APPENDIX 28-A Metropolis Health System’s Financial Statements and Excerpts from Notes Metropolis Health System Balance Sheet March 31, 20X3 and 20X2 Assets Current Assets Cash and cash equivalents $1,150,000 $400,000 Assets whose use is limited 825,000 825,000 Patient accounts receivable 8,700,000 8,950,000 Less allowance for bad debts (1,300,000) (1,300,000) Other receivables 150,000 100,000 Inventories of supplies 900,000 850,000 Prepaid expenses 200,000 150,000 Total Current Assets 10,625,000 9,975,000 Assets Whose Use Is Limited Corporate funded depreciation 1,950,000 1,800,000 Under bond indenture agreements—held by trustee 1,425,000 1,475,000 Total Assets Whose Use Is Limited 3,375,000 3,275,000 Less Current Portion (825,000) (825,000) Net Assets Whose Use Is Limited 2,550,000 2,450,000 Property, Plant, and Equipment, Net 19,300,000 19,200,000 Other Assets 325,000 375,000 Total Assets $32,800,000 $32,000,000 Metropolis Health System Balance Sheet March 31, 20X3 and 20X2 Liabilities and Fund Balance Current Liabilities Current maturities of long-term debt $525,000 $500,000 Accounts payable and accrued expenses 4,900,000 5,300,000 Bond interest payable 300,000 325,000 Reimbursement settlement payable 100,000 175,000 Total Current Liabilities 5,825,000 6,300,000 Long-Term Debt 6,000,000 6,500,000 Less Current Portion of Long-Term Debt (525,000) (500,000) Net Long-Term Debt 5,475,000 6,000,000 Total Liabilities 11,300,000 12,300,000 Fund Balances General Fund 21,500,000 19,700,000 Total Fund Balances 21,500,000 19,700,000 Total Liabilities and Fund Balances $32,800,000 $32,000,000 Metropolis Health System Statement of Revenue and Expenses for the Years Ended March 31, 20X3 and 20X2 Revenue Net patient service revenue $34,000,000 $33,600,000 Other revenue 1,100,000 1,000,000 Total Operating Revenue 35,100,000 34,600,000 Expenses Nursing services 5,025,000 5,450,000 Other professional services 13,100,000 12,950,000 General services 3,200,000 3,220,000 Support services 8,300,000 8,340,000 Depreciation 1,900,000 1,800,000 Amortization 50,000 50,000 Interest 325,000 350,000 Provision for doubtful accounts 1,500,000 1,600,000 Total Expenses 33,400,000 33,760,000 Income from Operations 1,700,000 840,000 Nonoperating Gains (Losses) Unrestricted gifts and memorials 20,000 70,000 Interest income 80,000 40,000 Nonoperating Gains, Net 100,000 110,000 Revenue and Gains in Excess of Expenses and Losses $1,800,000 $950,000 Metropolis Health System Statement of Changes in Fund Balance for the Years Ended March 31, 20X3 and 20X2 General Fund Balance April 1st $19,700,000 $18,750,000 Revenue and Gains in Excess of 1,800,000 950,000 Expenses and Losses General Fund Balance March 31st $21,500,000 $19,700,000 Metropolis Health System Schedule of Property, Plant, and Equipment for the Years Ended March 31, 20X3 and 20X2 Buildings and Improvements $14,700,000 $14,000,000 Land Improvements 1,100,000 1,100,000 Equipment 28,900,000 27,600,000 Total 44,700,000 42,700,000 Less Accumulated Depreciation (26,100,000) (24,200,000) Net Depreciable Assets 18,600,000 18,500,000 Land 480,000 480,000 Construction in Progress 220,000 220,000 Net Property, Plant, and Equipment $19,300,000 $19,200,000 Metropolis Health System Schedule of Patient Revenue for the Years Ended March 31, 20X3 and 20X2 Patient Services Revenue Routine revenue $9,850,000 $9,750,000 Laboratory 7,375,000 7,300,000 Radiology and CT scanner 5,825,000 5,760,000 OB–nursery 450,000 445,000 Pharmacy 3,175,000 3,140,000 Emergency service 2,200,000 2,180,000 Medical and surgical supply and IV 5,050,000 5,000,000 Operating rooms 5,250,000 5,200,000 Anesthesiology 1,600,000 1,580,000 Respiratory therapy 900,000 890,000 Physical therapy 1,475,000 1,460,000 EKG and EEG 1,050,000 1,040,000 Ambulance services 900,000 890,000 Oxygen 575,000 570,000 Home health and hospice 1,675,000 1,660,000 Substance abuse 375,000 370,000 Other 775,000 765,000 Subtotal 48,500,000 48,000,000 Less Allowances and Charity Care 14,500,000 14,400,000 Net Patient Service Revenue $34,000,000 $33,600,000 Metropolis Health System Schedule of Operating Expenses for the Years Ended March 31, 20X3 and 20X2 Nursing Services Routine Medical/Surgical $3,880,000 $4,200,000 Operating Room 300,000 325,000 Intensive Care Units 395,000 430,000 OB–Nursery 150,000 165,000 Other 300,000 330,000 Total $5,025,000 $5,450,000 Other Professional Services Laboratory $2,375,000 $2,350,000 Radiology and CT Scanner 1,700,000 1,680,000 Pharmacy 1,375,000 1,360,000 Emergency Service 950,000 930,000 Medical and Surgical Supply 1,800,000 1,780,000 Operating Rooms and Anesthesia 1,525,000 1,515,000 Respiratory Therapy 525,000 530,000 Physical Therapy 700,000 695,000 EKG and EEG 185,000 180,000 Ambulance Services 80,000 80,000 Substance Abuse 460,000 450,000 Home Health and Hospice 1,295,000 1,280,000 Other 130,000 120,000 Total $13,100,000 $12,950,000 General Services Dietary $1,055,000 $1,060,000 Maintenance 1,000,000 1,010,000 Laundry 295,000 300,000 Housekeeping 470,000 475,000 Security 50,000 50,000 Medical Records 330,000 325,000 Total $3,200,000 $3,220,000 Support Services General $4,600,000 $4,540,000 Insurance 240,000 235,000 Payroll Taxes 1,130,000 1,180,000 Employee Welfare 1,900,000 1,950,000 Other 430,000 435,000 Total $8,300,000 $8,340,000 Depreciation $1,900,000 $1,800,000 Amortization 50,000 50,000 Interest Expense 325,000 350,000 Provision for Doubtful Accounts 1,500,000 1,600,000 Total Operating Expenses $33,400,000 $33,760,000 EXCERPTS FROM METROPOLIS HEALTH SYSTEM NOTES TO FINANCIAL STATEMENTS Note 1—Nature of Operations and Summary of Significant Accounting Policies General Metropolis Hospital System (Hospital) currently operates as a general acute care hospital. The hospital is a municipal corporation and body politic created under the hospital district laws of the state. Cash and Cash Equivalents For purposes of reporting cash flows, the hospital considers all liquid investments with an original maturity of three months or less to be cash equivalents. Inventory Inventory consists of supplies used for patients and is stated as the lower of cost or market. Cost is determined on the basis of most recent purchase price. Investments Investments, consisting primarily of debt securities, are carried at market value. Realized and unrealized gains and losses are reflected in the statement of revenue and expenses. Investment income from general fund investments is reported as nonoperating gains. Income Taxes As a municipal corporation of the state, the hospital is exempt from federal and state income taxes under Section 115 of the Internal Revenue Code. Property, Plant, and Equipment Expenditures for property, plant, and equipment, and items that substantially increase the useful lives of existing assets are capitalized at cost. The hospital provides for depreciation on the straight-line method at rates designed to depreciate the costs of assets over estimated useful lives as follows: Years Equipment 5 to 20 Land Improvements 20 to 25 Buildings and Improvements 40 Funded Depreciation The hospital’s Board of Directors has adopted the policy of designating certain funds that are to be used to fund depreciation for the purpose of improvement, replacement, or expansion of plant assets. Unamortized Debt Issue Costs Revenue bond issue costs have been deferred and are being amortized. Revenue and Gains in Excess of Expenses and Losses The statement of revenue and expenses includes revenue and gains in excess of expenses and losses. Changes in unrestricted net assets that are excluded from excess of revenue over expenses, consistent with industry practice, would include such items as contributions of long-lived assets (including assets acquired using contributions that by donor restriction were to be used for the purposes of acquiring such assets) and extraordinary gains and losses. Such items are not present on the current financial statements. Net Patient Service Revenue Net patient service revenue is reported as the estimated net realizable amounts from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers. 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. Contractual Agreements with Third-Party Payers The hospital has contractual agreements with third-party payers, primarily the Medicare and Medicaid programs. The Medicare program reimburses the hospital for inpatient services under the Prospective Payment System, which provides for payment at predetermined amounts based on the discharge diagnosis. The contractual agreement with the Medicaid program provides for reimbursement based upon rates established by the state, subject to state appropriations. The difference between established customary charge rates and reimbursement is accounted for as a contractual allowance. Gifts and Bequests Unrestricted gifts and bequests are recorded on the accrual basis as nonoperating gains. Donated Services No amounts have been reflected in the financial statements for donated services. The hospital pays for most services requiring specific expertise. However, many individuals volunteer their time and perform a variety of tasks that help the hospital with specific assistance programs and various committee assignments. Note 2—Cash and Investments Statutes require that all deposits of the hospital be secured by federal depository insurance or be fully collateralized by the banking institution in authorized investments. Authorized investments include those guaranteed by the full faith and credit of the United States of America as to principal and interest; or in bonds, notes, debentures, or other similar obligations of the United States of America or its agencies; in interest-bearing savings accounts or interest-bearing certificates of deposit; or in certain money market mutual funds. At March 31, 20X3, the carrying amount and bank balance of the hospital’s deposits with financial institutions were $190,000 and $227,000, respectively. The difference between the carrying amount and the bank balance primarily represents checks outstanding at March 31, 20X3. All deposits are fully insured by the Federal Deposit Insurance Corporation or collateralized with securities held in the hospital’s name by the hospital agent. Carrying Amount 20X3 20X2 U.S. Government Securities or U.S. Government Agency Securities $4,325,000 $3,575,000 Total Investments 4,325,000 3,575,000 Petty Cash 3,000 3,000 Deposits 190,000 93,000 Accrued Interest 7,000 4,000 Total 4,525,000 3,675,000 Consisting of Cash and Cash Equivalents—General Fund 1,150,000 400,000 Assets Whose Use Is Limited Corporate Funded Depreciation 1,950,000 1,800,000 Held by Trustee Under 1,425,000 1,475,000 Bond Indenture Agreements Total $4,525,000 $3,675,000 Note 3—Charity Care The hospital voluntarily provides free care to patients who lack financial resources and are deemed to be medically indigent. Such care is in compliance with the hospital’s mission. Because the hospital does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. The hospital maintains records to identify and monitor the level of charity care it provides. These records include the amount of charges forgone for services and supplies furnished under its charity care policy. During the years ended March 31, 20X3 and 20X2, such charges forgone totaled $395,000 and $375,000, respectively. Note 4—Net Patient Service Revenue The hospital provides healthcare services through its inpatient and outpatient care facilities. The mix of receivables from patients and third-party payers at March 31, 20X3 and 20X2, is as follows: 20X3 20X2 Medicare 30.0% 28.5% Medicaid 15.0 16.0 Patients 13.0 12.5 Other third-party payers 42.0 43.0 Total 100.0% 100.0% The hospital has agreements with third-party payers that provide for payments to the hospital at amounts different from its established rates. Contractual adjustments under third-party reimbursement programs represent the difference between the hospital’s established rates for services and amounts paid by third-party payers. A summary of the payment arrangements with major third-party payers follows. Medicare Inpatient acute care rendered to Medicare program beneficiaries is paid at prospectively determined rates-per-discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors. Inpatient nonacute care services and certain outpatient services are paid based upon either a cost reimbursement method, established fee screens, or a combination thereof. The hospital is reimbursed for cost reimbursable items at a tentative rate with final settlement determination after submission of annual cost reports by the hospital and audits by the Medicare fiscal intermediary. At the current year end, all Medicare settlements for the previous two years are subject to audit and retroactive adjustments. Medicaid Inpatient services rendered to Medicaid program beneficiaries are reimbursed at prospectively determined rates-per-day. Outpatient services rendered to Medicaid program beneficiaries are reimbursed at prospectively determined rates-per-visit. Blue Cross Inpatient services rendered to Blue Cross subscribers are reimbursed under a cost reimbursement methodology. The hospital is reimbursed at a tentative rate with final settlement determined after submission of annual cost reports by the hospital and audits by Blue Cross. The Blue Cross cost report for the prior year end is subject to audit and retroactive adjustment. The hospital has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations. The bases for payment under these agreements include discounts from established charges and prospectively determined daily rates. Gross patient service revenue for services rendered by the hospital under the Medicare, Medicaid, and Blue Cross payment agreements for the years ended March 31, 20X3 and 20X2, is approximately as follows: 20X3 20X2 Amount % Amount % Medicare $20,850,000 43.0 $19,900,000 42.0 Medicaid 10,190,000 21.0 10,200,000 21.5 All other payers 17,460,000 36.0 17,300,000 36.5 $48,500,000 100.0 $47,400,000 100.0 Note 5—Property, Plant, and Equipment The hospital’s property, plant, and equipment at March 31, 20X3 and 20X2, are as follows: 20X3 20X2 Buildings and improvements $14,700,000 $14,000,000 Land improvements 1,100,000 1,100,000 Equipment 28,900,000 27,600,000 Total $44,700,000 $42,700,000 Accumulated depreciation (26,100,000) (24,200,000) Net Depreciable Assets $18,600,000 $18,500,000 Land 480,000 480,000 Construction in progress 220,000 220,000 Net Property, Plant, Equipment $19,300,000 $19,200,000 Construction in progress, which involves a renovation project, has not progressed in the last 12-month period because of a zoning dispute. The project will not require significant outlay to reach completion, as anticipated additional expenditures are currently estimated at $100,000. Note 6—Long-Term Debt Long-term debt consists of the following: Hospital Facility Revenue Bonds (Series 1995) at varying interest rates from 4.5% to 5.5%, depending on date of maturity through 2020. 20X3 20X2 $6,000,000 $6,500,000 The future maturities of long-term debt are as follows: Years Ending March 31 20X2 $ 475,000 20X3 500,000 20X4 525,000 20X5 550,000 20X6 575,000 20X7 600,000 Thereafter 3,750,000 Under the terms of the trust indenture the following funds (held by the trustee) were established: an interest fund, a bond sinking fund, and a debt service reserve fund. Interest Fund The hospital deposits (monthly) into the interest fund an amount equal to one-sixth of the next semi-annual interest payment due on the bonds. Bond Sinking Fund The hospital deposits (monthly) into the bond sinking fund an amount equal to one-twelfth of the principal due on the next July 1. Debt Service Reserve Fund The debt service reserve fund must be maintained at an amount equal to 10% of the aggregate principal amount of all bonds then outstanding. It is to be used to make up any deficiencies in the interest fund and bond sinking fund. Assets held by the trustee under the trust indenture at March 31, 20X3 and 20X2 are as follows: 20X3 20X2 Interest Fund $ 300,000 $ 325,000 Bond Sinking Fund 525,000 500,000 Debt Service Reserve 600,000 650,000 Total $1,425,000 $1,475,000 Note 7—Commitments At March 31, 20X3, the hospital had commitments outstanding for a renovation project at the hospital of approximately $100,000. Construction in progress on the renovation has not progressed in the last 12-month period because of a zoning dispute. Upon resolution of the dispute, remaining construction costs will be funded from corporate funded depreciation cash reserves. (Baker 405) Baker, Judith J. Health Care Finance, 4th Edition. Jones & Bartlett Learning, 08/2013. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use.