Table of Risk This week you will identify the systems that you will need to implement to monitor and report the risks within the new Risk Management System. This includes any internal and/or external resources that will be necessary. You will also need to identify methods to measure the risk. It may be necessary to revise (somewhat) your areas of financial and operational risk developed in Module 03.For each risk that you discovered in Module 03 and/or this week, decide how you will measure, monitor, and report on the risk to the board of directors. Also, decide how you will report the risk to the shareholders in the financial statements and notes. You may add columns for this information to your table developed in Module 03. Be sure to use footnotes if more information is needed than you feel is possible to include in the table.For more information, please review the Course Project Overview.Each team member should submit the completed assignment to the drop box below. Please check the Course Calendar for specific due dates. Statistical Analysis:
Adjusted Patient Days
Average Daily Census
Average Length of
Urgent Care Visits
Home Health Visits
Full Time Equivalent Employees
FY 2014 and 2015
Cash and cash equivalents
Cash and investments held by bond trustee –
required for current liabilities
Accounts receivable, less allowances for
patient accounts of approximately $40,466,000 and
$38,196,000 in 2010 and 2009, respectively
Estimated third-party settlements, net
Prepaid expenses and other current assets
Total current assets
Assets limited as to use:
Cash and investments held by bond trustee, less current portion
Interest rate swaps
Long-term debt, less current portion
Total assets limited as to use
Property and equipment, net
Deferred loan costs, net
Due from affiliates
Total other assets
Employee compensation and
Current portion of long-term debt
Total current liabilities
Total net assets
Total liabilities and net assets
See accompanying notes to combined financial statements.
Combined Statements of Operations
and Changes in Net Assets
Years ended 2015 and 2014
Net patient service revenue
Salaries, wages, and benefits
Supplies and other costs
Physician and other professional fees
Provision for bad debts
Depreciation and amortization
Income (loss) from operations
Nonoperating gains (losses):
Investment loss, net
Change in net unrealized gains and losses on investments
Change in fair value of interest rate swaps
Change in interest in net assets of Leesburg Regional
Medical Center Charitable Foundation, Inc.
Loss on extinguishment of debt
Gain on sale of property and equipment
Nonoperating gains (losses), net
Excess (deficiency) of revenue and gains over expenses
before discontinued operations
See accompanying notes to combined financial statements.
Combined Statements of Cash Flows Years ended 2015 and 2014
Cash flows from operating activities and nonoperating gains:
Change in net assets
Adjustments to reconcile change in net assets to net cash
provided by operating activities and nonoperating gains:
Depreciation and amortization
Provision for bad debts
Change in fair value of interest rate swaps
Change in net unrealized gains and losses on
Gain on sale of property and equipment
Change in interest in net assets of Foundation
Gain on sale of businesses
Loss on early extinguishment of debt
Amortization of premiums and discounts, net
Changes in operating assets and liabilities:
Estimated third-party receivables/payables
Prepaid expenses and other assets
Other noncurrent liabilities
Cash flows from investing activities:
Net change in investments
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from sale of businesses
Net change in assets limited as to use
Net cash used in investing activities
Cash flows from financing activities:
Repayment of long-term debt and capital lease
from issuance of long-term debt
Change in due from affiliates
Payment of loan costs
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Noncash financing activity:
Notes receivable received in sales of businesses
Net cash provided by operating activities and
Cash and cash equivalents, end of year
Relevant Notes to Financial Statements:
1. Organization and Summary of Significant Accounting Policies
a. Use of Estimates – The preparation of these combined financial statements, in
conformity with U.S. generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the combined
financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
b. Cash and Cash Equivalents – CCH considers all highly liquid investments with a
maturity of three months or less when purchased, excluding investments classified as
assets limited as to use, to be cash equivalents.
2. Assets Limited as to Use, Investments, and Investment Income
Investments in equity securities with readily determinable fair values and all investments in
debt securities are measured at fair value in the combined balance sheets. Investment income
(including realized gains and losses on investments, unrealized gains and losses on trading
securities, interest and dividends) is included in excess of revenues and gains over expenses
unless such earnings are subject to donor restrictions. Investment income that is restricted by
donor stipulations is reported as an increase in temporarily restricted net assets.
Other assets limited as to use includes $4,575,567 and $2,660,774 as of 2015 and 2014,
respectively, which has been designated for the State of Florida workers’ compensation and
medical malpractice requirements.
3. Allowance for Uncollectible Patient Accounts
Additions to the allowance for uncollectible patient accounts are made by means of the
provision for bad debts. Accounts receivable are written off after collection efforts have been
followed in accordance with CCH’s policies. Accounts written off as uncollectible are deducted
from the allowance for uncollectible patient accounts, and subsequent recoveries are added.
The amount of the provision for bad debts is based upon management’s assessment of
historical and expected net collections, business and economic conditions, trends in federal and
state government healthcare coverage and other collection indicators.
4. Interest Rate Swaps
CCH uses interest rate swaps to manage net exposure to interest rate changes related to its
borrowings and to lower its overall borrowing costs. CCH recognizes all interest rate swaps as
either assets or liabilities in the combined balance sheets and measures those instruments at
fair value. The changes in fair value of the derivatives are recognized as nonoperating gains
5. Net Patient Service Revenue
Gross patient service charges are recorded on the accrual basis in the period in which services
are provided at CCH’s established rates, excluding charges related to charity care. Contractual
adjustments and other deductions are subtracted from gross patient service charges to
determine net patient service revenue. Contractual adjustments under third-party
reimbursement programs and agreements represent the difference between CCH’s established
rates for services and amounts reimbursed by third-party payors. Payment arrangements
under third-party reimbursement programs and agreements include prospectively determined
rates per discharge, reimbursed costs, discounted charges and per diem payments. Other
deductions from revenue include discounts provided to self-pay patients.
Net patient service revenue is reported at the net realizable amounts due from patients, thirdparty payors and others for services rendered, including estimated retroactive adjustments
under reimbursement agreements with third-party payors due to future audits, reviews and
investigations. Retroactive adjustments are accrued on an estimated basis in the period the
related services are rendered and adjusted in future periods as final settlements are
determined or as years are no longer subject to such audits, reviews and investigations.
6. Medicare and Medicaid Programs
The Medicare program CCH for services rendered on a prospective basis. Payments for
inpatient services are based on each patient’s DRG assignment. Payments for outpatient
services are based on the Ambulatory Payment Group (APC) assignment. DRGs and APCs are
based on each patient’s clinical diagnosis and medical procedures. The Medicare program also
reimburses CCH for capital costs on a prospective basis. CCH are reimbursed for cost
reimbursable items at a tentative rate with final settlement determined after audit by the fiscal
intermediary. The Medicaid program reimburses CCH on a per service basis established by
using prior year’s cost, not to exceed the current year’s allowable cost. Annual provisions for
contractual adjustments are based on management’s computation of prospective payments
and allowable costs. Final determination of amounts earned pursuant to the Medicare and
Medicaid programs is subject to review by appropriate governmental authorities or their
agents. In the opinion of management, adequate provision has been made for any adjustments
that may result from such reviews.
Final settlements have been determined and received for all Medicare cost reports through the
year ended 2008. Adjustments to revenue are accrued on an estimated basis in the period the
related services are rendered and adjusted in future periods as changes in estimated provisions
and final settlements are determined. Adjustments to revenue related to prior periods
decreased net patient service revenue by approximately $220,000 and increased net patient
service revenue by approximately $3,299,000 for the years ended 2014 and 2014,
Approximately 61% and 63% of net patient service revenue was derived from the Medicare
program for the years ended 2015 and 2014, respectively. Approximately 4% and 1% of net
patient service revenue was derived from the Medicaid program for the years ended 2015 and
2014, respectively. Laws and regulations governing the Medicare and Medicaid programs are
extremely complex and subject to interpretation. As a result, there is at least a reasonable
possibility that recorded estimates will change by a material amount in the near term.
7. Uncompensated Care
CCH provides uncompensated charity care to patients who meet certain established criteria.
CCH does not pursue collection of amounts determined to qualify as charity care; therefore,
these amounts are excluded from net patient service revenues. Charity care at established
rates was approximately $31,091,000 and $23,949,000 for the years ended 2015 and 2014,
CCH also provides uncompensated care to patients that do not have health insurance or that
do not meet the established criteria for charity care. CCH pursues collection of these amounts
net of any discounts; however, certain amounts are eventually determined to be
uncollectible. These amounts are classified as provision for bad debts in the accompanying
combined statements of operations and changes in net assets and totaled approximately
$26,962,000 and $27,321,000 for the years ended 2015 and 2014, respectively.
8. Long-Term Debt
In August 2008, CCH entered into another interest rate swap agreement (the Second Swap
Agreement) to limit the effect of increases in interest rates related to the 2008A Series Bonds.
The Second Swap Agreement expires in July 2031. The notional principal amount of the Swap
Agreement is $22,655,000. The effect of the Second Swap Agreement is to attempt to fix the
effective interest rate at 3.352%. For the years ended, 2015 and 2014, CCH recognized an
increase in interest expense of $702,541 and $458,712, respectively, in the combined
statements of operations and changes in net assets associated with payment differentials for
its Second Swap Agreement. The fair value of the Second Swap Agreement is the estimated
amount LRMC would receive or pay to terminate the Second Swap Agreement at the reporting
date, taking into account current interest rates and the current creditworthiness of the parties.
The fair value of the Second Swap Agreement is a liability of $2,605,703 and $1,730,473 as
of June 30, 2010 and 2009, respectively, and is included as a separate noncurrent liability in
the accompanying combined balance sheets. The change in the fair value of the Second Swap
Agreement resulted in a loss of $875,230 and
$1,730,473 for the years ended 2015 and 2014, respectively, and is classified as a
nonoperating loss in the accompanying combined statements of operations and changes in net
Due to the uncertainty surrounding monoline bond insurers, such as AMBAC, MBIA, FSA, and
Radian, during 2009, CCH refunded the 2001 Auction Rate Bonds insured by AMBAC and the
2006 Bonds insured by Radian.
CCH has a defined contribution retirement plan (the Plan) covering substantially all employees.
The Plan provides that CCH will match 50% of employee contributions, up to 3% of the
contributing employee’s compensation. Additional contributions to the Plan are at the discretion
of the Board of Directors. CCH contributed an additional 1.25% of employee compensation for
the years ended, 2015 and 2014. Total Plan expense was approximately
$3,442,000 and $3,246,000 for the years ended 2015 and 2014, respectively.
CCH has an employee health benefit plan covering substantially all health costs for eligible
employees and their dependents, including self-insurance coverage for amounts up to a
specified level. Health plan expense was approximately $27,508,000 and $25,211,000 for the
years ended 2015 and 2014, respectively.
9. Commitments and Contingencies
CCH annually purchases commercial malpractice insurance policies to cover medical
malpractice claims. Such policies have deductible provisions, in varying amounts, for
which CCH is self-insured.
Losses that are subject to the deductible provisions, including an estimate of claims
incurred but not reported, total approximately $16,945,000 and $14,057,000 as of 2015
and 2014, respectively. Such amounts are included in other accrued expenses, if payment
is expected within one year, or as other long-term liabilities in the accompanying
combined balance sheets. CCH may be liable for ultimate losses in excess of amounts
accrued. In the opinion of management, such amounts would not have a material adverse
effect on CCH’s financial position or results of operations.
From time to time, CCH is involved in other litigation and claims arising in the normal
course of business. After consultation with legal counsel, management believes that these
matters will be resolved with no material adverse effect on CCH’s financial position or
results of operations.
10. Concentrations of Credit Risk
CCH grants credit without collateral to its patients, most of who are local residents and are
insured under third-party payor agreements. CCH does not charge interest on accounts
receivable. Net patient accounts receivable included approximately $24,174,000 or 55%, due
from the Medicare program as of 2015, and $20,126,000 or 50%, due from the Medicare
program as of 2015. The credit risk for other concentrations of receivables is limited due to the
large number of insurance companies and other payors that provide payments for services.
Controlling Retained Insurance Costs Through an Allocation
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