Indicated an interest in seeing the same period YTD to see if we are actually losing or growing, as well as breaking the surgeries down to inpatient and
outpatient
(b) Otherwise, there was nothing obvious that jumped out to explain the variance Mr. Beirne also indicated the variance might be attributable to something as simple as vacation time for one or more physicians Della Shaw, EVP Strategy, reminded the Committee that the service line leaders would be discussing trends in surgery at the Special Board meeting later this evening She indicated they would also be preparing a year-on-year review by doctor, which they will then doing on a monthly basis
o Deliveries MTD: 376 vs. a budget of 399 YTD: 1,206 vs a budget of 1,253, a negative variance of 47
o ER Visits MTD: 12,522 vs. a budget of 11,886 YTD: 36,700 vs. a budget of 35,729, a positive variance of 971 Last year ER Visits were about 15% higher than budgeted, and they are already almost 3% higher vs. budget again this year
o ALOS (not on slide) MTD: 3.94 vs. a budget of 4.03 YTD: 3.95 vs. a budget of 4.03. a negative variance of .08
o DCOH YTD at 109.4 Ms. Hansen forewarned the Committee that $23M had gone out in the month of October related to bond principle and interest payments The team will be working to build cash throughout the year About half that much will again go out in the month of April Ms. Hansen said it is probably too early to foreshadow the effect of ICD-10, as we are working with a new coding team, as well as working to get new staff
onboarded/oriented Case Mix is also unavailable as there are about 20 more charts that need to be coded before those numbers can be run
MTD INCOME STATEMENT (SLIDE 5)
o SWB: Favorable vs. budget by $92.3K We are doing good work in terms of productivity and managing to volume
o Benefits: Favorable vs. budget by $500K HR was able to negotiate a reduction in our group health insurance rate, which was budgeted higher than the new rate, so we should continue to see some favorability There was also some favorability in the pension benefit, but that should even out over the course of the year
3 8 BOARD FINANCE COMMITTEE – MEETING MINUTES – WEDNESDAY, OCTOBER 28, 2015
CONCLUSION/ACTION 1. AGENDA ITEM
• FOLLOW UP/RESPONSIBLE PARTY FINAL? DISCUSSION Additional savings have been budgeted in terms of benefits for the second half of the year
Supplies: Unfavorable vs. budget by $336K Driven primarily by implants, as implants comprised $250K of the variance Director Wickes stated that he thought the center for excellence initiative would drive the expense down and was reminded that revenue will also be up, but it isn’t
delineated separately on the income statement
o Pro Fees: Unfavorable vs. budget by $420K Largest thing driving that variance was a 3-month catch-up payment to a vendor in the amount of $132K The other driver is merely the timing of expenses Ms. Hansen anticipates pro fees to be okay by the end of the year
• YTD INCOME STATEMENT (SLIDE 6)
o Supplies: Negative variance vs. budget of $376K, driven entirely by the September variance
o SWB: Negative variance vs. budget of $1M $600-$800K of that variance is things that were budgeted but weren’t done due to the decision to close PHDC
o Depreciation: Positive variance of $699K, which will continue as we are holding on capital expenditures
o Net Income: Negative variance vs. budget of $7.4K
• INCOME STATEMENT: CURRENT VS. PRIOR YEAR (SLIDE 7)
o Total Net Revenue: Positive variance vs. prior year of $7.1M
o Net Income: Positive variance vs. prior year of $1.2M
o Strong improvement and performance over last year
• INCOME STATEMENT: MONTHLY TREND (SLIDE 8)
o Net Income Before Operations shows a continued strong improvement for the year
• CASH FLOW STATEMENT (SLIDE 9)
o Will not be reviewed tonight, but if you have any questions, please reach out
o Director Wickes asked about the negative variance in Investment in Affiliates, as it seemed to go up considerably, and he wanted to know if it all went to Arch Ms. Hansen stated that, although a large portion of that amount is related to Arch, there are several other Joint Ventures in which we participate that contributed to that
variance
• PAYOR MIX (SLIDE 12)
o Ms. Hansen stated that there wasn’t anything too significant, with variances of 1% or 2% between payors from August and/or prior year average
• Ms. Hansen then turned the floor back over to Chair Jerry Kaufman, who stated that he will be working with Ms. Hansen to develop an educational session for the Board on the
basics of hospital financing, to likely be presented before a regular Board meeting in the near future
o Ms. Hansen asked the Board members to let her know if there were specific things about which they would like more information, as she wants to be sure she provides
everything they need in the curriculum
PUBLIC COMMENTS
o • There were no public comments ADJOURNMENT The meeting was adjourned at 4:26 p.m.
COMMITTEE CHAIR
JERRY KAUFMAN, PT MA SIGNATURES:
COMMITTEE SECRETARY TANYA HOWELL 4 9 $''(1'80% 10 Obstetrics and Gynecology On-Call Service Agreement for
Palomar Medical Center
TO: Board Finance Committee MEETING DATE: Wednesday, December 2, 2015 FROM: Frank T. Beirne, Executive Vice President Operations
Palomar Health Background:
Palomar
Health
Downtown
Campus
provides
a
comprehensive twenty-four (24) hour Obstetric and Gynecologic inpatient care
unit. In connection with the operation of the unit and the fact that Palomar
Medical Center does not provide Obstetric and Gynecological inpatient care, the
hospital must arrange for qualified physicians to be available seven (7) days per
week, twenty-four (24) hours a day, to accept, assess, appropriately treat and
transfer as necessary to Palomar Health Downtown Campus, Obstetric and
Gynecologic patients presenting at Palomar Medical Center. The Medical Group
shall provide physician coverage within thirty (30) minutes of call received from
Palomar Medical Center, seven (7) days per week, twenty-four (24) hours per
day for unassigned OB/GYN patients presenting at Palomar Medical Center. This
shall include providing assistance to the Medical Staff and Hospital staff in the
emergent management of their OB/GYN patients. This amendment will extend
existing agreement for one additional year or until transition of services is
complete.
Budget Impact: Budgeted Staff Recommendation: Approval Committee Questions:
COMMITTEE RECOMMENDATION:
Motion:
Individual Action:
Information:
Required Time: Form A - OB-GYN On-Call - Amendment #1 8-18-15.doc 11 PALOMAR HEALTH – AGREEMENT ABSTRACT
Section
Reference Term/Condition Recitals TITLE Recitals AGREEMENT DATE Recitals PARTIES Recitals
B-E PURPOSE Agreement
1.1 SCOPE OF
SERVICES Agreement
4.1
Agreement
4.1 PROCUREMENT
METHOD
TERM
RENEWAL Term/Condition Criteria
Obstetrics and Gynecology on-call Service Agreement for
Palomar Medical Center
Original: August 20, 2012
Extension: August 19, 2015
Palomar Health and Escondido OB-GYN Medical Group, Inc. dba
North County Women’s Specialists.
Palomar Health operates an Obstetrics and Gynecology Unit at
Palomar Health Downtown Campus that provides comprehensive,
twenty-four (24) hour Obstetric and Gynecologic inpatient care
(“Unit”).In connection with the operation of the Unit and the fact that
Palomar Medical Center does not provide Obstetric and
Gynecological inpatient care, Hospital must arrange for qualified
physicians to be available seven (7) days per week, twenty-four
hours (24) a day, to accept, assess, appropriately treat and transfer
as necessary to Palomar Health Downtown Campus, Obstetric and
Gynecologic patients presenting at Palomar Medical Center.
Palomar Medical Center consists of facilities and equipment owned
by Hospital and staffed by Hospital employees in house. Hospital
and Medical Group acknowledge and agree that this Agreement shall
supersede the agreements, if any, previously entered into by the
parties for the provision of On-Call Obstetrics and Gynecology
Services (“Services”).It is the intent of both Hospital and Medical
Group that the terms and conditions of this Agreement, and the
manner in which services are to be performed hereunder, fulfill and
comply with all requirements of any applicable “safe harbor” or
exception to the Stark and Anti-Kickback Statute laws and
regulations, including, but in no way limited to, the applicable
requirements set forth in regulations promulgated by the Department
of Health and Human Services, Office of Inspector General, and the
Ethics in Patient Referral Act.
The Medical Group will provide on-call physician coverage within
Thirty (30) minutes of call received from Palomar Medical Center,
seven (7) days per week, twenty-four (24) hours per day for
unassigned OB/GYN patients presenting at Palomar Medical Center.
This shall include providing assistance to the Medical Staff and
Hospital staff in the emergent management of their OB/GYN
patients. Request For Proposal Discretionary August 19, 2012 until August 18, 2015. This extension will roll over
for one year or until transition of services from PHDC is complete.
a) The contract may be extended for two (2) separate one (1) year
terms based on consistency of meeting performance indicator as
listed in Exhibit E
i) First renewal as of August 19, 2015 12 Agreement
4.2.1.1 6.26 TERMINATION Either party may terminate this agreement, without cause or penalty,
by giving no less than ninety (90) days’ prior written notice to the other
party. COMPENSATION
METHODOLOGY Fair Market value assessment of the agreement by independent
human resources consulting firm. BUDGETED YES NO – IMPACT: EXCLUSIVITY NO JUSTIFICATION To provide on–call OB-GYN coverage seven (7) days a week,
Twenty-four (24) hours a day for unassigned OB/GYN patients
presenting at Palomar Medical Center. AGREEMENT
NOTICED YES NO ALTERNATIVES/
IMPACT Palomar Medical Center does not provide OB/GYN inpatient care, the
hospital must arrange for qualified physician on-call coverage. Duties Provision for Staff Education Provision for Medical Staff Education Provision for participation in Quality Improvement Provision for participation in budget process development YES – EXPLAIN: Methodology & Response: COMMENTS
APPROVALS
REQUIRED VP CFO CEO BOD Committee BOD 13 Palomar Medical Center
Administrative Services Agreements
Investigational Review Committee Chair TO: Board Finance Committee MEETING DATE: Wednesday, December 2, 2015 FROM: Maria Sudak, Vice President
Palomar Medical Center Background:
The Chair of the Investigational Review Committee is
provided a stipend for services performed. This agreement serves to document
the relationship of the Investigational Review Committee Chair to Palomar Health
and the Medical Staff. It also details the duties to be performed as consideration
for the stipend to assure compliance with federal regulations. Dr. Just has
served as the Chair of the IRB and this amendment reflects a continuance of his
services.
Budget Impact: $12,000
Staff Recommendation: Approval Committee Questions: COMMITTEE RECOMMENDATION:
Motion:
Individual Action:
Information:
Required Time: Form A - Just_ Richard G_ M.D. - Amendment 2 to 7-1-12 Committee Chair Agreement - 7-114.doc 14 PALOMAR HEALTH - AGREEMENT ABSTRACT
Section
Reference
Term/Condition
Term/Condition Criteria
TITLE
Preamble
Medical Staff Investigational Review Committee Chair Agreement
AGREEMENT DATE
Preamble
August 31, 2015
Recital PARTIES 1) Richard G. Just, M.D. Section 2 SCOPE OF SERVICES 1) As per duties defined in Medical Staff By-laws and policies Request For Proposal Section 4 PROCUREMENT
METHOD
TERM Section 4 RENEWAL Effective August 31, 2015 thru August 31, 2016 with automatic
Roll-over after initial term.
None Section 5 TERMINATION 1) As described under section 5 Section
3.1 COMPENSATION
METHODOLOGY This amendment will reflect an increase in monthly
compensation in order to fall within fair market value. BUDGETED YES NO – IMPACT: EXCLUSIVITY NO JUSTIFICATION These positions are elected or appointed by the Medical Staff in
accordance with Medical Staff by-laws. YES NO
Methodology & Response: AGREEMENT NOTICED Discretionary YES – EXPLAIN: Specialty Physician Elected/appointed by the Palomar Medical Center Medical Staff
ALTERNATIVES/IMPACT N/A
Duties Defined by the Medical Staff COMMENTS This agreement template was developed by legal counsel. This
position is voted upon by Active members of the Medical Staff. APPROVALS REQUIRED VP CFO CEO BOD Committee ____________ BOD 15 POMERADO
HOSPITAL
InInsert Subject
Here
EMERGENCY ON-CALL AGREEMENT
BRIAN LE, M.D.
TO: Board Finance Committee MEETING DATE: Wednesday, December 2, 2015 FROM:
. Cheryl Olson, RN, MS, NEA-BC
Interim Vice President, Pomerado and PHDC BACKGROUND:
This contract represents the On-Call Agreement with Brian Le, MD. Physician shall
serve as a member of the On-Call Panel on a rotating basis and provide On-Call
Coverage for the specialty of Ophthalmology in accordance with the Hospital bylaws,
rules and regulations, policies and procedures of Palomar Health.
BUDGET IMPACT: None STAFF RECOMMENDATION: Approval COMMITTEE QUESTIONS: COMMITTEE RECOMMENDATION:
Motion:
Individual Action:
Information:
Required Time:
Form A - Le, Brian- ED On-Call Agreement- 2015.doc 16 PALOMAR POMERADO HEALTH - AGREEMENT ABSTRACT
Section
Reference Term/Condition
TITLE Term/Condition Criteria
Emergency On-Call Agreement AGREEMENT DATE December 1, 2015 PARTIES 1) Pomerado Hospital
2) Brian Le, M.D. Recitals E PURPOSE To serve on the On-Call Panel as required by the medical staff
bylaws, and rules and regulations, of Pomerado Hospital. Exhibit A SCOPE OF SERVICES To provide On-Call coverage pursuant to the On-Call Agreement
for the specialty of Ophthalmology at Pomerado Hospital. Request For Proposal 5 PROCUREMENT
METHOD
TERM N/A RENEWAL None 6 TERMINATION 1. Immediate for cause
2. Not less than 90 days of written notice without cause 2 COMPENSATION
METHODOLOGY Monthly payment on or before the 15th of the month with
supporting documentation. BUDGETED YES NO – IMPACT: EXCLUSIVITY NO JUSTIFICATION Need f...

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FY14budgetpresentationFina (4)l.pdf

Palomar Health
Operating and Capital Budgets
Fiscal Year 2014
Presentation to
Board of Directors
June 24, 2013 1 FY2014 Budget Drivers
• Strategic Initiatives
• 10-Year Financial and Capital Plan Guidelines
• Strategic Growth Opportunities
• Expense Management
• Focus on Compensation and Benefits
• Outsourcing / Insourcing Solutions
• Governmental Payor Changes – Sequestration, ValueBased Purchasing, MediCal Reimbursement – Acute and
Skilled Services
2 FY2014 Operating Budget Recap
Key Volume Indicators
Palomar
Palomar
Health North
Health South
Change
%
Change % Consolidated
Change
% INPATIENT
Discharges
Acute
SNF - SubAcute 2,606 11.8%
(297) (63.1% ) (331)
(53) (5.3% )
(8.1% ) 2,275
8.0%
(350) (31.1% ) Patient Days
Acute
SNF - SubAcute 7,703
8.2%
(21,517) (73.3% ) (2,588)
539 (9.8% )
1.2% 5,115
4.2%
(20,978) (28.9% ) (0.14) (3.3% )
(17.34) (27.8% ) (0.20)
6.72 (4.7% )
10.2% (0.15) (3.5% )
2.04
3.2% Avg Length Of Stay
Acute
SNF
Deliveries 767 23.8% (6) (.5% ) 762 17.2% Inpatient Surgeries 360 6.0% (10) (.6% ) 350 4.6% Change = FY2013 (Dec 2012 through Mar 2013 annualized) vs. FY2014 Budget 3 FY2014 Operating Budget Recap
Key Volume Indicators
Palomar
Palomar
Health North
Health South
%
Change
%
Change Consolidated
Change % OUTPATIENT
ER Visits
O/P Registrations
O/P Surgeries
Home Health Visits 12,464 14.8% (527) (2.0% ) 11,937 10.7% 3,765 7.2% 6,614 16.5% 10,379 11.2% 235 5.0% 809 27.4% 1,044 13.7% 1,038 2.3% 0 0.0% 1,038 2.3% Change = FY2013 (Dec 2012 through Mar 2013 annualized) vs. FY2014 Budget 4 FY2014 Payor Mix by Gross Revenue
CMS
4.2% Ins
1.1% Work Comp
0.8% Self-Pay
5.5% Medicare
24.9% Mgd Care
Cap
1.9% Mgd Care
30.9% 5 Sr HMO
11.7%
Medi-Cal
13.2% Sr Cap
5.8% FY2014 Key Revenue
Assumptions/Considerations
Rates
– Inpatient and Outpatient – 8% Overall Increase
– Commercial Contracts / 3rd Party Reimbursement reflect
market
– Medicare and MediCal reflect non-negotiated mandated
reductions
– At-Risk Capitation Contracting – continuing current
relationships
– Bad Debt/Uncompensated Care 5.22%
• FY2013, and FY2012, were 4.7%, 4.8% respectively 6 Key Inflationary
Assumptions/Considerations
FY2014
Budget FY2013
Budget 1.0%
0.5%
0.0%
0.5%
0.5%
3.0%
0.0% 1.0%
0.5%
0.0%
0.5%
0.5%
3.0%
0.0% Supplies:
Pharmaceuticals
Prosthesis (Non-tech Price Changes)
Surgical Instruments
Surgical Supplies
Other Medical
Food Other
Minor Equipment/Instruments 7 Compensation and Benefits
Key Assumptions/Considerations
• •



• 8 Overall salary, wage and registry costs are $13.9 million (or 4.7%)
lower than FY2013 (including $7.5 million reduction to registry
usage) resulting from:
– Reduction in Force, improved efficiencies, premium pay
management and other labor initiatives
– Merit increases and labor contract changes that account for a
$6.4 million reinvestment in our employees
Benefits expenses are $5.8 million lower than FY2013
Total Productive FTE’s are 3,126 compared to 3,227 in FY2013
Adherence to Productivity Labor Standards
Adherence to Nurse Staffing Ratios
Reduction in Force: 155 Productive FTE’s Recap of
Salaries and Wages
Palomar Health
Consolidated
FY 2013 Base Salary Expense (1) $ (1) FY 2013 Registry Expense
Increase / (Decrease) due to:
Labor Contracts and Merit Adjustments
Volume, Labor Std Adj's and Reductions in Staff 6,447,221
(20,363,373) Total Salary and Registry Expense FY 2014 282,228,553 Estimated Salary and Registry Expense FY 2013
(Increase) / Decrease FY13 To FY14
% (Increase) / Decrease FY13 To FY14
(1) Based on Dec 2012 through March 2013 annualized 9 283,686,566
12,458,139 (1) 296,144,705
$ 13,916,152
4.70% Recap of Productive FTE’s by Service
Palomar
Health North Palomar
Health
South Central Outreach Productive FTE's by Service Type: Total 753.45
723.95
390.74
107.66
54.00 316.89
223.15
115.81
33.03
22.97 67.81
132.39
83.33 99.79
0.68
0.50
- 1,070.34
1,046.89
575.04
273.58
160.30 FY 2014 Budgeted Productive FTE's 2,029.80 711.85 283.53 100.97 3,126.15 Estimated Productive FTE's FY 2013 (YTD Pay Period
Ending May 4, 2013) 2,055.55 743.29 319.48 108.45 3,226.77 25.75 31.44 35.95 7.48 100.62 Daily Hospital Services (Nursing Units)
Ancillary Services
General / Support Services
Administrative Services
Fiscal Services (Increase) / Decrease FY13 To FY14
% (Increase) / Decrease FY13 To FY14 3.12% (Increases) / Decreases in FTE's Due to:
Volume Changes (173.00) 5.77 (27.84) 6.90 (188.17) Reduction in Force, elimination of transformation functions,
other changes in labor standards and miscellaneous labor
efficiencies (1) 198.75 25.75
(1) I.T. Outsource 51 FTE's, PCCC 83 FTE's, RIF 155 FTE's 10 25.67 31.44 63.79 35.95 0.58 7.48 288.79
100.62 Recap of Benefits
FY 2014
Budget FY13
Projected (1) Change
FY2014 vs.
FY2013 %
(Increase) /
Decrease Group Health Insurance 33,941,238 34,251,174 309,936 0.9% FICA 19,161,352 20,791,733 1,630,381 7.8% Pension 10,590,455 14,399,998 3,809,543 26.5% 3,080,350 3,180,987 100,637 3.2% 157,859 209,990 52,131 24.8% 1,262,305 1,170,276 (92,029) -7.9% 68,193,559 74,004,158 Workers Compensation
Group Life Insurance
Other Benefits Total Benefit Expense (1) Based on Dec 2012 through March 2013 annualized 11 5,810,599 7.9% Recap of Supplies
FY 2014
Budget FY 2013
Projected (1) Change 2014 vs.
2013 (Increase) / Variance Due
Decrease
to Rate Implants / Prosthesis 17,320,972 19,016,019 Surgical Supplies 13,717,826 13,475,523 (242,303) Pharmaceuticals 15,402,637 13,593,957 (1,808,680) Other Medical Supplies 15,769,279 15,876,357 107,078 Food 4,032,309 4,697,648 665,339 Office Supplies and Forms 1,689,704 1,324,146 (365,558) Minor Equipment 3,267,731 2,733,555 (534,176) Other Non-Medical Supplies 13,284,570 13,373,354 88,784 Total Supplies Expense 84,485,028 84,090,559 (394,469) (1) Based on Dec 2012 through March 2013 annualized 12 1,695,047 Variance Due
to Volume % Change 3,260,506 (1,565,459) 8.9% 867,045 (1,109,348) -1.8% (689,582) (1,119,098) -13.3% 1,414,070 (1,306,992) 0.7% 1,052,064 (386,725) 14.16% (256,550) (109,008) -27.61% (309,141) (225,035) -19.54% 1,189,721 (1,100,937) 0.66% 6,528,134 (6,922,603) -0.47% Recap of Professional Fees
FY 2014
Budget
ED Call / Trauma / Hospitalists / OB,
OB Anesthesia, Perinatology FY 2013
Projected (1) Change
FY2014 vs.
FY2013
(Increase) /
Decrease % Change 17,977,397 16,916,762 (1,060,635) -6.27% Other Physician Fees 8,272,197 7,122,054 (1,150,143) -16.15% Consulting Fees 5,628,580 3,421,029 (2,207,551) -64.53% (2) Legal Fees 660,632 (330,966) (991,598) -299.61% External Audit Fees 387,501 322,442 (65,059) -20.18% Other Professional Fees 2,645,185 2,058,422 (586,763) -28.51% Total Professional Fees 35,571,492 29,509,743 (6,061,749) -20.54% (1) Based on Dec 2012 through March 2013 annualized
(2) Includes one time FY2013 reversal of expenses 13 Recap of Purchased Services
FY 2014
Budget FY 2013
Projected (1) Change 2014 vs.
2013 (Increase) /
Decrease 5,204,138 6,189,369 Information Systems - Outsourcing, Hardware, and
Maintenance 27,306,531 20,241,125 (7,065,406) -34.91% Maintenance and Repair 13,101,383 7,887,287 (5,214,096) -66.11% Linen Services 2,487,368 2,935,591 Management Services 1,046,356 697,403 Other Purchased Services 14,632,480 14,836,247 Total Purchased Services 63,778,256 52,787,022 Medical Purchased Services (1) Based on Dec 2012 through March 2013 annualized 14 985,231 % Change
15.92% 448,223 15.27% (348,953) -50.04% 203,767
(10,991,234) 1.37%
-20.82% Recap of Other Direct Expense
FY 2014
Budget FY 2013
Projected (1) Change 2014
vs. 2013
(Increase) /
Decrease % Change Building and Equipment Rental 9,891,289 9,220,893 (670,396) -7.27% Utility Expense 8,583,728 7,234,793 (1,348,935) -18.65% Professional Liability / Insurance Expense 6,062,572 5,989,800 (72,772) -1.21% License / Tax 2,056,884 1,577,758 (479,126) -30.37% Telephone

1,232,098 1,347,523 115,425 8.57% 862,614 1,105,122 242,508 21.94% Advertising/Marketing 2,054,918 1,328,266 (726,652) -54.71% Other Direct Expense 6,494,712 3,941,372 (2,553,340) -64.78% 37,238,815 31,745,527 (5,493,288) -17.30% Outside Training / Tuition Reimbursement Total Other Direct Expense (1) Based on Dec 2012 through March 2013 annualized 15 Recap of Depreciation Expense
Total Palomar
Health
FY 2014 Budget
Depreciation on Current Assets 50,316,086 Amortization on Current Software Licensing Fees
Additional Depreciation on:
CIPs
FY 2014 Capital Budget 6,262,103
1,031,514
568,453 Total FY 2014 Budget 58,178,156 (1) Projected FY 2013
(Increase) / Decrease FY13 To FY14
% (Increase) / Decrease FY13 To FY14
(1) Based on Dec 2012 through March 2013 annualized 16 $ 61,042,053
2,863,897
4.69% FY2014 Budgeted Initiatives and
Strategies
Budgeted
Income
Benefit
4,000,000
- 2014 Budgeted Initiative Capitation Management Improvement Initiative
Pharmaceutical Expense Management Strategy
VHA Imperative Initiative
Information Systems Outsourcing and Strategy
Business Development Strategies - Volume Growth
Meaningful Use Achievement - Stage 2 2,000,000
1,800,000 Patient Throughput Initiative (LOS, Patient Status, Denials)
Palomar Continuing Care Center (Annualized $1 Million)
Mayo Clinic Affiliation - 1st Year
GRAND TOTAL 17 1,500,000
(9,034,633)
500,000
$ Budgeted
Expense
Reduction
3,170,000
2,000,000
4,000,000
9,738,919
(730,000) Net 2014
Budgeted
Benefit
4,000,000
3,170,000
2,000,000
4,000,000
2,000,000
1,800,000
1,500,000
704,286
(230,000) 765,367 $ 18,178,919 $ 18,944,286 FY 2013 Operating Budget Recap
($ In thousands) Revenue:
Gross Revenue
Net Revenue
Other Operating Revenue
Total Operating Revenue
Expenses:
Salaries, Wages, Registry, Benefits
Supplies
Depreciation
Other
Total Operating Expense Projected
FY13 (1) Projected
FY14 % Change
FY13 to FY14 2,012,928
508,722
12,994
$ 521,716 2,390,447
574,217
11,786
$
586,003 2,729,883
610,046
11,805
$ 621,851 14.20%
6.24%
0.16%
6.12% 309,260
76,250
21,323
101,163
507,996 362,104
82,287
57,388
114,884
616,663 282,228
84,485
58,178
204,783
629,674 22.06%
-2.67%
-1.38%
-78.25%
-2.11% $ $ Operating Income 13,720 (30,660) Non-Operating Income
Interest Expense
Property Tax Revenue
Income (Loss) 4,471
(2,942)
12,686
27,935 $
5.4%
6.7%
9.1%
10.0%
97,429 $
4.84% Net Margin %
OEBIDA Margin (Excl Property Tax Rev)
OEBIDA Margin (Incl Property Tax Rev)
EBIDA Margin
Total Uncompensated Care
Total Uncompensated Care as % of Gross 18 Results
FY12 (1) FY May YTD actual + June budget $ $ $ (7,823) -74.48% 3,934
(29,670)
13,300
(43,096) $ 3,226
(33,628)
13,300
(24,925) -18.00%
-13.34%
0.00%
42.16% -7.4%
4.6%
6.8%
7.5%
112,024 $
4.69% -4.0%
8.1%
10.2%
10.8%
142,576
5.22% FY 2013 Operating Budget Recap
($ In thousands)
FY 2009
Net Income from Ops
(Excluding Interest Expense)
Less:
Depreciation Expense
OEBIDA
OEBIDA Margin (Excl Property Tax Rev)
OEBIDA Margin (Incl Property Tax Rev)
EBIDA
EBIDA Margin
Total Uncompensated Care
Total Uncompensated Care as % of Gross
Note:
Net Income/(Loss) after Non-Op Income 19 FY 2010 FY 2011 Projected
FY 2012
FY 2013 Budgeted
FY 2014 $ 9,476 $ 17,035 $ 11,514 $ 13,720 $ (30,660) $
21,215 21,359 21,346 21,323 57,388 $ 30,692 $ 38,395 $ 32,861 $ 35,044 $ 26,728 $
6.9%
9.9% 8.2%
11.0% 6.7%
9.3% 6.7%
9.1% 4.6%
6.8% $ 48,772 $ 58,045 $ 56,119 $ 52,200 $ 43,962 $
10.9%
12.4%
11.5%
10.0%
7.5%
74,557
4.7% 82,012
4.9% 81,887
4.5% 97,429
4.9% 112,024
4.7% $ 11,477 $ 24,488 $ 30,968 $ 27,935 $ (43,096) $ (7,823)
58,178
50,356
8.1%
10.2%
66,881
10.8%
142,576
5.8% (24,925) FY2014 Operating Budget – Key Highlights
FY2012 Actual FY2013
Projected
(May YTD + June Budget) FY2014 Budget Change 276.3 101,124 39,973 302.0 110,230 43,567 344.7 125,824 47,501 42.7 15,594 3,934 Productive FTEs 2,836 3,227 3,126 (101.0) 3.1% Operating Expenses (w/o Depreciation & Interest) per Adjusted Discharge 12,175 12,837 12,031 (806) 6.3% Income Statement ‐ Summary:
Total Operating 521,716,000 586,003,000 621,851,000 35,848,000 6.1% Statistics:
Average Daily Acute Patient Days
Adjusted % Change
14.1%
14.1%
9.0% Total Operating 507,996,000 616,663,000 629,674,000 13,011,000 ‐2.1% Operating Income 13,720,000 (30,660,000) (7,823,000) 22,837,000 74.5% Net Income 27,935,000 (43,096,000) (24,925,000) 18,171,000 42.2% EBIDA 52,200,000 43,962,000 66,881,000 22,919,000 52.1% 309,260,000 362,104,000 350,423,000 (11,681,000) 3.2% Supplies 76,250,000 82,287,000 84,485,000 2,198,000 ‐2.7% Depreciation 21,323,000 57,388,000 58,178,000 790,000 ‐1.4% Other Expenses 101,163,000 114,884,000 136,588,000 21,704,000 ‐18.9% Interest Expense 2,942,000 29,670,000 33,628,000 3,958,000 ‐13.3% Expenses ‐ Detail:
Salaries, Wages, Registry & Benefits 20 FY2014 vs. FY2013 Projected Three-Year Capital Budget Summary
(in Millions)
FY 2014 Total Project
Spend FY 2015 FY 2016 10,000,000
5,000,000
5,000,000 10,000,000
5,000,000
5,000,000 10,000,000
5,000,000
5,000,000 30,000,000
15,000,000
15,000,000 20,000,000 $ 20,000,000 $ 20,000,000 $ 60,000,000 5,000,000 5,000,000 5,000,000 15,000,000 25,000,000 $ 25,000,000 $ 25,000,000 $ 75,000,000 Routine Capital:
Equipment
Facility
Information Technology
Total Routine Capital Requests $ Strategic Capital Reserve
Consolidated Capital Reserve $ Note: Reserved for planning purposes. Subject to available cash reserves 21

FYE2015 PH Audited Financial Statements(2).pdf

Palomar Health
Consolidated Financial Statements as of and
for the Years Ended June 30, 2015 and 2014,
and Independent Auditors’ Report PALOMAR HEALTH
TABLE OF CONTENTS Page
MANAGEMENT’S DISCUSSION AND ANALYSIS 1–10 INDEPENDENT AUDITORS’ REPORT 11–12 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
YEARS ENDED JUNE 30, 2015 AND 2014:
Statements of Net Position
Statements of Revenue, Expenses, and Changes in Net Position 13–14
15 Statements of Cash Flows 16–17 Notes to Consolidated Financial Statements 18–41 PALOMAR HEALTH
MANAGEMENT’S DISCUSSION AND ANALYSIS Overview
Palomar Health (PH) is a public health care district and is a political subdivision in the State of California (the
“State”) organized pursuant to Division 23 of the Health and Safety Code of the State.
This section of PH’s annual financial report presents management’s discussion and analysis of the financial
performance for the years ended June 30, 2015 and 2014. Although the 2013 condensed consolidated
statement of net position, the condensed consolidated statement of revenue, expenses, and changes in net
position, and the condensed consolidated statement of cash flows are presented in this section, they are not
presented in the accompanying consolidated financial statements and notes to the consolidated financial
statements. We encourage the reader to consider the information presented here in conjunction with the
consolidated financial statements as a whole that follow this section.
This annual financial report includes:
• Management’s Discussion and Analysis • Independent Auditors’ Report •
Consolidated financial statements of PH, including notes that explain in more detail some of the
information in the consolidated financial statements.
The consolidated financial statements of PH include the financial statements of Arch Health Partners, Inc.
(“Arch”). In accordance with Governmental Accounting Standards Board (GASB) Codification Section 2100,
The Financial Reporting Entity, for financial reporting purposes, PH’s reporting entity now includes Arch as
a blended component unit as a result of the fiscal dependency of Arch on PH. Accordingly, the change in
reporting entity has been applied retrospectively to include Arch as a blended component unit of PH for all
years presented. Additionally, as discussed in Note 1 to the consolidated financial statements, the deferred
rent liability was previously restated in the financial statements of Arch for the year ended June 30, 2013,
resulting in an adjustment to reduce net position by $1,963 as of June 30, 2013.
Required Financial Statements
Consolidated Statements of Net Position — The consolidated statements of net position include all of PH’s
assets and liabilities and provide information about the nature and amounts of investments in resources
(assets) and obligations to PH’s creditors (liabilities) and net position — the difference between assets and
liabilities — of PH and the changes in them. The consolidated statements of net position also provide the
basis for evaluating the capital structure of PH and assessing the liquidity and financial flexibility of PH. -1- CONDENSED CONSOLIDATED STATEMENTS OF NET POSITION
AS OF JUNE 30, 2015, 2014, AND 2013
($ in thousands)
2015 ASSETS
355,385
1,154,277
71,502 2014
(As Restated,
See Note 1) 2013
(As Restated,
See Note 1) $ $ Current assets
Capital assets—net
Noncurrent assets $ 314,047
1,208,784
70,017 299,103
1,265,756
77,234 TOTAL $ 1,581,164 $ 1,592,848 $ 1,642,093 $ $ $ LIABILITIES AND NET POSITION
Current liabilities
Workers’ compensation—net of current portion
Fair value of interest rate swap
Long-term debt—net of current portion
Total liabilities 137,148
699
28,664
1,136,411 110,960
744
26,528
1,131,405 115,966
1,068
26,343
1,123,398 1,302,922 1,269,637 1,266,775 11,151 10,749 9,344 1,314,073 1,280,386 1,276,119 Invested in capital assets—net of related debt 49,173 120,027 184,340 Restricted for repayment of debt 11,701 10,192 13,753 Restricted for capital acquisitions 10,363 11,485 13,167 345 1,844 329 195,509 168,914 154,385 267,091 312,462 365,974 $ 1,581,164 $ 1,592,848 $ 1,642,093 Deferred inflow of resources—Deferred revenue and
deferred rent liability
Total liabilities and deferred inflow of resources Restricted for other purposes
Unrestricted
Total net position
TOTAL -2- 2015: Analysis of the Consolidated Statements of Net Position
• Current assets increased by $41,338 or 13% in 2015, primarily due to increases in investments of $46,613
and net patient accounts receivable of $4,832. Investments increased by $46,613 because of $40,400
purchases of marketable securities and net patient accounts receivable increased by $4,832 mainly due to
a shift in payor mix as a result of an increase in patients qualifying for governmental programs and a shift
from traditional Medicare and Medi-Cal to managed care plans. These increases were offset by a decrease
in estimated third-party settlements — receivable for $6,482 due to settlement of prior year receivables. • Capital assets – net decreased by $54,507 or 5% primarily due to depreciation and amortization expense
of $52,537 and net disposals of $10,159, offset by purchases related to major building projects of $8,189.
Net disposals included sale of the Innovation property and Black Mountain property, which had a
combined net book value of $9,854. • Noncurrent assets increased by $1,485 or 2% primarily due to an increase of $1,098 of a loan receivable
from Palomar Health Foundation. • Current liabilities increased by $26,188 or 24% primarily due to an increase in the current portion of
long-term debt of $11,578, accrued compensation and related liabilities of $4,176, and other accrued
liabilities of $9,716. • Long-term liabilities increased by $7,097 or 1% primarily due to an increase in the negative fair value of
the interest rate swap of $2,136 and an increase in long-term debt of $5,006. • Net position decreased by $45,371 or 15% primarily due to loss from operations of $15,513 and interest
expense of $63,994, offset by property tax revenue of $32,033. 2014: Analysis of the Consolidated Statements of Net Position
• Current assets increased by $14,944 or 5% in 2014, primarily due to increases in cash of $27,621 and the
current portion of assets whose use is limited — G.O. Bonds of $1,377. These were offset by decreases in
investments of $5,728, estimated third-party settlements receivable of $2,243, and the current portion of
assets whose use is limited of $3,388. • Capital assets decreased by $56,972 or 5% primarily due to depreciation and amortization expense of
$58,382 and net disposals of $9,949, offset by purchases related to major building projects of $11,359. • Noncurrent assets decreased by $7,217 or 9% primarily due to a decrease in assets whose use is limited of
$6,985. • Current liabilities decreased by $5,006 or 4% primarily due to a decrease in the current portion of
long-term debt of $7,465, offset by an increase in estimated third-party settlements liability of $2,046,
other accrued liabilities of $902, the current portion of the G.O. Bonds of $574, and accrued
compensation and related liabilities of $290. • Long-term liabilities increased by $7,868 or 1% primarily as a result of the increase in G.O. Bonds of
$15,452 and the fair value of the interest rate swap of $185, which were offset by decreases in the
long-term debt of $7,445, and the long-term portion of workers’ compensation of $324. -3- • Net position decreased by $53,512 or 15% primarily due to loss from operations of $27,450, and the
interest expense of $64,870. The decrease is offset by property tax revenue of $29,868, investment
income of $1,942 and other nonoperating-net of $7,183. Consolidated Statements of Revenue, Expenses, and Changes in Net Position — All of PH’s revenue,
expenses, and changes in net position are included in the consolidated statements of revenue, expenses, and
changes in net position. The consolidated financial statements measure the success of PH’s operations during
the years presented and are used to determine if PH has successfully recovered all of its costs through its fees
and other sources of revenue. It also shows profitability and creditworthiness. Over time, increases or
decreases in PH’s net position are one indicator of PH’s financial health. -4- CONDENSED CONSOLIDATED STATEMENTS OF REVENUE,
EXPENSES, AND CHANGES IN NET POSITION
FOR THE YEARS ENDED JUNE 30, 2015, 2014, AND 2013
($ in thousands)
2015 OPERATING REVENUE:
Net patient service revenue
Net premium revenue
Other revenue 2014
2013
(As Restated, (As Restated,
See Note 1)
See Note 1) $ 619,636
52,846
17,205 $ 583,616
55,113
13,962 $ 579,516
61,310
16,710 689,687 652,691 657,536 OPERATING EXPENSES 705,200 680,141 695,241 LOSS FROM OPERATIONS (15,513) (27,450) (37,705) NONOPERATING INCOME (EXPENSE):
Investment income
Unrealized (loss) gain on interest rate swap
Interest expense
Property tax revenue—unrestricted
Property tax revenue—G.O. bonds
Other—net 1,834
(2,136)
(66,278)
14,303
17,730
4,689 1,942
(185)
(64,870)
13,451
16,417
7,183 1,571
14,032
(56,036)
12,914
15,799
2,831 (29,858) (26,062) (8,889) (45,371) (53,512) (46,594) Total operating revenue Total nonoperating expense—net
DEFICIENCY OF REVENUE OVER
EXPENSES
INTERFUND 695 DECREASE IN NET POSITION (45,371) (53,512) (45,899) NET POSITION—Beginning of year 312,462 365,974 411,873 $ 267,091 $ 312,462 $ 365,974 NET POSITION—End of year 2015: Analysis of the Consolidated Statement of Revenue, Expenses, and Changes in Net
Position
• In accordance with accounting principles generally accepted in the United States of America (also known
as GAAP or “generally accepted accounting principles”) for governmental health care providers, PH’s
consolidated statements of revenue, expenses, and changes in net position reflect that nonoperating
income (expenses) includes interest expense, which for nongovernmental hospitals is typically grouped as -5- an operating expense. While these Governmental Accounting Standards Board (GASB) requirements
make district hospitals conform to other governmental entities, such as colleges and universities, they may
be less comparable to nongovernment hospitals because the GASB requirements do not apply to them.
This must be a consideration if trying to compare PH to nonprofit and for-profit hospitals. Interest
expense was $66,278 in the year ended June 30, 2015, and $64,870 in the year ended June 30, 2014.
• Operating revenue is primarily generated through the treatment of patients (providing inpatient and
outpatient, ancillary, and other patient care service) as well as other affiliated revenue. Operating revenue
increased by $36,996 or 6% in the year ended June 30, 2015, primarily due to increases in net patient
service revenue of $36,020, a decrease in net premium revenue of $2,267, and an increase in other
revenue of $3,243. The increase in net patient service revenue is primarily due to revenue recognized
from various supplemental funding sources, including the Intergovernmental Transfer Program (“IGT”)
and Outpatient Supplemental Program of $14,640 in the year ended June 30, 2015. • Operating expenses are those expenses related to the treatment of patients, including overhead and
administration expenses. Operating expenses increased by $25,059 or 4% in the year ended June 30,
2015, primarily due to increase in salaries, wages, and benefits of $20,437 as a result of increased levels
of staffing, increase in purchased services of $5,598 as a result of an increase in information technology
services to support the Meaningful Use program, and increase in supplies of $6,731 offset by a decrease
in depreciation and amortization expense of $5,845. • Nonoperating expense — net increased by $3,796 or 15% in the year ended June 30, 2015, primarily due
to an increase in the unrealized loss on interest rate swap of $1,951 and an increase in interest expense of
$1,408. Nonoperating income includes PH’s share of unrestricted property tax revenues of $14,303,
collected by the County of San Diego, and restricted property tax revenue for repayment of G.O. Bonds of
$17,730. • As a result of the factors noted above, net position decreased by $45,371 for the year ended June 30,
2015. 2014: Analysis of the Consolidated Statement of Revenue, Expenses, and Changes in Net
Position
• In accordance with accounting principles generally accepted in the United States of America (also known
as GAAP or “generally accepted accounting principles”) for governmental health care providers, PH’s
consolidated statements of revenue, expenses, and changes in net position reflect that nonoperating
income (expenses) includes interest expense, which for nongovernmental hospitals is typically grouped as
an operating expense. While these GASB requirements make district hospitals conform to other
governmental entities, such as colleges and universities, they may be less comparable to nongovernment
hospitals because the GASB requirements do not apply to them. This must be a consideration if trying to
compare PH to nonprofit and for-profit hospitals. Interest expense was $64,870 in the year ended June 30,
2014, and $56,036 in the year ended June 30, 2013. • Operating revenue is primarily generated through the treatment of patients (providing inpatient and
outpatient, ancillary, and other patient care service) as well as other affiliated revenue. Operating revenue
decreased by $4,845 or 1% in the year ended June 30, 2014, due to increases in net patient service
revenue of $4,100, a decrease in net premium revenue of $6,197, and a decrease in other revenue of
$2,748. Increases in inpatient and outpatient ancillary revenue and negotiated increases in contracted
payer rates resulted in an increase in net charges during the year. The increase in net patient service
revenue is primarily due to revenue recognized from various supplemental funding sources, including the
IGT Program and Outpatient Supplemental Program totaling $9,303 in the year ended June 30, 2014. -6- • Operating expenses are those expenses related to the treatment of patients, including overhead and
administration expenses. Operating expenses decreased by $15,100 or 2% in the year ended June 30,
2014, primarily due to increases in supplies of $1,642, professional fees of $26,322 and depreciation and
amortization of $2,497. This was offset by decreases in purchased services of $29,507 and salaries,
wages, and benefits of $16,127 due to the closure of Palomar Continuing Care Center and the outsourcing
of the information technology services. • Nonoperating expense — net increased by $17,173 or 193% in the year ended June 30, 2014, primarily
due to an increase in the unrealized loss on interest rate swap of $14,217 and an increase in interest
expense of $8,834. Nonoperating income includes PH’s share of unrestricted property tax revenues of
$13,451, collected by the County of San Diego, and restricted property tax revenue for repayment of G.O.
Bonds of $16,417. • As a result of the factors noted above, net position decreased by $53,512 for the year ended June 30,
2014. Consolidated Statements of Cash Flows — The consolidated statements of cash flows report cash receipts,
cash payments, and net changes in cash resulting from operating, investing, and financing activities, which
provides answers to such questions as from where did cash come, for what was cash used, and what was the
change in the cash balance during the reporting year. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2015, 2014, AND 2013
($ in thousands)
2015 CASH FLOWS FROM:
Operating activities
Noncapital financing activities
Capital and related financing activities
Investing activities $ 54,046
16,649
(27,488)
(44,893) 2014
2013
(As Restated, (As Restated,
See Note 1)
See Note 1) $ 40,086
15,763
(45,545)
17,317 $ 9,628
12,185
(96,391)
87,008 NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,686) 27,621 12,430 CASH AND CASH EQUIVALENTS—
Beginning of year 46,969 19,348 6,918 CASH AND CASH EQUIVALENTS—
End of year $ 45,283 $ 46,969 $ 19,348 2015: Analysis of the Consolidated Statement of Cash Flows
• Operating activities cash inflow reflected an increase of $13,960 or 35% in the year ended June 30, 2015,
over the year ended June 30, 2014. This increase is mostly attributable to increases in cash collections of -7- patient accounts of $44,599, and other sources of $1,577 offset by increases in payments to employees of
$16,770 and increased payments to suppliers for $15,446.
• Net cash outflows from capital and related financing activities in 2015 were $27,488, primarily due to
interest payments of $45,122, and the payment of long-term debt of $3,767 offset by the receipt of
$17,730 of property taxes for debt service and $12,200 on proceeds from sale of fixed assets. • Investing activities net cash outflows were $44,893 in 2015. This is primarily due to cash outflows from
purchases of investments of $172,652, offset by cash inflow on proceeds from sale of investments of
$126,016. • The ending cash and cash equivalents of $45,283 reflect the checking account and overnight investment
balances held by PH. In addition, there were current investments of $140,516 at June 30, 2015. 2014: Analysis of the Consolidated Statement of Cash Flows
• Operating activities cash inflow reflected an increase of $30,458 or 316% in the year ended June 30,
2014, over the year ended June 30, 2013. This increase is mostly attributable to increases in cash
collections of patient accounts of $31,251 and decreases in payments to employees of $12,348 offset by
increased payments to suppliers for $6,447. • Net cash outflows from capital and related financing activities in 2014 were $45,545, primarily due to
interest payments of $45,561, and the payment of long-term debt of $18,414 offset by the receipt of
$16,417 of property taxes for debt service. • Investing activities net cash inflows were $17,317 in 2014. This is primarily due to cash outflows from
purchases of investments of $145,199, offset by cash inflow on proceeds from sale of investments of
$162,358. • The ending cash and cash equivalents of $46,969 reflect the checking account and overnight investment
balances held by PH. In addition, there were current investments of $93,903 at June 30, 2014. 2015 and 2014: Capital Assets and Long-Term Debt
The Board of Directors approved a facilities master plan (the “Facilities Master Plan”) budgeted at
$1,057,000. In November 2004, the residents of the district voted and approved to fund $496,000 of this
expansion by the issuance of G.O. Bonds. Payment for these bonds is funded by an ad valorem property tax
levied on the district residents. The approximate amount of the tax levy for each taxable property remained at
$23.50 per $100 of assessed value in the years ended June 30, 2015 and 2014. The levy is established by the
Board of Director’s resolution each year in an amount sufficient to service the debt for the upcoming year
along with a reserve amount.
One of the major components of the Facilities Master Plan included the construction of the new Palomar
Medical Center Campus named Palomar Medical Center in Escondido. On August 19, 2012, PH opened the
288-bed facility. It includes critical and general inpatient care, surgical and interventional services, and
emergency and trauma services.
Other building projects include the renovation of existing hospital facilities at Pomerado Hospital, renovation
of Palomar Health Downtown Campus (PHDC), and construction of ambulatory and outpatient facilities at
various locations in the District. -8- PH has three outstanding revenue bond issues that are classified as long-term debt. These are the 2006 Insured
Certificates of Participation (COP), the 2009 COP, and the 2010 COP. There were no principal payments due
on these issues, bringing the net long-term bond principal to $568,708 at June 30, 2015 and 2014. All debt
payments have been made timely.
During Fiscal Year 2014, the 1999 Insured Revenue Bonds were redeemed. More detailed information about
PH’s debt and bond redemption is presented in Note 8 to the consolidated financial statements. PH has an
underlying Moody’s Investor Service (“Moody’s) rating of Ba1 on its COP.
In July 2005, PH issued its first series of G.O. Bonds authorized by voter approval in 2004 (measure BB) in
the amount of $80,000 for use in funding the building expansion project. In December 2007, PH issued its
second series of G.O. Bonds totaling $241,083. In March 2009, PH issued its third series of G.O. Bonds in the
amount of $110,000. In November 2010, PH issued the final series of G.O. Bonds in the amount of $64,917.
A principal payment of $3,383 and $2,808 reduced the G.O. Bonds’ principal to $471,441 and $474,824 as of
June 30, 2015 and 2014, respectively. PH continued to have an underlying Moody’s rating of A2 on its G.O.
Bonds.
Liquidity and Capital Resources
PH’s unrestricted liquidity position as of June 30, 2015, was $185,799, including $45,283 in operating cash
and $140,516 in unrestricted investments stated at fair value. PH’s unrestricted liquidity position as of
June 30, 2014, was $140,872, including $46,969 in operating cash and $93,903 in unrestricted investments
stated at fair market value. The available liquidity of $185,799 at June 30, 2015, represents a $44,927 or 32%
increase over the $140,872 in available liquidity as of June 30, 2014, and equals 33% of total outstanding debt
exclusive of the G.O. Bonds, payments on which are funded separately from ad valorem taxes, as of June 30,
2015.
Economic and Other Factors
On June 24, 2015, PH’s Board of Directors voted to transfer all services from the PHDC to other PH owned
facilities and to close the seismically-challenged facility. This process is expected to take 8-12 months and
result in significant overhead savings for the system. The next few years are anticipated to require additional
capital outlay for the transition of services as well as Information System upgrades required to meet
Meaningful Use requirements and ICD-10 coding requirements in addition to the replacement of outdated
equipment and associated technology.
The challenge of meeting these capital needs becomes more difficult as reimbursement for services continues
to decline. On the federal level, the provisions of the Affordable Care Act continue to enforce the 2%
sequestration for Medicare, Tricare, and Medicare HMOs, which were first experienced in fiscal year 2013.
Other federal programs now allow Medicare to penalize hospitals. While minimal in 2015, potential penalties
and loss of Medicare reimbursement for re-admissions, RAC takebacks, the two midnight rule, and value
based purchasing may increase each year. Other penalties and loss of reimbursement for quality measures and
patient experience will impact PH within the next fiscal year. Additional federal cuts are slated to go into
effect in fiscal year 2017 that will reduce the amount of Medicaid Disproportionate Share (DSH) allotments to
the states, which will translate into less funding for uncompensated care.
On a State level, the California legislature continues to change reimbursement laws and regulations to create
continued uncertainty over future healthcare reimbursement. Medi-Cal reimbursement has been reduced
significantly with across-the-board rate cuts and the State moved to several new methods of reimbursement in
2014, which reduced reimbursement on a go-forward basis. The effects of these reductions are considered
particularly troublesome with the Medi-Cal expansion from the introduction of the State exchanges. In -9- addition, there is still uncertainty of select NDPH-IGT, Hospital Fee, and other funding programs as the
Centers for Medicare and Medicaid Services continue to delay approval of legislatively created programs. The
2015-16 state budget eliminates the partial restoration of the Medi-Cal reimbursement cuts to distinct-part
nursing facilities.
A long-standing challenge for PH is a weak local economy and a challenging payor mix. Legislation
mandated by the state of California relative to staffing ratios, and improved clinical quality and safety
standards that are tied to government reimbursement contributes to higher staffing costs, increased
uncompensated care expense but lowered reimbursement.
Finance Contact — PH’s consolidated financial statements are designed to present users with a general
overview of PH’s finances and to demonstrate PH’s accountability. If you have any questions about the report
or need additional financial information, please contact the Executive Vice-President — Finance, Palomar
Health, 456 E. Grand Avenue, Escondido, California 92025. - 10 - INDEPENDENT AUDITORS’ REPORT
To the Board of Directors of
Palomar Health:
We have audited the accompanying consolidated financial statements of Palomar Health (PH), which
comprise the consolidated statements of net position as of June 30, 2015 a...

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Palomar Health 2013 Financial Statements(5).pdf

Palomar Health
Consolidated Financial Statements as of and for the
Periods Ended June 30, 2013 and 2012,
Supplemental Schedules as of and for the Periods
Ended June 30, 2013 and 2012, and
Independent Auditors’ Report PALOMAR HEALTH
TABLE OF CONTENTS Page
MANAGEMENT’S DISCUSSION AND ANALYSIS 1–12 INDEPENDENT AUDITORS’ REPORT 13–14 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED
JUNE 30, 2013 AND 2012:
Balance Sheets
Statements of Revenue, Expenses, and Changes in Net Assets 15–16
17 Statements of Cash Flows 18–19 Notes to Consolidated Financial Statements 20–40 SUPPLEMENTAL SCHEDULES AS OF AND FOR THE
PERIOD ENDED JUNE 30, 2013:
Consolidating Schedule — Balance Sheets
Consolidating Schedule — Statements of Revenue, Expenses, and Changes in Net Assets 41 42–43
44 SUPPLEMENTAL SCHEDULES AS OF AND FOR THE
PERIOD ENDED JUNE 30, 2012:
Consolidating Schedule — Balance Sheets
Consolidating Schedule — Statements of Revenue, Expenses, and Changes in Net Assets 45–46
47 PALOMAR HEALTH
MANAGEMENT’S DISCUSSION AND ANALYSIS Overview
Palomar Health (PH) is a public health care district and is a political subdivision in the State of California
(the ―State‖) organized pursuant to Division 23 of the Health and Safety Code of the State.
PH was formerly known as Palomar Pomerado Health. On March 20, 2012, the Board of Directors by
resolution voted to change the name to Palomar Health.
This section of PH’s annual financial report presents our analysis of PH’s financial performance for the
periods ended June 30, 2013 and 2012. Although the 2011 condensed consolidated balance sheet,
condensed consolidated statement of revenue, expenses, and changes in net assets, and condensed
consolidated statement of cash flows are presented in this section, they are not presented in the
accompanying consolidated financial statements and notes to the consolidated financial statements. Please
read this analysis in conjunction with the consolidated financial statements that follow this section.
This annual financial report includes: Management’s Discussion and Analysis Independent Auditors’ Report Consolidated Financial Statements of PH, including notes that explain in more detail some of the
information in the consolidated financial statements. The consolidated financial statements also
include 18-month financial statements for Arch Health Partners, Inc. (ARCH), as of and for the
period ended June 30, 2013. (see Note 1) PH’s consolidated financial statements report information using accounting methods required by the
Governmental Accounting Standards Board (GASB), which, while similar to those used by private sector
health care organizations, include some differences as described further in this management’s discussion
and analysis. In accordance with GASB, the General Obligation Bonds (G.O. Bonds) issued by PH are
included in the Consolidated Balance Sheets and Consolidated Statements of Revenue, Expenses, and
Changes in Net Assets. Repayment of the obligations is from a separate G.O. Bonds tax levy. While the
collected funds, the interest expense, and the debt are reflected in the consolidated financial statements
according to GASB reporting requirements, they are held and treated separately from ongoing operations.
These consolidated financial statements contain short-term and long-term financial information about
PH’s activities.
On August 19, 2012, PH opened the new Palomar Medical Center (PMC). Services at this campus include
critical care, general acute, trauma and cardiovascular services. The former Palomar Medical Center was
renamed Palomar Health Downtown Campus (PHDC) and includes the following services: acute
behavioral medicine, acute rehabilitation, acute women’s (including labor and delivery), and various
ambulatory programs. Operations for the period ended June 30, 2013, reflect the effectiveness of
readying, licensing, opening, and normalizing the new facility. Significant one-time costs were incurred
with the opening of the facility and negatively affected the results for the period ended June 30, 2013. -1- Required Financial Statements
Consolidated Balance Sheets — The consolidated balance sheets include all of PH’s assets and
liabilities and provide information about the nature and amounts of investments in resources (assets) and
obligations to PH’s creditors (liabilities) and net assets — the difference between assets and liabilities —
of PH and the changes in them. The consolidated balance sheets also provide the basis for evaluating the
capital structure of PH and assessing the liquidity and financial flexibility of PH.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2013, 2012, AND 2011
($ in thousands) 2013 2012 2011 ASSETS
Current assets
Capital assets — net
Noncurrent assets $ 299,369
1,265,756
89,561 $ 335,433
1,276,404
102,573 $ 328,340
1,061,644
279,460 TOTAL $ 1,654,686 $ 1,714,410 $ 1,669,444 $ 115,966
1,068
7,647
26,343
1,123,398 $ 123,615
1,063
7,778
40,375
1,115,598 $ 126,662
1,036
8,180
19,463
1,107,689 1,274,422 1,288,429 1,263,030 196,667
13,753
13,167
329
156,348 209,281
17,071
13,921
326
185,382 167,599
33,062
14,161
318
191,274 380,264 425,981 406,414 $ 1,654,686 $ 1,714,410 $ 1,669,444 LIABILITIES AND NET ASSETS
Current liabilities
Workers’ compensation — net of current portion
Deferred revenue
Fair value of interest rate swap
Long-term debt — net of current portion
Total liabilities
Invested in capital assets — net of related debt
Restricted for repayment of debt
Restricted for capital acquisitions
Restricted for other purposes
Unrestricted
Total net assets
TOTAL
See notes to consolidated financial statements. -2- 2013: Analysis of the Consolidated Balance Sheets Current assets decreased by $36,064,000 in 2013, primarily due to decreases in the current portion of
assets whose use is limited of $4,732,000, investments of $71,820,000, and prepaid expenses of
$1,528,000. These were offset by increases in cash of $12,430,000, net patient accounts receivable of
$19,781,000, other receivables of $2,816,000, estimated third-party settlements receivable of
$3,212,000, the current portion of assets whose use is limited — G.O. Bonds of $1,488,000, and
inventories of $2,289,000. Capital assets decreased by $10,648,000 primarily due to purchases related to major building projects
of $45,829,000, which were offset by net disposals of $553,000, depreciation expense of
$55,885,000, and others of $40,000. Noncurrent assets decreased by $13,012,000 primarily due to a decrease in assets whose use is limited
of $10,373,000 and other noncurrent assets of $2,639,000. Current liabilities decreased by $7,649,000 primarily due to a decrease in accounts payable of
$14,346,000, estimated third-party settlements liability of $180,000, and accrued interest payable of
$22,000. These were offset by increases in accrued compensation and related liabilities of
$4,238,000, the current portion of the G.O. Bonds of $576,000, the current portion of long-term debt
of $406,000, and other accrued liabilities of $1,679,000. Long-term liabilities decreased by $6,358,000, primarily a result of the decrease in the interest rate
swap (adjustment to market value) of $14,032,000, long-term debt of $7,139,000, and deferred
revenue of $131,000. They were offset by increases in G.O. Bonds of $14,939,000 and the long-term
portion of workers’ compensation of $5,000. Net assets decreased by $45,717,000, primarily due to results of operations of $36,806,000, and
interest expense of $56,753,000, which were offset by property tax revenue of $28,713,000, the
unrealized gain on the interest rate swap of $14,032,000, investment income of $1,571,000, and other
nonoperating revenue of $2,831,000. -3- 2012: Analysis of the Consolidated Balance Sheets Current assets increased by $7,093,000 in 2012, primarily due to increases in net patient accounts
receivable of $22,866,000, prepaid expenses of $3,709,000, the current portion of assets whose use is
limited — G.O. Bonds of $1,663,000, estimated third-party settlements receivable of $7,201,000, and
inventories of $310,000. These were offset by decreases in the current portion of assets whose use is
limited of $17,622,000, cash of $5,043,000, investments of $4,890,000, and other receivables of
$1,101,000. Capital assets increased by $214,760,000, primarily due to purchases related to major building
projects of $234,965,000, which were offset by net disposals of $870,000, depreciation expense of
$22,420,000, and others of $110,000. During the period ended June 30, 2012, PH became a guarantor
for ARCH (see Note 1). Noncurrent assets decreased by $176,887,000 primarily due to a decrease in assets whose use is
limited of $175,897,000 and other noncurrent assets of $990,000. Current liabilities decreased by $3,047,000, primarily due to a decrease in accounts payable of
$12,820,000. These were offset by increases in accrued compensation and related liabilities of
$3,157,000, the current portion of the G.O. Bonds of $580,000, the current portion of long-term debt
of $375,000, estimated third-party settlements liability of $5,521,000, other accrued liabilities of
$109,000, and accrued interest payable of $31,000. Long-term liabilities increased by $28,446,000, primarily because of the increase in the interest rate
swap (adjustment to market value) of $20,912,000, G.O. Bonds of $14,622,000, and the long-term
portion of workers’ compensation of $27,000. These were offset by decreases in long-term debt of
$6,713,000 and deferred revenue of $402,000. Net assets increased by $19,567,000, primarily due to results of operations of $10,204,000, property
tax revenue of $28,039,000, investment income of $2,014,000, and other nonoperating revenue of
$2,458,000, which were offset by the unrealized loss on the interest rate swap of $20,912,000 and
interest expense of $3,830,000. -4- Consolidated Statements of Revenue, Expenses, and Changes in Net Assets — All of PH’s revenue,
expenses, and changes in net assets are included in the Consolidated Statements of Revenue, Expenses,
and Changes in Net Assets. The consolidated financial statements measure the success of PH’s operations
during the periods presented and are used to determine if PH has successfully recovered all of its costs
through its fees and other sources of revenue. It also shows profitability and creditworthiness. Over time,
increases or decreases in PH’s net assets are one indicator of PH’s financial health.
CONDENSED CONSOLIDATED STATEMENTS OF REVENUE,
EXPENSES, AND CHANGES IN NET ASSETS
FOR THE PERIODS ENDED JUNE 30, 2013, 2012, AND 2011
($ in thousands) 2013 OPERATING REVENUE:
Net patient service revenue
Net premium revenue
Other revenue 2012 2011 $ 579,516
61,310
16,710 $ 484,922
53,842
13,397 $ 442,142
36,673
11,192 657,536 552,161 490,007 OPERATING EXPENSES 694,342 541,957 478,502 (LOSS) INCOME FROM OPERATIONS (36,806) 10,204 11,505 NONOPERATING INCOME (EXPENSE):
Investment income
Unrealized gain (loss) on interest rate swap
Interest expense
Property tax revenue — unrestricted
Property tax revenue — G.O. bonds
Other — net 1,571
14,032
(56,753)
12,914
15,799
2,831 2,014
(20,912)
(3,830)
12,686
15,353
2,458 2,626
4,859
(4,720)
12,625
15,019
3,149 (9,606) 7,769 33,558 (46,412) 17,973 45,063 Total operating revenue Total nonoperating (expense) income — net
(DEFICIENCY) EXCESS OF REVENUE OVER
EXPENSES
INTERFUND 695 CHANGE IN INTEREST IN COMPONENT UNIT (98) (283) 1,692 (DECREASE) INCREASE IN NET ASSETS (45,717) 19,567 44,780 NET ASSETS — Beginning of year 425,981 406,414 361,634 $ 380,264 $ 425,981 $ 406,414 43,334 40,222 40,337 NET ASSETS — End of year
ADJUSTED DISCHARGES
See notes to consolidated financial statements. -5- 2013: Analysis of the Consolidated Statement of Revenue, Expenses, and Changes in Net
Assets In accordance with accounting principles generally accepted in the United States of America
(―generally accepted accounting principles‖) for governmental health care providers, PH’s
Consolidated Statement of Revenue, Expenses, and Changes in Net Assets reflects the following:
(1) net patient service revenue includes the provision for bad debts and (2) nonoperating income
(expenses) includes interest expense, which for nongovernmental hospitals is typically grouped as an
operating expense. While these GASB requirements make district hospitals conform to other
governmental entities, such as colleges and universities, they may be less comparable to
nongovernment hospitals because the GASB requirements do not apply to them. This must be
considered in order to compare PH to nonprofit and for-profit hospitals. The provision for bad debts
was $98,097,000 in the period ended June 30, 2013, and $73,413,000 in the period ended June 30,
2012, and interest expense was $56,753,000 in the period ended June 30, 2013, and $3,830,000 in the
period ended June 30, 2012. Beginning with the licensure and opening of PMC in August 2012,
capitalization of interest was discontinued and commenced being expensed to nonoperating income
(expense) and included in the Consolidated Statement of Revenue, Expenses, and Changes in Net
Assets. Adjusted discharges are utilized as an aggregate indicator of hospital activity. The calculation
of adjusted discharges applies factors representing outpatient activity and skilled nursing activity to
acute inpatient discharges. Operating revenue is generated through the primary activity of treating patients (providing inpatient
and outpatient, ancillary, and other patient care service) as well as other affiliated revenue. Operating
revenue increased by $105,375,000 in the period ended June 30, 2013, due to increases in net patient
service revenue of $94,594,000, increase in net premium revenue of $7,468,000, and an increase in
other revenue of $3,313,000. Increases in inpatient and outpatient ancillary revenue and negotiated
increases in contracted payer rates resulted in an increase in net charges during the period. Operating expenses are those expenses related to the treatment of patients, including overhead and
administration expenses. Operating expenses increased by $152,385,000 in the period ended 2013,
primarily due to increases in labor (unionized and non-unionized) costs of approximately
$60,530,000, purchased services of $35,722,000, depreciation of $33,539,000, supplies of
$10,475,000, professional fees of $3,919,000, and other expenses of $8,200,000. Effective August 19,
2012, PH opened PMC. In conjunction with stocking, staffing, readiness, licensure, and post-opening
stabilization, PH incurred significant one-time expenses in excess of planned amount by $12,400,000.
The expenses were primarily salaries, wages, and benefits. The increase in depreciation of $33,539,000 was attributed to the opening of PMC in August 2012.
The depreciable value of the new assets, excluding land cost of $34,853,000, is $1,071,209,000 with a
useful life of five to forty years. The increase in supplies was attributed to acute hospital facility expansion from two acute care
facilities to three, which included service growth and new service start-up. Examples of expanded
services and new services include Robotic Surgery and Electrophysiological Lab Services. Additional
growth in services includes the Surgical and IR/Cath Lab suites as well as an additional Emergency
Department over the prior period. The physical plant expansion required additional supply utilization
for janitorial, facilities management, office supply, food, and other supply needs for the third campus.
Supplies were necessary and utilized in the third campus for patient ancillary services support areas
(Laboratory, Radiology, Pharmacy, Respiratory, Rehabilitation, and Other as reflected in the
Consolidated Balance sheets as an increase in inventory). -6- The increase in purchased services and professional fees is due to new contracts effective August
2012 when PMC opened. These contracts are for Labor and Delivery and expressCare Plus
(subsequently changed to Stand by ER) at PHDC and Emergency and Trauma at PMC. Additional
contracts include the purchase services of PIMG, Inc., Orthopedic Surgery of North County, Inc., and
Escondido Family Medicine. Loss from Operations in the period ended 2013 was $36,806,000 due to PH loss of $22,298,000 and
ARCH loss of $14,508,000. This operating loss is a result of operating expenses in excess of
revenues. Nonoperating (expense) income consists of interest earned on invested monies, interest expense,
unrealized gain in interest rate swap for $14,032,000, PH’s share of unrestricted property tax revenues
of $12,914,000 collected by the County of San Diego, and restricted property tax revenue for
repayment of G.O. Bonds of $15,799,000. Nonoperating loss was $9,606,000 in the period ended
June 30, 2013, and nonoperating gain of $7,769,000 in the period ended June 30, 2012. The decrease
in nonoperating (expense) income is primarily due to the $52,923,000 increase in interest expense. As a result of the factors noted above, net assets decreased by $45,717,000 in the period ended
June 30, 2013. 2012: Analysis of the Consolidated Statement of Revenue, Expenses, and Changes in Net
Assets In accordance with generally accepted accounting principles for governmental health care providers,
PH’s Consolidated Statement of Revenue, Expenses, and Changes in Net Assets reflects the
following: (1) net patient service revenue includes the provision for bad debts and (2) nonoperating
income (expenses) includes interest expense, which for nongovernmental hospitals is typically
grouped as an operating expense. While these GASB requirements make district hospitals conform to
other governmental entities, such as colleges and universities, they may be less comparable to
nongovernment hospitals because the GASB requirements do not apply to them. This must be
considered in order to compare PH to nonprofit and for-profit hospitals. The provision for bad debts
was $73,413,000 in the period ended June 30, 2012, and $60,030,000 in the period ended June 30,
2011, and interest expense was $3,830,000 in the period ended June 30, 2012, and $4,720,000 in the
period ended June 30, 2011. Adjusted discharges are utilized as an aggregate indicator of hospital activity. The calculation of
adjusted discharges applies factors representing outpatient activity and skilled nursing activity to
inpatient discharges. Operating revenue is generated by the primary activity of treating patients (providing inpatient and
outpatient, ancillary, and other patient care service) and other affiliate revenue. Operating revenue
increased by $62,154,000 in the period ended June 30, 2012, due to increases in net patient service
revenue of $42,780,000, increase in net premium revenue of $17,169,000, and an increase in other
revenue of $2,205,000. Increases in inpatient and outpatient ancillary revenue and negotiated
increases in contracted payer rates resulted in an increase in net charges during the period. Operating expenses are those expenses related to the treatment of patients, including overhead and
administration expenses. Operating expenses increased by $63,455,000 in the period ended June 30,
2012, primarily due to increases in labor (unionized and non-unionized) costs of approximately
$31,563,000, purchased services of $19,741,000, rent expense of $4,471,000, supplies of $4,234,000,
and other expenses of $3,446,000. -7- Income from Operations in the period ended June 30, 2012, was $10,204,000 due to PH income of
$13,711,000 and ARCH loss of $3,507,000. This operating income is a result of operating revenues in
excess of expenses. Nonoperating income (expense) consists of interest earned on invested monies, interest expense, PH’s
share of unrestricted property taxes of $12,686,000 collected by the County of San Diego, and
restricted G.O. Bond tax levy revenue for repayment of G.O. Bonds of $15,353,000. PH’s
nonoperating income was $7,769,000 in the period ended June 30, 2012, and $33,558,000 in the
period ended June 30, 2011. The $25,789,000 decrease in nonoperating income (expense) is primarily
due to the $20,912,000 unrealized loss on the interest rate swap in the period ended June 30, 2012. As a result of the factors noted above, net assets increased by $19,567,000 in the period ended
June 30, 2012. Consolidated Statements of Cash Flows — The Consolidated Statements of Cash Flows report cash
receipts, cash payments, and net changes in cash resulting from operating, investing, and financing
activities, which provide answers to such questions as where did cash come from, what was cash used for,
and what was the change in the cash balance during the reporting period.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2013, 2012, AND 2011
($ in thousands) CASH FLOWS FROM:
Operating activities
Noncapital financing activities
Capital and related financing activities
Investing activities $ NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2013 2012 2011 9,628
12,185
(96,391)
87,008 $ (25,793)
13,153
(191,162)
198,759 $ 39,447
15,491
(41,615)
(8,618) 12,430 (5,043) 4,705 CASH AND CASH EQUIVALENTS —
Beginning of year 6,918 11,961 7,256 CASH AND CASH EQUIVALENTS —
End of year $ 19,348 6,918 $ 11,961 $ See notes to consolidated financial statements. 2013: Analysis of the Consolidated Statement of Cash Flows Operating activities cash inflow reflected an increase of $35,421,000 in the period ended June 30,
2013, over the period ended June 30, 2012. This increase is mostly attributable to increases in cash
collections of patient accounts of $111,034,000 offset by increased payments to suppliers and
employees of $82,978,000. -8- Net cash outflows from capital and related financing activities in 2013 were $96,391,000, primarily
due to interest payments of $44,910,000, and the payment of long-term debt of $9,655,000 offset by
the receipt of $15,799,000 of property taxes for debt service. Investing activities cash inflows were $87,008,000 in 2013. This inflow is mainly composed of sale
of investments. The ending cash and cash equivalents of $19,348,000 reflect the checking account and overnight
investment balances held by PH. In addition, there were current investments of $99,631,000 at
June 30, 2013. 2012: Analysis of the Consolidated Statement of Cash Flows Operating activities cash inflow reflected a decrease of $65,240,000 in 2012 over 2011. This decrease
is attributable to increases in cash collections of patient accounts of $41,163,000 offset by increased
payments to suppliers and employees of $114,868,000. Net cash outflows from capital and related financing activities in 2012 were $191,162,000, primarily
due to the funding of PH’s building projects of $158,322,000, interest payments of $39,826,000, and
the payment of long-term debt of $8,367,000 offset by the receipt of $15,353,000 of property taxes
for debt service. Investing activities cash inflows were $198,759,000 in 2012. This outflow is mainly composed of sale
of investments. The ending cash and cash equivalents of $6,918,000 reflect the checking account and overnight
investment balances held by PH. In addition, there were current investments of $171,451,000 at
June 30, 2012. 2013: Capital Assets and Long-Term Debt
The Board of Directors approved a facilities master plan (the ―Facilities Master Plan‖) budgeted at
$1,057,000,000. In November 2004, the residents of the district voted and approved to fund $496,000,000
of this expansion by the issuance of G.O. Bonds. Payment for these bonds is funded by an ad valorem
property tax levied on the district residents. The approximate amount of the tax levy for each taxable
property remained at $23.50 per $100,000 of assessed value for the period ended June 30, 2013. The levy
is established by Board of Director’s resolution each period in an amount sufficient to service the debt for
the upcoming period along with a reserve amount.
One of the major components of the Facilities Master Plan included the construction of the new Palomar
Medical Center Campus (named PMC in Escondido. On August 19, 2012, PH opened the 288-bed
facility. It includes critical and general inpatient care, surgical and interventional services, and emergency
and trauma services.
Other building projects include the renovation of existing hospital facilities at Pomerado Hospital,
renovation of PHDC, and construction of ambulatory and support facilities at various locations in the
District.
The renovations at Pomerado Hospital, which commenced in 2008, include the construction of a new
central power plant (the ―Central Plant‖) and various site improvements. The Central Plant was placed in
service in the period ended June 30, 2010. -9- Outpatient facilities expansion plans include the Ramona Satellite Clinic, which was opened in March
2013 with ARCH as the primary tenant. The new clinic offers outpatient services and after-hours urgent
care.
PH has four outstanding revenue bond issues that are classified as long-term debt. T...

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Palomar Health Background Info(3).docx

Palomar Health
Our Story - A History of Exceptional Community Care
The origins of Palomar Health can be traced back to two benevolent German women, Charlotta
Baker Hintz, a nurse, and Elizabeth Martin, a dietician, who left their jobs at the Anaheim Sanitarium
in 1933, to establish a hospital to serve the small farming community of Escondido. Using their own
money, the women bought an egg and poultry plant at 125 South Broadway and converted it into a
13-bed hospital.
In 1945, the Escondido Valley Hospital Association was formed to investigate the possibility of
building a larger facility to keep pace with growth. The Escondido Valley Hospital Association
established the Northern San Diego County Hospital District in 1948 and the vision of the new, larger
facility in downtown Escondido was achieved in 1950. Palomar Memorial Hospital, named in tribute
to the men and women who served in World War II, was dedicated on February 16, 1950.
In 1970, the McLeod Tower was added to Palomar Memorial Hospital to help meet the needs of the
growing community. After receiving full designation as a trauma center in 1987, the hospital was
renamed Palomar Medical Center.
The Northern San Diego County Hospital District supervised the construction of a sister facility in
Poway, Pomerado Hospital in 1977. As that community grew, several expansions were made to
Pomerado Hospital.
Palomar Health added a third hospital to the system in 2012 with the opening of the new Palomar
Medical Center in west Escondido. The original hospital in downtown Escondido was renamed
Palomar Health Downtown Campus.
To more accurately reflect the region it served, the Northern San Diego County Hospital District was
renamed Palomar Pomerado Hospital District in 1984. Five years later, the name was changed to
Palomar Pomerado Health System and was then shortened to Palomar Pomerado Health in 2001. In
2012 the District’s name was simplified to Palomar Health.
To heal, comfort, and promote health in the communities we serve - When it comes to health it
makes sense to come to the area's first and largest healthcare provider - Palomar Health.
While we may care for our patients using the latest in medical technology, our bedside manner is
always time-honored human understanding. We are at the forefront of technology, but haven't lost
touch with what health care is all about: you, your family and friends.
When it comes to your health, come to us. We cover the continuum of healthcare needs, and we
accept most insurance plans including Medicare. If you're looking for the right doctor, or health
service information, call The HealthSource, our free referral service, at 800.628.2880. Understanding Health Care Districts
Health care districts are public entities that provide community-based health care services to
residents throughout the state of California. They respond to the needs in their District by providing a
range of services, which may include a hospital, clinic, skilled nursing facility or emergency medical
services; as well as education and wellness programs. Each of California’s Health care Districts is
governed by a locally elected Board of Trustees who are directly accountable to the communities
they serve.
Today, Palomar Health is the largest health care district serving communities in an 850-square-mile
area and a trauma center that covers more than 2,200 square miles of South Riverside and North
San Diego Counties. In addition to three hospitals, Palomar Health offers home health care, surgery,
skilled nursing, ambulatory care, behavioral health services, wound care, and community health
education programs.
As a member of the Mayo Clinic Care Network (MCCN), Palomar Health has formalized a
relationship that recognizes a mutual goal: fostering physician collaboration to improve the delivery
of health care to our patients and communities. Palomar Health is the first hospital in California, and
one of only 24 hospitals nationwide, to become a member of the Mayo Clinic Care Network. With
Mayo Clinic, we share a common philosophy, commitment and mission to provide the best possible
care to patients and their families. Through the Mayo Clinic Care Network, Palomar Health physicians and providers have access to
additional tools and resources in specialty areas where Mayo Clinic's knowledge and expertise may
be helpful to enhance patient care. How This Affects Your Care At Palomar Health eConsult – Palomar Health specialists can connect with Mayo Clinic experts when they want
additional input on complex patient care. Through eConsults, you may be able to avoid
additional medical appointments and unnecessary travel. AskMayoExpert - This online medical resource developed by Mayo Clinic physicians allows
Palomar Health physicians and providers to quickly connect with expert clinical information on
hundreds of medical conditions at any hour of the day or night. Patient privacy - Patient privacy is a priority. We have safeguards in place to protect
patients' health information. Anything shared with Mayo Clinic related to patient care is sent
through a secure electronic connection and remains confidential. San Diego, Calif. – San Diego, November 12, 2015 – Palomar Health, the largest public health
system in Southern California, is pleased to announce that Villa Pomerado, its nursing care facility,
has been named a 2015 Guardian of Excellence Award® winner by Press Ganey Associates, Inc.
The Guardian of Excellence Award recognizes top-performing health care organizations that have
consistently achieved the 95th percentile or above of performance in Employee Engagement.
The Press Ganey Guardian of Excellence Award is a nationally-recognized symbol of achievement in
health care. Presented annually, the award honors clients who consistently sustained performance in
the top 5% of all Press Ganey clients for each reporting period during the course of one year.
“We’re proud of our team at Villa Pomerado for achieving such high employee engagement scores,”
said Palomar Health CEO Bob Hemker. “This recognition demonstrates our staff’s commitment to
teamwork and providing high-quality, compassionate Patient First care.”
According to Hemker, the award represents an important recognition from the industry’s leader in
measuring, understanding and improving the patient experience.
"We are proud to partner with Villa Pomerado,” said Patrick T. Ryan, CEO of Press Ganey. “This
award is a testament to the organization’s leadership in delivering of patient-centered care. By
achieving and sustaining this level of excellence, Villa Pomerado demonstrates their commitment to
reducing patient suffering and advancing the overall quality of health care.”
About Palomar Health
Palomar Health is the most comprehensive health care delivery system in northern San Diego
County and the first and only California member of the Mayo Clinic Care Network. It is the largest
public healthcare district by area in the state, with more than 500,000 residents, and is governed by
a publicly-elected board of directors. Palomar Health has several facilities serving North County,
including hospitals in Escondido and Poway, expresscare health clinics in Escondido, San Elijo Hills
and Temecula, and a skilled nursing facility in Poway. The health system provides medical services
in virtually all fields of medicine, including primary care, cardiovascular care, emergency services,
trauma, cancer, orthopedics, women’s health, rehabilitation, robotic surgery and bariatric surgery.
For more information about Palomar Health, please visit www.PalomarHealth.org.
About Press Ganey
Press Ganey Holdings (NYSE: PGND) is a leading provider of patient experience measurement,
performance analytics and strategic advisory solutions for health care organizations across the
continuum of care. Celebrating 30 years of experience, Press Ganey is recognized as a pioneer and
thought leader in patient experience measurement and performance improvement solutions. Our
mission is to help health care organizations reduce patient suffering and improve clinical quality,
safety and the patient experience. As of January 1, 2015, we served more than 22,000 health care
facilities. For more information, visit www.pressganey.com.
10.05.2015 San Diego, CA - Palomar Health's Pomerado Hospital was recently honored by CEP America during
their 40th Annual Partnership Meeting. Named a Distinguished Practice for emergency department,
hospital medicine, and skilled nursing, Pomerado Hospital was honored for creating a Patient Flow
initiative, including a Centralized Patient Placement Center and Dashboard to manage the flow of
patients across multiple sites and practice lines while reducing turnaround time to discharge by 50%.
During their annual meeting, CEP America showcased best practices from more than 100 unique
hospitals and acknowledged partner hospitals with outstanding achievements in providing faster
emergency care, reducing readmissions, improving Case Mix Index (CMI), and increasing patient
satisfaction.
"We congratulate these organizations on their success and commitment to providing the best care
possible to their communitiesand patients," Said Wesley Curry, MD, chief executive officer/president,
CEP America. "They are representative of the results that CEP America's physician leaders are
achieving by working hand-in-hand with hospitals across the U.S. to achieve better care, ensure
healthy populations and manage for long-term success in today's challenging environment."
CEP America offers a wide range of clinical, staffing and administrative expertise designed to
increase clinical quality and service excellence across the acute care continuum. Over the last 40
years, CEP America has grown to include over 2,600 providers treating 5.2 million patients a year at
over 140 unique practice locations specializing in urgent, emergency, inpatient, perioperative, and
post-acute care.
News about (not from) Palomar Health
http://fox5sandiego.com/2015/06/15/caregivers-angry-over-proposal-to-close-down-palomar-healthdowntown-campus/
Palomar Health invites the public to a community conversations regarding plans to transition medical services from the Palomar Health Downtown Hospital Campus to Palomar Medical Center and Pomerado
Hospital. Palomar Health starts palliative care
program
By Linda McIntosh | 8:25 a.m. Nov. 21, 2015
0 � ✉ � OCEANSIDE — Palomar Health is partnering with LightBridge
Medical Associates and The Elizabeth Hospice to provide palliative
care for patients with serious illnesses at Palomar Health Medical
Center. The palliative care program focuses on providing relief from
pain and other symptoms. Palomar Health’s palliative care
consultation services are offered to hospitalized and emergency
department patients.
Palliative care physicians from LightBridge and The Elizabeth Hospice
are available around the clock seven days a week to consult with
patients. Physicians are scheduled to be onsite at Palomar Medical
Center 8 a.m. to 5 p.m. Monday through Friday and on-call after hours
and on weekends. A palliative care physician from either organization
will be available to discuss treatment options. Services will be offered
at Palomar Medical Center first, expanding to Pomerado Hospital in
the future. Fitch Affirms Palomar Health, CA's Rev Bonds
at 'BB+'; Outlook Stable
July 14, 2015 02:49 PM Eastern Daylight Time SAN FRANCISCO­­(BUSINESS WIRE)­­Fitch Ratings has affirmed the 'BB+' rating on Palomar Health, CA's (PH) outstanding debt, which is listed at the end of the press release. The Rating Outlook is Stable. SECURITY The bonds are secured by a gross revenue pledge of the obligated group (OG). The obligated group is comprised of PH's acute care facilities as well as other healthcare related entities but excludes Arch Health Partners (AHP), a medical foundation. AHP was de­consolidated from the audit in fiscal 2014 (June 30 fiscal year end) so the OG and the consolidated entity were the same in fiscal 2014. KEY RATING DRIVERS REBOUND IN FINANCIAL PERFORMANCE: Since Fitch's last rating review in January 2015, PH continues to sustain its trend in improved operating cash flow through the nine months ended March 31, 2015. The improved financial performance to date has been driven by increased volume, cost reductions (primarily reduction in force), as well as the sale of non­core assets. Although liquidity has improved from a low in fiscal 2013, liquidity metrics remain weak. NON­INVESTMENT GRADE FINANCIAL PROFILE: After stabilizing its performance in fiscal 2014, PH's financial profile is characteristic of a non­investment grade credit with weak liquidity and high debt burden. At March 31, 2015, PH had 80.5 days cash on hand and 23.5% cash to debt (revenue bonds only). Operating EBITDA margins compare favorably against the non­investment grade medians with a 10.6% operating EBITDA margin through the nine months
ended March 31, 2015 and 10.2% in fiscal 2014, which led to adequate MADS coverage of 1.8x and 1.7x, for the respective time periods. SIGNIFICANT CAPITAL INVESTMENT COMPLETE: In August 2012, PH opened its 288­bed Palomar Medical Center (PMC) in Escondido, California. The opening and subsequent relocation of most service lines from its downtown campus to PMC was the centerpiece of PH's significant $1.06 billion facilities master plan. PH has an agreement with Kaiser Permanente (rated 'A+') to provide bed capacity, and Kaiser volume has consistently been under budget although it has recently increased. PH recently made an announcement that it will close its downtown facility and consolidate the services to its other two campuses, which Fitch views favorably. This is expected to result in approximately $20 million of annual savings. The consolidation of services is expected to be complete by the end of the year and PH is evaluating options for the downtown facility. GOOD MARKET POSITION: Fitch believes PH's main credit strength is its location in North San Diego County, which
makes it an attractive partner in any plans to develop a larger regional network and delivery model that is able to manage population health. In addition, PH has significantly invested in its medical foundation, AHP, which provides a primary care base that will be integral in care coordination. RATING SENSITIVITIES SUSTAINED SOLID OPERATING CASH FLOW: The maintenance of the current rating is dependent on Palomar Health's ability to sustain its solid operating cash flow due to additional operational initiatives that are underway. Despite the large investment in its facilities master plan, continued pressure on capital spending will likely hinder liquidity growth. These include the ongoing strategic investments in Arch Health Partners as well as potential pressure to build out shelled space capacity at Palomar Medical Center due to the consolidation of services. A reversal in improvement in operating cash flow or a decline in liquidity would likely result in negative rating pressure. CREDIT PROFILE PH is a California hospital district that operates three hospitals in northern San Diego County. For fiscal 2014, PH's consolidated audited results excluded its medical foundation, AHP (80 physicians and 10 physician extenders), and numbers for fiscal 2013 were restated for comparative purposes. Total operating revenue in fiscal 2014 was $628 million. There was a change in executive leadership as of August 2014 with the prior CFO promoted to CEO. A strategic planning process is underway for the system. Rebound in Financial Performance PH implemented several turnaround initiatives to stem the losses from fiscal 2013 due to challenges with the transition to its new facility in August 2012. The benefits from these initiatives were realized in fiscal 2014 with a $17 million improvement in operating cash flow driven mainly by a reduction in force. PH continues to focus on reducing its cost per adjusted discharge with plans to lower this further in fiscal 2015. In fiscal 2014, operating income was negative $26.2 million compared to negative $36.2 million the prior year and operating losses are primarily driven by high depreciation and interest expense. Operating cash flow is solid with operating EBITDA margin of 10.2% in fiscal 2014 compared to 7.7% in fiscal 2013 and 10.6% for the nine months ended March 31, 2015. PH has budgeted an operating EBITDA margin of 12.1% for fiscal 2015 and ongoing operational initiatives include improved patient throughput, reduction in cost per adjusted discharge, supply savings, as well as further reduction in labor costs. PH is slightly behind budget for the nine months ended March 31, 2015 but expects to meet its full year budget by fiscal year end. Opening of Palomar Medical Center In August 2012, PH opened its new 288­bed Palomar Medical Center (PMC) in North San Diego County and successfully relocated the majority of its service lines to the new hospital from its downtown Escondido facility. PMC was the key component of PH's sizable $1.06 billion facilities master plan, which also included expanding its Pomerado Hospital (Pomerado) in Poway and building outpatient satellite clinics. PH has a total of 629 licensed acute
care beds and all the acute care facilities are seismically compliant. PH announced in late June that it will be closing its downtown facility, which maintained a stand­by emergency department, labor and delivery, behavioral, and acute rehab service lines. These service lines will be consolidated into PMC or Pomerado by the end of the year, and PH will likely maintain urgent care services downtown. Fitch views
this decision favorably as it better utilizes the resources within the system and should result in $20 million of annual savings. Volume growth has consistently missed budgeted expectations especially with its agreement with Kaiser. However, year over year growth has improved especially with more obstetric and surgery volume from Kaiser. In fiscal 2014, admissions were up 8% from prior year and through the nine months ended March 31, 2015, admissions were up 5.4% from the same prior year period. PH's bed capacity agreement with Kaiser expires in 2020 with an upcoming renewal date in mid 2015 that will decide if either/both parties want to extend the agreement beyond 2020. Investment in Arch Health Partners AHP is a medical foundation located in Poway, CA with nine other locations in the service area. PH is the sole corporate member of AHP and aligned with the medical foundation in 2010. PH has provided significant support to AHP over the last two years and ongoing support is expected, which will likely hinder liquidity growth. Weak Liquidity As of March 31, 2015, unrestricted cash and investments totaled $137.8 million, which equated to 80.5 days cash on hand and 23.5% cash to debt, which is a slight improvement from fiscal 2013 with 73.3 days and 20.6% cash to debt. PH remains challenged by high accounts receivable with 73.1 days in accounts receivable as of March 31, 2015 and there is new oversight in revenue cycle, which should improve cash collections. PH's days cash on hand covenant calculation excludes interest expense from total expenses and the bond covenant calculation for fiscal 2014 was 91 days, above the 80 days cash on hand covenant for the series 2006 insured bonds (65 days cash on hand covenant for uninsured bonds). Management expects to be above 90 days cash on hand (per bond covenant calculation) at FYE 2015. High Debt Burden PH has a very high debt burden due to the funding of its facilities master plan. As of June 30, 2014, total debt outstanding was $1.1 billion and included $560 million of revenue bonds and $574 million of general obligation (GO) bonds. Fitch rates the GO bonds 'A+'. The revenue bonds are 68% fixed rate and 32% variable rate (auction mode; series 2006). MADS of $41.4 million accounted for 6.6% of total revenue in fiscal 2014 compared to the non­
investment grade median of 4%. PH has three fixed payor interest rate swaps with Citi related to the series 2006 bonds and the swaps are insured by Assured Guaranty. There are currently no collateral posting requirements, but requirements would be implemented if Assured Guaranty's rating falls below the 'A' category and would be at a zero threshold based on PH's current rating. The mark to market valuation as of June 30, 2014 was negative $26.5 million. In addition, there is an additional termination event if Assured Guaranty's rating falls below 'BBB'. Property Tax Revenue As a California hospital district, PH receives unrestricted property tax revenues from a fixed share of the 1% property tax levied by the County of San Diego on all taxable real property in PH's boundaries. PH received $13.5 million and $12.9 million in unrestricted property tax revenues in fiscal 2014 and 2013, respectively. This tax revenue is included in other operating revenue. PH also receives ad valorem tax revenues generated by the separate voter­approved tax levy that is pledged solely for the payment of principal and interest on PH's series 2005, 2007, 2009, and 2010 GO bonds. Fitch's financial analysis excludes the GO bonds and related property tax revenue and interest expense. Disclosure PH covenants to provide annual audited financial reports and unaudited quarterly financial statements to bondholders. Quarterly information, including a balance sheet, income statement, and statement of changes in net assets will be provided within 45 days after the end of each of the first three fiscal quarters. Outstanding Palomar Health, CA Debt: ­­$159,647,000 COPs series 2010; ­­$228,970,000 COPs series 2009; ­­$171,731,000 COPs series 2006A­C. Additional information is available at 'www.fitchratings.com'. Applicable Criteria Revenue­Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012 U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807 Rating Action:
Moody's affirms Palomar Health's (CA) Ba1 revenue bond ratings; Negative outlook
maintained
Global Credit Research - 02 Jun 2015 $560 million of proforma rated debt affected New York, June 02, 2015 -- Moody's Investors Service affirms the Ba1 ratings assigned to Palomar Health's (PH)
revenue bonds, affecting approximately $560 million of debt. The negative outlook is maintained.
Moody's also rates $573 million of PH's general obligation bonds, which currently have a rating of A2. (Please see the
rating report pertaining to the general obligation bonds, released concurrently with this report). The general obligation
bonds are secured by the district's voter-approved unlimited property tax pledge and general obligation bondholders
do not have any recourse to the hospital for payments under the bonds. Tax revenues, payments, and principal
related to the general obligation bonds have been excluded from this analysis.
SUMMARY RATING RATIONALE
The affirmation of the Ba1 and the maintenance of the negative outlook reflect poor liquidity, narrow headroom to
covenants, and the failure of the organization to improve cash balances beyond current levels. The rating is
counterbalanced by certain fundamental strengths, including leading market position in northern San Diego County,
its status as the largest district hospital in the state, the certain level of stability it enjoys due to the contract with
Kaiser Permanente, and the absence of immediate competition. After a poor fiscal year (FY) 2013, operating
performance improved significantly in FY 2014 and shows continued strength through nine months year-to-date
(YTD) 2015. Nevertheless, PH's extremely high leverage makes it all the more sensitive to weak liquidity, and
dependent on the need to achieve high levels of operating performance.
OUTLOOK
The negative outlook reflects weak liquidity, thin headroom to bond covenants, and very high leverage.
WHAT COULD MAKE THE RATING GO UP
• Significantly improved liquidity
• Significantly improved debt measures
WHAT COULD MAKE THE RATING GO DOWN
• Return to weaker operating performance
• Failure to improve liquidity
OBLIGOR PROFILE PH is the largest public health care district in the State of California, with nearly $630 million of revenues in 2014, and
generating nearly 30,000 admissions. The district operates in-patient facilities in the towns in Escondido and Poway,
and captures a 49% market share within the district. PH was formerly known as Palomar Pomerado Health and
changed its name per board resolution in May 2012. Palomar Health to implement full suite
of Kaufman Hall budgeting, cost
accounting and decision support
software
Kaufman Hall, a leading provider of strategic, capital and financial
advisory services and software tools to healthcare organizations,
today announced that San Diego-based healthcare system, Palomar
Health, will implement its complete...

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