2014 - Thomas Jefferson University

Jefferson University
Physicians (Pre-merger)
Financial Statements
June 30, 2014 and 2013
Jefferson University Physicians (Pre-merger)
Table of Contents
June 30, 2014 and 2013
______________________________________________________
Pages
Report of Independent Auditors
1
Financial Statements:
Balance Sheets
2
Statements of Operations and Changes in Net Assets
3
Statements of Cash Flows
4
Notes to Financial Statements
5-11
Independent Auditor’s Report
To the Board of Trustees
Thomas Jefferson University:
We have audited the accompanying financial statements of Jefferson University Physicians (JUP) which
comprise the balance sheets as of June 30, 2014 and June 30, 2013, and the related statements of activities,
changes in net assets and cash flows and for the years then ended.
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of combined financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We
conducted our audits in the accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the combined financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatements of the combined financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to JUP’s
preparation and fair presentation of the combined financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of JUP’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the combined
financial statements. We believe that the audit evidence we have obtained is significant and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects,
the financial position of JUP at June 30, 2014 and 2013, and the changes in its net assets and its cash
flows for the years then ended in accordance with accounting principles generally accepted in the United
States of America.
September 23, 2014
PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1700, 2001 Market Street, Philadelphia, PA 19103-7042
T: (267) 330-3000, F: (267) 330-3300, www.pwc.com/us
Jefferson University Physicians (Pre-merger)
Balance Sheets
June 30, 2014 and 2013
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Patient receivables, less allowance for doubtful accounts of
$4,326,800 in 2014 and $5,301,529 in 2013
Due from TJUH System
Due from Thomas Jefferson University
Inventory
Other current assets
Total current assets
Insurance recoverable
Non-current portion of receivable from TJUH
Investments in joint ventures
Building improvements and equipment, net
Total assets
Liabilities and Net Assets
Current liabilities:
Accounts payable and accrued expenses
Accrued compensation
Due to Thomas Jefferson University
Current portion of accrued professional liability claims
Current portion of workers compensation
Current portion of capital lease obligation
Accrued vacation
Total current liabilities
Accrued professional liability claims
Workers compensation
Capital lease obligation
Total liabilities
Unrestricted net assets
Total liabilities and net assets
2014
$55,031,698
26,327,939
$39,446,131
25,577,453
29,315,507
11,086,301
3,255,323
698,250
1,233,702
28,853,148
13,339,568
1,153,996
126,948,720
108,370,296
78,225,000
16,633,388
1,045,802
16,652,191
84,212,000
7,729,638
631,878
12,867,998
$239,505,101
$213,811,810
$16,463,875
27,561,129
10,679,548
430,271
25,563
4,010,899
$12,411,155
20,527,211
650,097
8,977,498
426,342
28,824
3,739,717
59,171,285
46,760,844
140,729,472
424,266
91,525
141,860,512
461,637
-
200,416,548
189,082,993
39,088,553
24,728,817
$239,505,101
$213,811,810
The accompanying notes are an integral part of the financial statements.
- 2-
2013
Jefferson University Physicians (Pre-merger)
Statements of Operations and Changes in Net Assets
For the years ended June 30, 2014 and 2013
2014
Operating revenues:
Patient service revenue, net of contractual allowance
Provision for bad debts
Net patient service revenue less provision for bad debts
Related party reimbursement for physician services
and professional support
Grants and contracts
Investment income
Other revenues
2013
$299,714,088
(20,382,722)
279,331,366
$283,602,657
(19,067,850)
264,534,807
124,755,168
4,326,633
164,876
1,977,561
105,956,644
2,476,141
83,153
2,079,518
Total operating revenues
410,555,604
375,130,263
Operating expenses:
Salaries and employee benefits
Supplies
Professional liability
Operations and maintenance
Other expenses
Total operating expenses
271,168,106
25,042,996
29,511,833
13,093,150
29,338,439
368,154,524
258,064,367
19,615,337
28,040,749
11,514,071
28,101,446
345,335,970
Excess of revenues over expenses
42,401,080
29,794,293
TJUH System capital transfers
Transfers to Thomas Jefferson University, net
4,595,552
(32,636,896)
474,250
(33,827,282)
Increase/(decrease) in unrestricted net assets
Unrestricted net assets, beginning of year
14,359,736
24,728,817
(3,558,739)
28,287,556
Unrestricted net assets, end of year
$39,088,553
$24,728,817
The accompanying notes are an integral part of the financial statements.
- 3-
Jefferson University Physicians (Pre-merger)
Statements of Cash Flows
For the years ended June 30, 2014 and 2013
2014
Cash flows from operating activities:
Increase/(decrease) in unrestricted net assets
Adjustments to reconcile changes in net assets to net cash
and cash equivalents provided by operating activities:
Depreciation
Provision for bad debts
Transfers to Thomas Jefferson University, net
TJUH capital transfers
Equity loss on investment in joint venture, net of distribution
Increase (decrease) due to changes in:
Patient receivables
Insurance recoverable
Inventory
Due from TJUH System
Due to/from Thomas Jefferson University
Other current assets
Accrued compensation
Accrued professional liability claims
Accounts payable and accrued expenses
Net cash and cash equivalents provided by operating activities
Cash flows from investing activities:
Short-term investments, net
Investment in joint venture
Purchase of building improvements and equipment
Net cash and cash equivalents used in investing activities
Cash flows from financing activities:
Repayment of capital lease obligation
Transfers to Thomas Jefferson University, net
TJUH capital transfers
Net cash and cash equivalents used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Accounts payable related to building improvements and equipment
Cash paid during the year for interest
2013
$14,359,736
2,707,876
20,382,722
32,636,896
(4,595,552)
34,908
5,886,596
19,067,850
33,827,282
(474,250)
222,058
(20,845,081)
5,987,000
(698,250)
(6,650,483)
(3,905,420)
(79,706)
7,033,918
571,009
2,355,074
(22,084,293)
9,406,000
185,908
1,693,891
(3,372,318)
(457,000)
1,376,192
(14,670,132)
2,510,356
49,294,647
29,559,401
(750,486)
(448,832)
(4,419,382)
(2,676,091)
(2,546,326)
(5,618,700)
(5,222,417)
(49,036)
(32,636,896)
4,595,552
(54,678)
(33,827,282)
474,250
(28,090,380)
(33,407,710)
15,585,566
(9,070,726)
39,446,131
48,516,857
$55,031,698
$39,446,131
$2,011,546
$76,159
$599
$4,169
The accompanying notes are an integral part of the financial statements.
- 4-
($3,558,739)
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Jefferson University Physicians (“JUP”) is a non-profit corporation formed under the laws of the
Commonwealth of Pennsylvania. It consists of 17 departments with approximately 647
physician members. Therefore, JUP was formed to allow faculty of Thomas Jefferson
University (the “University”) to conduct clinical practices while supporting educational and
research activities of the University. The University does not provide professional physician
services.
JUP has been recognized as a tax-exempt organization pursuant to Section 501 (c)(3) of the
Internal Revenue Code.
For the years ended June 30, 2014 and 2013, the University and JUP maintained an academic
affiliation with both TJUH System, Inc. (“TJUH”), an integrated healthcare organization that
provides healthcare services for residents of the greater Philadelphia region, and the Jefferson
Health System (JHS). JHS was the sole corporate member of TJUH. JHS was a regional
integrated healthcare delivery system. The other members of JHS were Magee Rehabilitation
Hospital and Main Line Health.
On June 30, 2014 TJUH separated from JHS and merged with the University to form a new
organization and to enhance its tripartite mission of education, research and patient care. At
10:59AM on June 30, 2014 the University became the sole corporate member of TJUH and
TJUH became the sole member of JUP, thereby aggregating all clinical operations of the merged
entities into one organization. This transaction was accounted for as a merger and thus the JUP
post-merger balance sheet will continue to be recorded at its historical basis under the carryover
method. These financial statements reflect the financial position and results of operations of JUP
prior to the merger.
Basis of Presentation and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Management considers critical accounting
policies to be those that require more significant judgments and estimates in the preparation of
the financial statements including, but not limited to, recognition of net patient service revenue,
which includes contractual allowances and provisions for bad debt and estimates for healthcare
professional and general liabilities. Management relies on historical experience and other
assumptions believed to be reasonable relative to the circumstances in making judgments and
estimates. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments in highly liquid debt instruments with
an original maturity of three months or less when purchased and are carried at cost which
approximates fair value except that any such investments with funds held in self-insurance trust
arrangements are classified as assets whose use is limited are classified as investments.
- 5-
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
Concentration of credit risk with regard to cash and short term investments is not considered to
be significant due to JUP’s cash management policies. These policies restrict investments to low
risk, highly liquid securities (that is, commercial paper, money market instruments, etc.) outline
issuer credit requirements, and limit the amount that may be invested in any one issuer.
Short Term Investments
Investments are stated at fair value. These securities are available for use, if needed, for current
operations. Investments include cash and cash equivalents and fixed income securities. The fair
value of these securities is based on quoted market prices in active markets or dealer or brokered
quotations obtained from national securities exchanges.
Investments in Joint Ventures
For fiscal years 2014 and 2013 JUP was a 40% owner in a partnership that provides outpatient
imaging services and for fiscal year 2014 JUP was a 33.9% owner in a partnership that provides
comprehensive concussion services. These investments are accounted for under the equity
method.
Building Improvements and Equipment
Building improvements and equipment are carried at cost on the date of acquisition.
Depreciation expense is computed on a straight-line basis over the estimated useful lives of the
assets.
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable amounts from patients,
third-party payors and others for services rendered. Revenue from a single third-party payor
accounted for approximately 23% of the net patient revenue for fiscal years 2014 and
2013. Revenue from the Medicare program accounted for approximately 17% of the net patient
service revenue for the fiscal years 2014 and 2013.
Provision for Bad Debts
The provision for bad debt expense is based upon management’s assessment of expected net
collections considering economic conditions, historical experience, trends in health care
coverage, and other collection indicators. Periodically throughout the year, management assesses
the adequacy of the allowance for uncollectible accounts based upon historical write-off
experience by payer category, including those amounts not covered by insurance and history of
cash collections. The results of this review are then used to make any modifications to the
provision for bad debt expense to establish an appropriate allowance for uncollectible accounts.
After satisfaction of amounts due from insurance and reasonable efforts to collect from the
patient have been exhausted, JUP follows established guidelines for placing certain past-due
patient balances with collection agencies, subject to terms of certain restrictions on collection
efforts as determined by JUP. Accounts receivable are written off after collections efforts have
been followed in accordance with JUP policies.
- 6-
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
Grants and Contracts
The American Recovery and Reinvestment Act of 2009 established incentive payments under the
Medicare and Medicaid programs for certain health care providers that meaningfully use
certified electronic health record technology by 2014. JUP is accounting for these incentives
using the Gain Contingency accounting model. Accordingly, when all contingencies have been
met and the funds have been received, JUP recognizes these incentives as revenue. JUP
recognized $4.3 million and $2.5 million in fiscal year 2014 and 2013, respectively as grants and
contract revenue in the statement of operations.
Compensation and Academic Contributions
Compensation is paid to physicians based upon cash receipts and various qualitative factors.
Contributions are made to support the education and research missions of the University.
Contributions are included in the statement of operations and changes in net assets as transfers to
Thomas Jefferson University.
Reclassifications
Certain amounts in the prior year have been reclassified to conform to the current year
presentation.
Charity Care
Of JUP’s $368.2 million and $345.3 million of total operating expenses reported for the years
ended June 30, 2014 and 2013, respectively, an estimated $1.1 million and $1.2 million arose
from providing services to charity patients for the years ended June 30, 2014 and 2013,
respectively. The estimated costs of providing charity services are based on a calculation which
applies a ratio of costs to charges to the gross uncompensated charges associated with providing
care to charity patients. The ratio of cost to charges is calculated based on JUP’s total operating
expenses divided by gross professional activity revenue.
2. FAIR VALUE MEASUREMENT
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or
liabilities that the University has the ability to access at the measurement date;
Level 2 Inputs other than quoted prices that are observable for the asset or liability either
directly or indirectly, including inputs in markets that are not considered to be
active;
Level 3 Inputs that are unobservable.
- 7-
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
Inputs are used in applying the various valuations techniques and broadly refer to the assumption
that market participants use to make valuation decisions. An investments level within the fair
value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement. However, the determination of what constitutes “observable” requires significant
judgment. The categorization of an investment within the hierarchy is based upon the pricing
transparency of the instrument and does not necessarily correspond to JUP’s perceived risk of
that instrument.
Investments whose values are based on quoted market prices in active markets, are therefore
classified within Level 1, and include certain money market securities.
Investments that trade in markets that are not considered to be active, but are valued based on
quoted market prices, dealer quotations or alternative pricing sources supported by observable
inputs are classified within Level 2. They included certain U.S. government obligations, most
government agency securities, and investment-grade corporate bonds. Also, included in this
category are commingled fixed income funds. As Level 2 investments, they include positions
that are not traded in active markets and/or subject to transfer restrictions.
JUP has no Level 3 investments at June 30, 2014 or 2013. There were no transfers between
Levels 1 and 2 during 2014 or 2013.
The following table presents the cash and cash equivalents and short-term investments carried on
the balance sheet by level within the valuation hierarchy as of June 30, 2014 (in thousands):
Cash and cash equivalents
Fixed income securities:
U.S Treasuries
Total
Level 1
$55,032
Level 2
$6,684
Level 3
-
Total
$61,716
$55,032
19,644
$26,328
-
19,644
$81,360
The following table presents the cash and cash equivalents and short-term investments carried on
the balance sheet by level within the valuation hierarchy as of June 30, 2013 (in thousands):
Cash and cash equivalents
Fixed income securities:
U.S. Treasuries
Total
Level 1
$39,447
Level 2
$2,541
Level 3
-
Total
$41,988
$39,447
23,036
$25,577
-
23,036
$65,024
- 8-
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
3. BUILDING IMPROVEMENTS AND EQUIPMENT
Building improvements and equipment at June 30, 2014 and 2013 are as follows:
2014
2013
Building improvements
Equipment
Construction in progress
Less: accumulated depreciation
$12,863,970
35,319,275
230,826
(31,761,880)
$7,462,787
34,037,173
422,043
(29,054,005)
Total building improvements and equipment, net
$16,652,191
$12,867,998
JUP recorded $2.7 million and $5.8 million of depreciation expense for the years ended June 30,
2014 and 2013, respectively. Depreciation expense is reflected in the line item other expenses
on the statements of operations and changes in net assets. Included in depreciation expense for
the fiscal year ended June 30, 2013 is additional depreciation of $3.5 million associated with an
electronic medical record information system. Management has determined that it is probable
that the existing system will be replaced prior to the end of its previously estimated useful life.
For financial reporting purposes, JUP uses straight-line depreciation over the assets’ estimated
lives, which are as follows:
Buildings and building improvements
Fixed equipment
Major moveable equipment
20-40 years
5-10 years
5-10 years
4. PENSION PLANS
JUP has a defined contribution plan for employees who work at least 1,000 hours a year. JUP
makes contributions to the plan based on a percentage of compensation and years of service
within limits as established by the IRS. Employees become fully vested after one year of
service. Contributions to the plan for each of the years ended June 30, 2014 and 2013 were
approximately $12.5 million and $11.9 million, respectively.
- 9-
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
5. PROFESSIONAL LIABILITY CLAIMS
JUP maintains professional liability insurance under both self-insured and alternative risk
financing insurance programs. For all self-insured programs JUP accrues for estimated retained
risk liability arising from both asserted and unasserted claims. The estimate of liability is based
upon an analysis of historical claims data as prepared by an independent actuary. Accrued
professional liability claims of $151.4 million and $150.8 million were included in the
consolidated balance sheets at June 30, 2014 and 2013, respectively, using discount rates of 3%
at June 30, 2014 and 2013. Included in the accrued professional liability claims is $78.2 and
$84.2 million at June 30, 2014 and 2013, respectively, related to estimated liabilities that have
been transferred to third parties. A corresponding receivable of $78.2 and $84.2 million is
included in Insurance receivable in the balance sheet at June 30, 2014 and 2013, respectively.
Professional liability expense of $29.5 million and $28.0 million is included in the statement of
operations for the years ended June 30, 2014 and 2013, respectively.
JUP maintains professional liability insurance through a policyholder-owned, Vermontdomiciled, risk retention group, Mountain Laurel Risk Retention Group, Inc. (“RRG”), which
was exclusively owned by Jefferson Health System (JHS) until June 30, 2014. For the
professional liability coverage only, the RRG is 100% reinsured by a non-profit captive protected
cell insurance company, Five Pointe Insurance Company (Five Pointe), domiciled in
Delaware. Until June 30, 2014, JHS held the sole common membership in Five Pointe. On June
30, 2014, in connection with the TJUH separation from JHS and merger with the University, JHS
transferred 49% of the common stock of the RRG to the University. Additionally, JHS
relinquished its sole common membership in Five Pointe and transferred 48% of the membership
units to TJUH.
JUP participates in the Medical Availability and Reduction of Error Fund (“MCARE Fund”),
which is a Pennsylvania governmentally authorized entity that consists of coverage with limits of
$500,000 per medical incident and a $1.5 million annual aggregate per physician. The annual
assessments for MCARE Fund coverage are based on the schedule of occurrence rates approved
by the Insurance Commissioner of Pennsylvania for the Pennsylvania Professional Liability Joint
Underwriting Association multiplied by an annual assessment percentage. No provision has
been made for any future MCARE Fund assessments in the accompanying consolidated financial
statements as JUP’s portion of the MCARE Fund unfunded liability cannot be reasonably
estimated.
While management continues to monitor the factors used in making these estimates, the ultimate
liability for professional and general liability claims could differ from current estimates due to
the inherent uncertainties involved in making such estimates.
TJUH has agreed to partially fund JUP payments for professional liability settlements in excess
of primary and MCARE coverage limits. Pursuant to these agreements, $13.6 million and $1.7
million is included in the related party reimbursement for physician services in the statement of
operations and changes in net assets for the years ended June 30, 2014 and 2013, respectively.
- 10-
Jefferson University Physicians (Pre-merger)
Notes to Financial Statements
June 30, 2014 and 2013
6. COMMITMENTS AND CONTINGENCIES
JUP is involved in litigation and regulatory investigations arising in the ordinary course of
business. Based on the information currently available, in the opinion of management, all such
matters are adequately covered by commercial insurance or by accruals, and if not so covered,
are of such kind, or involve such amounts, as would not have a material adverse effect on the
financial position or results of operations of JUP.
7. LINES OF CREDIT
JUP has available an unsecured line of credit of $5.0 million at June 30, 2014, under which there
were no borrowings as of June 30, 2014. This arrangement does not have a termination date and
is reviewed periodically. No compensating balance is required or maintained.
8. RELATED PARTY
JUP and the University provide TJUH with physician and non-physician personnel and other
support necessary to preserve and maintain the tertiary care capacity of TJUH. As a result, JUP
receives funds from the University and TJUH. In 2014 and 2013, TJUH agreed to partially fund
JUP payments for professional liability settlements. Refer to Note 5. Additionally, in 2014 and
2013, TJUH agreed to fund certain clinical practice renovations of $4.6 million and $474,000
respectively. The amounts recognized for the years ended June 30, 2014 and 2013 were $124.8
million and $106.0 million, respectively. Included in due from TJUH on the balance sheet is
$27.7 million and $21.1 million at June 30, 2014 and 2013 respectively.
JUP supports the education and research missions of the University. For the years ended June
30, 2014 and 2013 the amounts were $35.8 million and $37.4 million, respectively and are
included in transfers to Thomas Jefferson University, net.
The University provides support to certain clinical programs in JUP. The amounts provided for
the years ended June 30, 2014 and 2013 were $3.2 and $3.6 million, respectively. These
amounts are included in transfers to Thomas Jefferson University, net.
The University provides JUP the following services: administrative, finance, legal, human
resources, internal audit, information systems, maintenance, and security services. The amounts
charged to JUP were $6.5 million and $5.7 million, respectively and are recorded as part of other
expenses on the statement of operations and changes in net assets for the years ended June 30,
2014 and 2013.
9. SUBSEQUENT EVENTS
JUP has monitored subsequent events from the date of the balance sheet through September 23,
2014. At 10:59AM on June 30, 2014 TJUH separated from Jefferson Health System and merged
with the University. No material items were noted that would require an adjustment to or
disclosure in the financial statements.
- 11-

Download Report