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2020 Audit Results Alameda Health System — A Public Hospital Authority
November 17, 2020 Dear Audit Committee Members:
Audit CommitteeCommittee Thank you for your continued engagement of Moss Adams LLP. We are pleased to have the opportunity to meet with you to discuss the results of our audit of the financial statements and federal program compliance of Alameda [Client] Health System (“the Health System”) for the year ended Alameda Health June 30, 2020. System – A Public The accompanying report, which is intended solely for the Health Authority use of the Audit Committee and management, presents important information regarding the financial statements of the Health System and our audit that we believe will be of interest to you. It is not intended for and should not be used by anyone other than these specified parties. 1 We conducted our audit with the objectivity and independence that you expect. We received the full support and assistance of the Health System’s personnel. We are pleased to serve and be associated with the Health System as its independent public accountants and look forward to our continued relationship.
We look forward to discussing our report or any other matters of interest with you during this meeting. Your Dedicated Team
Brian Conner, Kate Jackson, CPA CPA Engagement Concurring Other Team Partner Partner Members:
Lisa Schick 2 Engagement In-Charge
Glenn Bunting, John Feneis, Director, CPA Third-Party Engagement Reimbursement Senior Manager Practice, HCCG Agenda
• Auditor Opinion & Report • Communication with Those Charged with Governance • Financial Highlights • Health Care Industry Focus
3 Auditor Opinion & Report Scope of Services
We have performed the following services for Alameda Health System:
• Annual financial statement audit for the year ended June 30, 2020
We have also performed the following nonattest services:
• Assisted with tax preparation services
5 We will also perform the following nonattest services: • Annual single audit for the year ended June 30, 2020 • Assist with preparation of the auditee portion of the Data Collection Form Our Responsibility
To express our opinion on To perform an audit in To consider internal control To communicate findings whether the financial accordance with generally over financial reporting as that, in our judgment, are statements prepared by accepted auditing a basis for designing audit relevant to your management with your standards issued by the procedures but not for the responsibilities in oversight are fairly AICPA, Government purpose of expressing an overseeing the financial presented, in all material Auditing Standards issued opinion on its effectiveness reporting process. respects, and in by the Comptroller General or to provide assurance However, we are not
6 accordance with U.S. of the United States, concerning such internal required to design GAAP. However, our audit and design the audit to control. procedures for the purpose does not relieve you or obtain reasonable, rather of identifying other matters management of your than absolute, assurance to communicate to you. responsibilities. about whether the financial statements are free of material misstatement. Auditor Report on the Financial Statements
Unmodified Opinion
• Financial statements are presented fairly and in accordance with U.S. GAAP
7 Other Auditor Reports
GAGAS Report on Internal Control Over • No financial reporting findings Financial Reporting and on Compliance and • No compliance findings Other Matters
8 Communication with Those Charged with Governance Communication with Those Charge with Governance
• Significant accounting policies • Accounting estimates are reasonable • No audit adjustments • No issues discussed prior to our retention as auditors
10 • No disagreements with management • No material weaknesses identified • No awareness of instances of fraud or noncompliance with laws and regulations Single Audit Requirement – CARES Act Grant Funding
Provider Relief Grant Funds Received • Approximately $15.8 million received as of June 30, 2020. • Nonfederal entities that expend financial assistance of The receipt of HHS Grant $750,000 or more in federal awards will have a single or Funding under the CARES program-specific audit for their fiscal year that include the Act will likely subject the periods the funds are expended. District to a Single Audit • Additional guidance on what qualifies as a healthcare- under the Uniform related expense attributable to COVID-19 and what qualifies Guidance 11 as lost revenue was released in September and October 2020 . • More guidance is expected by November 2020. • Will require audits to also be conducted in accordance with government auditing standards. • Providers will have 9 months after their fiscal year end to file their Single Audit report. Financial Highlights Assets and Deferred Outflows (in millions)
2018 = $650 $300 2019 = $755 $250 2020 = $703
197 $200 189 180 174
154 151 $150 13 127 135 120 122 111
$100 84 90 86 71
$50 24 24 25 19 16 9 $0 Cash and Patient A/R, Due from Other current Capital Restricted Deferred cash net 3rd party assets assets, net cash outflows equivalents equivalents Liabilities and Deferred Inflows (in millions)
$600 2018 = $925
502 $500 2019 = $1,055
2020 = $981 $400 356 342
$300 14
201 $200 181 185
131 120 109 108 98 83 83 $100 86 72 56 60 55 46 57 30 $0 A/P Due to Other current Liquidity Net pension Other Deferred 3rd party liabilities facility liability noncurrent inflows liabilities Net Patient Service Accounts Receivable
Dollars (in millions) % Net Revenues
$150 $127 $120 30.0% $125 22.5% $84 25.0% 21.2% $100 16.4% 20.0% $75 15.0% 15 $50 10.0% $25 5.0%
$0 0.0% 2018 2019 2020 2018 2019 2020 Total Operating Expenses Year-to-Year Comparison
Total Operating Expenses (in millions)
June 30, 2019 June 30, 2018 $1,085 $1,075
Salaries, Wages 69% & Benefits 70% Physician Contract 16 Services Purchased Services 8% 9% Materials & Supplies
Facilities 8% 7%
Depreciation & Amortization 8% 8% Other 3% 1% 3% 2% 2% 2% Health Care Industry Focus Moss Adams
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Report of Independent Auditors and Financial Statements with FINALRequired Supplementary DRAFT Information Alameda Health System, a Public Hospital Authority (a Component Unit of the County of Alameda, California)
June 30, 2020 and 2019
Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS ...... 1
REPORT OF INDEPENDENT AUDITORS ...... 16
FINANCIAL STATEMENTS
Statements of Net Position ...... 19
Statements of Revenues, Expenses, and Changes in Net Position ...... 21
Statements of Cash Flows ...... 22
Notes to Financial Statements ...... 24
REQUIRED SUPPLEMENTARY INFORMATION Supplementary Pension andFINAL Postemployment Benefit InformationDRAFT ...... 68 Schedule of Proportionate Share of the Net OPEB Liability ...... 69
Management’s Discussion and Analysis
FINAL DRAFT Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
INTRODUCTION
The management’s discussion and analysis is intended to serve as a narrative overview and analysis of the financial performance for Alameda Health System – A Public Hospital Authority (Health System) for the fiscal years ended June 30, 2020 and 2019. This overview serves as an introduction to the audited financial statements, which can be found on pages 17-66 of this report. It should be read in conjunction with the more detailed information contained within the accompanying financial statements.
The annual report consists of the Health System’s management’s discussion and analysis, basic financial statements, notes to those statements, and required supplementary information. The basic financial statements include the Statements of Net Position, Statements of Revenues, Expenses, and Changes in Net Position, and Statements of Cash Flows. Together, they provide an indication of the Health System’s financial health.
The Statements of Net Position include all of the Health System’s assets, deferred outflows, liabilities, and deferred inflows utilizing the economic resources measurement focus and accrual basis of accounting. These also provide information as to which components of net position are categorized as net investment in capital assets, restricted or unrestricted for general purposes.
The Statements of Revenues, Expenses, and Changes in Net Position report all of the revenues and expenses that have contributed to the change in net position during the fiscal year. These include all of the Health System’s operating and nonoperating transactions.
The Statements of Cash Flows present information about the cash receipts and cash payments of the Health System during the most recent fiscal year. These statements show the effects on financial position of cash provided by and used in operating, investing, and noncapital and capital and related financing activities. When used with related disclosures and information in the other financial statements, the information in the Statements of Cash Flows helps readers assess the Health System’s ability to generate cash flows, its ability to meet its obligations as they come due, and its needs for external financing.
The basic financial statements include the financial position and activity of the Alameda County Healthcare Foundation as a discretely presented component unit, and also include the financial position and activity of the Alameda Health Partners as a FINALblended component unit of AlamedaDRAFT Health System. Notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the Health System’s financial statements.
1 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
CONDENSED FINANCIAL STATEMENT INFORMATION
Following is a presentation of certain summary financial information derived from the basic financial statements.
TABLE I COMPARATIVE STATEMENTS OF NET POSITION
June 30, June 30, June 30, Change in Change in 2020 2019 2018 2020/2019 2019/2018 (amounts in thousands)
Current assets $ 395,618 $ 387,589 $ 363,851 $ 8,029 $ 23,738 Noncurrent assets Restricted cash - capital fund 25,341 24,468 23,858 873 610 Capital assets, net 196,934 153,919 111,049 43,015 42,870
Total noncurrent assets 222,275 178,387 134,907 43,888 43,480
Total assets $ 617,893 $ 565,976 $ 498,758 $ 51,917 $ 67,218
Deferred outflows of resources $ 85,548 $ 189,237 $ 151,003 $ (103,689) $ 38,234
Current liabilities $ 313,485 $ 316,712 $ 293,747 $ (3,227) $ 22,965 Noncurrent liabilities Long-term obligations, net - 7,156 18,768 ( 7,156) ( 11,612) Other noncurrent liabilities 548,005 701,708 481,419 ( 153,703) 220,289
Total noncurrent liabilities 548,005 708,864 500,187 ( 160,859) 208,677
Total liabilities $ 861,490 $ 1,025,576 $ 793,934 $ (164,086) $ 231,642
Deferred inflows of resources $ 119,737 $ 30,240 $ 130,975 $ 89,497 $ (100,735)
Net position (deficit) Net investment in capital assets $ 196,934 $ 153,919 $ 111,049 $ 43,015 $ 42,870 Restricted for capital projects 25,341 24,468 23,858 873 610 Unrestricted deficit ( 500,061) ( 478,990) ( 410,055) ( 21,071) ( 68,935) Total net deficit $FINAL (277,786) $ (300,603 DRAFT) $ (275,148) $ 22,817 $ (25,455) FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF NET POSITION - 2020
Please refer to Table I – Comparative Statements of Net Position above.
Assets – 2020
Total assets increased by $51.9 million or 9.2% to $618.9 million at June 30, 2020 from June 30, 2019.
2 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Current assets increased $8.0 million from June 30, 2019, as a result of the following reasons:
Patient accounts receivable, net, decreased by $42.9 million or 33.7%. Net Days in Accounts Receivable decreased 9.8 days to 60.2 days at June 30, 2020 from 73.0 days at June 30, 2019. Key factors were a 9.4% decrease in billed patient charges relating to coronavirus pandemic, fully reserving legacy receivables at June 30, 2020, and stabilization of account receivables at nine months post go-live for EPIC.
Due from Alameda County increased by $45.9 million or 153.6%. Receivables were established for the Capital Designation and Capital Cost Transfer activity for $14.0 million and $25.8 million, respectively, based on terms within the Agreement on the Repayment of Debt between the County of Alameda and the Health System. Timing of payment is dependent on the Health System completing the requirements noted in the agreement and subsequent approval by the County of Alameda’s Board of Supervisors, both of which are anticipated to be complete by June 30, 2021. The behavioral health services receivable increased by $12.9 million for fiscal year 2020 supplemental funding that was paid in the subsequent quarter ending September 30, 2020.
Other current assets increased by $0.3 million or 2.2% due to a Covid-19 grant receivable for $2.9 million. These payments were received in the subsequent quarter ending September 30, 2020.
Noncurrent assets increased $43.9 million from June 30, 2019, as a result of the following reason:
Net capital assets increased by $43.0 million primarily due to the electronic health record (EHR) project, San Leandro Hospital’s rehabilitation unit project, and equipment purchases.
Deferred Outflows of Resources – 2020
Total deferred outflows of resources decreased by $103.7 million or 54.8% to $85.5 million at June 30, 2020 from June 30, 2019.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for PensionsFINAL, decreased by $92.9 million DRAFT as determined by actuarial consultants. Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, decreased by $10.8 million as determined by actuarial consultants.
Liabilities – 2020
Total liabilities decreased by $164.1 million or 16.0% to $861.5 million at June 30, 2020 from June 30, 2019.
Current liabilities decreased by $3.2 million from June 30, 2019, primarily as a result of the following reason:
Due to third-party payors decreased $15.9 million from adjustments to reserves for potential program overpayments based on recent updates from California Association of Public Hospitals and Health Systems (CAPH). See Note 4 and Note 12 for additional information.
3 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Noncurrent liabilities decreased by $160.9 million from June 30, 2019, as a result of the following reasons:
Pension obligations as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions, decreased by $145.8 million as determined by actuarial consultants.
Other postemployment benefits obligations as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, decreased by $23.2 million as determined by the actuarial consultants.
Other noncurrent liabilities, including other long-term liabilities, accrued compensated absences, and self- insurance liabilities increased by a combined $15.3M.
Long-term obligations, net of current maturities, decreased by $7.2 million according to the pension obligation bond payment schedules.
Deferred Inflows of Resources – 2020
Total deferred inflows of resources increased by $89.5 million to $119.7 million at June 30, 2020 from June 30, 2019.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions, increased by $73.8 million as determined by actuarial consultants.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, increased by $15.7 million as determined by actuarial consultants.
FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF NET POSITION – 2019
Please refer to Table I – Comparative Statements of Net Position on page 2. Assets – 2019 FINAL DRAFT Total assets increased by $67.2 million or 13.5% to $566.0 million at June 30, 2019 from June 30, 2018.
Current assets increased $23.7 million from June 30, 2019, as a result of the following reasons:
Patient accounts receivable, net, increased by $7.2 million or 6.0%. Net Days in Accounts Receivable increased 2.3 days to 73.0 days at June 30, 2019 from 70.7 days at June 30, 2019. Key factors were an increase in billed patient charges and a slowdown in the collection cycle during the last quarter of fiscal year 2020.
Due from third-party payors increased by $38.6 million or 28.6%. The EPP and QIP receivable increased by $63.5 million as payment was typically two years behind due to the nature of the programs. Offsetting this increase was other supplemental revenue receivables that were paid as appeals and audits of governmental programs for prior years were processed by the agencies.
4 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Due from State of California decreased by $19.1 million or 49.5% due to the timing of payments from the County of Alameda for the Health Plan of Alameda County (HPAC). These payments were received in the subsequent quarter ending September 30, 2020.
Noncurrent assets increased $43.5 million from June 30, 2019, as a result of the following reason:
Net capital assets increased by $42.9 million primarily due to equipment purchases, EHR project, and the San Leandro Hospital’s rehabilitation unit project.
Deferred Outflows of Resources – 2019
Total deferred outflows of resources increased by $38.2 million to $189.2 million at June 30, 2019, from June 30, 2018.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions, increased by $29.2 million as determined by actuarial consultants.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, increased by $9.1 million as determined by actuarial consultants.
Liabilities – 2019
Total liabilities increased by $231.6 million or 29.2% to $1.0 billion at June 30, 2019 from June 30, 2018.
Current liabilities increased by $23.0 million from June 30, 2019, primarily as a result of the following reason:
Due to third-party payors increased $20.3 million with additional reserves for potential program overpayments. Noncurrent liabilities increasedFINAL by $208.7 million from June DRAFT30, 2019 to June 30, 2018, for the following reasons: Amounts due to the County of Alameda Liquidity Facility increased by $23.0 million due to timing of cash receipts from funding sources.
Pension obligations as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions, increased by $159.9 million as determined by actuarial consultants.
Other postemployment benefits obligations as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, increased by $38.6 million as determined by the actuarial consultants.
Long-term obligations, net of current maturities decreased by $11.6 million according to payment schedules.
5 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Deferred Inflows of Resources – 2019
Total deferred inflows of resources decreased by $100.7 million to $30.2 million at June 30, 2019 from June 30, 2018.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions, decreased by $78.9 million as determined by actuarial consultants.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, decreased by $21.9 million as determined by actuarial consultants.
TOTAL NET POSITION
Total net position is the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources as reported in the following table. Total net position increased by $22.8 million to net deficit of $277.8 million at June 30, 2020 from June 30, 2019.
FINAL DRAFT
6 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
TABLE II COMPARATIVE STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
June 30, June 30, June 30, Change in Change in 2020 2019 2018 2020/2019 2019/2018 (amounts in thousands)
Operating revenues Patient service revenues, net $ 511,506 $ 564,337 $ 566,157 $ (52,831) $ (1,820) Capitation revenues 88,472 67,504 33,678 20,968 33,826 Other government programs 425,427 387,867 378,822 37,560 9,045 Other operating revenues 30,407 27,222 26,914 3,185 308
Total operating revenues 1,055,812 1,046,930 1,005,571 8,882 41,359
Operating Expenses Salaries and benefits 745,085 746,368 696,588 (1,283) 49,780 Physician contract services and purchased services 168,298 166,134 169,203 2,164 (3,069) Materials and supplies 85,944 87,822 86,995 (1,878) 827 Depreciation and amortization 24,581 15,116 16,524 9,465 (1,408) Other operating costs 60,937 59,772 57,701 1,165 2,071
Total operating expenses 1,084,845 1,075,212 1,027,011 9,633 48,201
Operating loss (29,033) (28,282) (21,440) (751) (6,842)
Nonoperating revenue (expenses), net 15,099 (2,323) (680) 17,422 (1,643)
Income (loss) before other revenues, expenses, gains, losses, and transfers (13,934) (30,605) (22,120) 16,671 (8,485) Capital contributions 2,805 7,500 9,000 (4,695) (1,500) Capital transfers 33,946 (2,350) 2,048 36,296 (4,398)
Decrease (increase) in net deficit 22,817 (25,455) (11,072) 48,272 (14,383)
Net deficit, beginning of the year (300,603) (275,148) (285,364) (25,455) 10,216
Cumulative effect of restatement - - 21,288 - (21,288)
Total net deficit, beginning of the year, as restated (300,603) (275,148) (264,076) (25,455) (11,072)
Net deficit, end of the year $ (277,786) $ (300,603) $ (275,148) $ 22,817 $ (25,455)
FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – 2020 FINAL DRAFT Please refer to Table II – Comparative Statements of Revenues, Expenses, and Changes in Net Position above.
The overall change in the Health System’s net position is the operating loss or the difference between total operating revenues and total operating expenses. The operating loss for fiscal year 2020 was $29.0 million compared to the operating loss of $28.3 million for fiscal year 2019.
7 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Operating Revenues – 2020
Total operating revenue, composed of net patient services revenue, capitation revenue, other government program revenue, and other operating revenue, increased by $8.9 million to $1.1 billion for fiscal year 2020 over the prior fiscal year due to the following reasons:
Net patient service revenue decreased by $52.8 million. On March 16, 2020 the County of Alameda issued a “Shelter in Place” order in response to the coronavirus pandemic which immediately resulted in lower patient utilization of elective services at the Health System. Gross patient revenue was 5.3% lower than fiscal year 2019 and 17% lower in the last quarter (April to June 2020) than the previous three quarters (July 2019 to March 2020), which resulted in lower Net Patient Revenue in fiscal year 2020. As part of the Health System’s conversion to EPIC on September 28, 2019, the legacy accounts receivable was outsourced and fully reserved at June 30, 2020.
Capitation revenue increased by $21.0 million due to a $17.6 million increase in the Health Plan of Alameda County (HPAC) for AB85 Realignment Revenue. See Note 11 and Note 12 for additional information.
Other government program revenue increased by $37.6 million. Prior fiscal year settlements from 2014 through 2019, totaling $31.8 million, and $12.9 million for fiscal year 2020 were received from the County for behavioral health services. The Graduate Medical Education (GME) program was approved and $23.3 million was recorded for fiscal years 2017 through 2020. Offsetting the revenue increases were decreases in Measure A revenue of $9.1 million and the Medi-Cal Waiver program of $23.7 million.
Operating Expenses – 2020
Total operating expenses increased by $9.6 million to $1.1 billion for the year ended June 30, 2020, over the prior fiscal year.
Salaries and benefits decreased by $1.3 million for fiscal year 2020 over fiscal year 2019 due to the following:
Paid full time equivalents decreased by 1.4% from 4,377 at June 30, 2019 to 4,317 at June 30, 2020, which resulted in lower salary and benefit expense, which was offset by negotiated salary increases in union agreements and coronavirusFINAL pandemic related leave DRAFT of absences. Also, capitalized salaries and benefits relating to the EPIC implementation represented $15.1 million of the decrease.
All other expenses increased by $10.9 million for fiscal year 2020 over fiscal year 2019 due to the following:
Physician contract services decreased by $6.9 million from terminated contracts as physicians were hired as employees.
Purchased services increased by $9.1 million from higher utilization of consultants and management services.
Depreciation and amortization increased by $9.5 million from the capitalization of EPIC and the San Leandro Hospital Rehabilitation projects. Both projects started depreciating on January 1, 2020.
8 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Grant-related program expenses increased by $0.7 million.
FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – 2019
Please refer to Table II – Comparative Statements of Revenues, Expenses, and Changes in Net Position above.
The first component of the overall change in the Health System’s net position is the operating loss or the difference between total operating revenues and total operating expenses. The operating loss for fiscal year 2019 was $28.2 million compared to the operating loss of $21.4 million for fiscal year 2018.
Operating Revenue – 2019
Total operating revenue, composed of net patient services revenue, capitation revenue, other government program revenue, and other operating revenue, increased by $41.4 million to $1.047 billion for fiscal year 2019 over the prior fiscal year due to the following reasons:
Net patient service revenue, capitation, and other government program revenue increased by $41.1 million due to higher patient charges, supplemental revenue programs, and capitation.
Operating Expenses – 2019
Total operating expenses increased by $48.2 million to $1.1 billion for the year ended June 30, 2019, over the prior fiscal year.
Salaries and benefits increased by $49.8 million for fiscal year 2019 over fiscal year 2018 due to the following:
Paid full time equivalents decreased by 2.6% from 4,409 at June 30, 2018 to 4,377 at June 30, 2019, which resulted in lower salary and benefit expense, which was offset by negotiated salary increases in union agreements. All other expenses decreased byFINAL $1.6 million for fiscal year DRAFT2019 over fiscal year 2018 due to the following: Physician contract services increased by $3.3 million from new contracts.
Purchased services decreased by $5.5 million from lower utilization of consultants and management services.
Grant-related program expenses increased by $1.1 million.
9 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
VOLUME AND UTILIZATION
PAYOR MIX
Please refer to Table III – Payor Mix below.
Payor Mix – 2020
Payor Mix during fiscal year 2020 was consistent with fiscal year 2019. Patient revenue increased from fiscal year 2019 in the following payor categories: 0.8% Medi-Cal, 1.9% HPAC, and 1.6% Self-pay. This was offset by decreases over fiscal year 2019: 2.4% Medicare and 1.9% Commercial Insurance.
Payor Mix – 2019
Payor Mix during fiscal year 2019 was consistent with fiscal year 2018. Patient revenue for Medi-Cal increased by 1.2% to 54.5% over fiscal year 2018. This was offset by decreases in revenue over fiscal year 2018 as follows: 0.4% decrease in HPAC County Programs, 0.4% decrease in Medicare, and 0.5% decrease in Commercial Insurance.
TABLE III – PAYOR MIX
June 30, June 30, June 30, Change in % Change in % 2020 2019 2018 2019/2018 2018/2017
Medi-Cal 55.3% 54.5% 53.3% 0.8% 1.2% HPAC County Programs 6.8% 4.9% 5.3% 1.9% -0.4% Medicare 27.5% 29.9% 30.3% -2.4% -0.4% Self pay - Other 4.4% 2.8% 2.7% 1.6% 0.1% Commercial Insurance 6.0% 7.9% 8.4% -1.9% -0.5%
Total 100.0% 100.0% 100.0%
INPATIENT VOLUME Please refer to Table IV – AverageFINAL Daily Census, Table V –DRAFT Patient Days, and Table VI – Average Length of Stay on page 11.
Inpatient Volume – 2020
Total inpatient census and patient days in fiscal year 2020 decreased by 4% compared to fiscal year 2019. The average length of stay decreased from 11.6 in fiscal year 2019 to 11.0 in fiscal year 2020 as the result of the ongoing efforts of care coordination to discharge patients to the appropriate level of care. All areas except for Acute Rehabilitation, which had a 3.1% increase, had a reduction in patient days compared to fiscal year 2019. The largest decreases were in Medical-Surgery at 12.5% , Level 2 Nursery at 13.8%, and Maternity/Gynecology at 17.5%.
10 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Inpatient Volume – 2019
Total inpatient census and patient days in fiscal year 2019 increased by 3% compared to fiscal year 2018. These changes are described below. The average length of stay increased from 11.0 in fiscal year 2018 to 11.6 in fiscal year 2019 as the result of lower discharges in fiscal year 2019.
Medical-Surgical average daily census increased by 6 patients per day for a net increase of 2,271 patient days.
Acute Rehabilitation average daily census increased by 5 patients per day for a net increase of 1,690 patient days.
Maternity/Gynecology average daily census increased by 3 patients per day for a net increase of 1,144 patient days.
TABLE IV – AVERAGE DAILY CENSUS
Change in Change in June 30, June 30, June 30, Census Census 2020 2019 2018 2020/2019 2019/2018
Skilled nursing and subacute 276 279 278 (3) 1 Medical-surgical 117 134 125 (17) 9 Psychiatry 67 68 66 (1) 2 Acute rehabilitation 24 23 18 1 5 Maternity/gynecology 10 12 12 (2) - Step-down unit 40 42 43 (2) (1) Intensive care unit 28 29 29 (1) - Level 2 nursery 3 4 3 (1) 1
Total average daily census 565 591 574 (26) 17
TABLE V – PATIENT DAYS
Change in Change in FINALJune 30, June 30, DRAFTJune 30, Patient Days Patient Days 2020 2019 2018 2020/2019 2019/2018
Skilled nursing and subacute 100,842 101,894 101,246 (1,052) 648 Medical-surgical 42,829 48,945 45,486 (6,116) 3,459 Psychiatry 24,578 24,765 24,158 (187) 607 Acute rehabilitation 8,607 8,348 6,658 259 1,690 Maternity/gynecology 3,533 4,284 4,328 (751) (44) Step-down unit 14,666 15,460 15,567 (794) (107) Intensive care unit 10,003 10,602 10,683 (599) (81) Level 2 nursery 1,188 1,378 1,253 (190) 125
Total patient days 206,246 215,676 209,379 (9,430) 6,297
11 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
TABLE VI – AVERAGE LENGTH OF STAY (ALOS)
Change in Change in June 30, June 30, June 30, ALOS ALOS 2020 2019 2018 2020/2019 2019/2018
Skilled nursing and subacute 329.5 281.5 310.6 48.0 (29.1) Medical-surgical 5.6 6.4 5.7 ( 0.8) 0.7 Psychiatry 7.5 9.1 8.2 ( 1.6) 0.9 Acute rehabilitation 14.4 14.3 14.7 0.1 ( 0.4) Maternity/gynecology 2.3 2.1 2.5 0.2 (0.4) Step-down unit 7.0 8.0 7.7 (1.0) 0.3 Intensive care unit 3.4 3.5 3.3 (0.1) 0.2 Level 2 nursery 4.2 4.4 4.1 ( 0.2) 0.3
Total average length of stay 11.0 11.6 11.0 (0.6) 0.6
OUTPATIENT VOLUME
Please refer to Table VII – Outpatient Visits on page 13.
Outpatient Volumes – 2020
Overall total clinic visits decreased by 74,737 or 22.9% from fiscal year 2019 related to the COVID-19 pandemic and reduction in provider schedules to allow training for EPIC.
Highland visits decreased by 34,978 or 21.0%.
Eastmont visits decreased by 17,027 or 28.3%.
Winton visits decreased by 10,564 or 26.9%.
Newark visits decreased by 6,966 or 25.9%. Behavioral Health visitsFINAL decreased by 2,736 or 13.7%. DRAFT Alameda visits decreased by 2,713 or 20.9%.
Fairmont visits increased by 247 or 29.9%.
Total emergency room (ER) visits decreased by 11,587 or 9.8% from fiscal year 2019.
Highland Emergency Room and Trauma Center visits decreased by 5,685 or 9.3%.
San Leandro Emergency Room visits decreased by 3,514 or 12.5%.
Alameda Emergency Room visits decreased by 2,175 or 13.1%.
John George Psychiatric Emergency Room visits decreased by 213 or 1.6%.
12 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
Outpatient Volumes – 2019
Overall total clinic visits decreased by 20,399 or 5.9% from fiscal year 2018.
Highland visits decreased by 17,474 or 9.5%.
Eastmont visits decreased by 5,278 or 8.1%.
Winton visits increased by 2,691 or 7.3%.
Newark visits increased by 555 or 2.1%.
Behavioral Health visits decreased by 740 or 3.6%.
Alameda visits increased by 217 or 1.7%.
Fairmont visits decreased by 370 or 31.0%.
Total emergency room (ER) visits decreased by 12,484 or 9.5% from fiscal year 2018.
Highland Emergency Room and Trauma Center visits decreased by 6,658 or 9.8%.
San Leandro Emergency Room visits decreased by 5,296 or 15.8%.
Alameda Emergency Room visits decreased by 212 or 1.3%.
John George Psychiatric Emergency Room visits decreased by 318 or 2.4%.
FINAL DRAFT
13 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
TABLE VII OUTPATIENT VISITS
Change in Change in June 30, June 30, June 30, Visits Visits 2020 2019 2018 2020/2019 2019/2018 (amounts in thousands)
Clinics Highland 131,226 166,204 183,678 ( 34,978) ( 17,474) Eastmont 43,182 60,209 65,487 ( 17,027) ( 5,278) Winton 28,754 39,318 36,627 ( 10,564) 2,691 Newark 19,966 26,932 26,377 ( 6,966) 555 Behavioral Health 17,183 19,919 20,659 ( 2,736) ( 740) Alameda 10,289 13,002 12,785 ( 2,713) 217 Fairmont 1,072 825 1,195 247 ( 370)
Total clinic visits 251,672 326,409 346,808 ( 74,737) ( 20,399)
Emergency Room (ER) Highland ER and Trauma 55,319 61,004 67,662 ( 5,685) ( 6,658) San Leandro ER 24,677 28,191 33,487 ( 3,514) ( 5,296) Alameda ER 14,379 16,554 16,766 ( 2,175) ( 212) John George Psych ER 12,856 13,069 13,387 ( 213) ( 318)
Total emergency visits 107,231 118,818 131,302 ( 11,587) ( 12,484)
CAPITAL ASSET AND DEBT ADMINISTRATION
CAPITAL ASSETS
Capital assets recorded by the Health System consist primarily of leasehold improvements and equipment purchased to provide patient care services across each of the facilities. A large part of the capital assets used by the Health System, land, hospital facilities, and other equipment are leased from the County for one dollar annually. Facilities leased from the County include the Highland campus, Fairmont campus, and John George campus. Facilities leased from non-County property holders include the Airport Center in west Oakland, Creekside Office Plaza in San Leandro, Eastmont Wellness Center, Hayward Wellness Center, and Alameda Hospital. Facilities owned by the Health System includeFINAL Newark Wellness Center DRAFT and San Leandro Hospital.
In January 2019, the Health System Board of Trustees approved Epic as the organization’s single EHR system. This $200 million investment is system-wide, including hospitals, wellness centers, and long-term facilities, and will transform the health care experience for patients at the Health System. Epic was moved into production on September 28, 2019.
DEBT ADMINISTRATION
The Health System uses the treasury function of the County to support funding for working capital requirements through a liquidity facility from the County. The Health System has determined that it is legally obligated for its’ share of Pension Obligation Bonds issued by Alameda County in prior years that are associated with pension funding. Refer to Notes 8 and 9 of the financial statements for more detail on the Health System’s liquidity facility with the County and the long-term obligations under the Pension Obligation bond issuance, respectively.
14 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2020, 2019, and 2018
CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS
COVID-19 PANDEMIC
The public health developments to the COVID-19 pandemic, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, their customers, economies, and financial markets globally, leading to increased market volatility and disruptions in normal business operations, including the Health System’s operations. On March 16, 2020 the County of Alameda issued a “Shelter in Place” order in response to the coronavirus pandemic which immediately resulted in lower patient utilization of elective services at the Health System.
LIQUIDITY
The Health System relies on short-term borrowing from a liquidity facility through the County to fund weekly cash flow to meet payroll and vendor payments. The Liquidity Facility acts as a revolving line of credit that sweeps daily cash receipts from the Health System that are then used to pay down the loan balance and increases as the Health System draws funds for operating purposes. During fiscal year 2016, the Health System completed a replacement Agreement on the Repayment of Debt to the Consolidated Treasury of the County of Alameda (the Agreement). The Liquidity Facility provides a declining level of credit access as of June 30th of each year; the limit was $125.0 million at June 30, 2020, and $130.0 million at June 30, 2019. Further reductions are scheduled over the life of the Agreement down to $50.0 million. In addition, the Health System is provided an additional $50.0 million of liquidity above the year-end maximum during the year. This is in recognition of the variability of the timing of receipts from supplemental government programs. The Agreement contains other requirements such as the availability of monthly reporting. The Health System was in compliance with the Agreement as of June 30th of each year throughout the reporting periods in the attached financial statements.
Throughout fiscal years 2020 and 2019, the Health System was below the flexible maximum balance of $175.0 million and $180.0 million, respectively. At June 30, 2020, the Health System had a Net Negative Balance (NNB) of $83.0 million and was below the Agreement’s limit reduction schedule end of year ceiling of $125.0 million. At June 30, 2019, the Health System had a Net Negative Balance (NNB) of $84.6 million and was below the Agreement’s limit reduction scheduleFINAL end of year ceiling of $130.0DRAFT million. Contacting the Health System’s Financial Management
This financial report is designed to provide a general overview of the Health System’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Chief Financial Officer, Alameda Health System, 1411 East 31st Street, Oakland, California 94602.
15 Report of Independent Auditors
The Board of Trustees Alameda Health System
Report on the Financial Statements
We have audited the accompanying financial statements of Alameda Health System, a Public Hospital Authority (a Component Unit of the County of Alameda) (the Health System), and its discretely presented component unit, Alameda Health System Foundation (the Foundation), which comprise the statements of net position as of June 30, 2020 and 2019, and the related statements of revenues, expenses, and changes and in net position, and cash flows for the years then ended, and the related notes to the financial statements, which collectively comprise the Health System's financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these 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 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 these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America; and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. FINAL DRAFT An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the 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 the entity’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 financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
16
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Health System and its discretely presented component unit, Alameda Health System Foundation, as of June 30, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1, the financial statements present only the Health System, and do not purport to, and do not, present fairly the financial position of the County of Alameda, California, as of June 30, 2020 and 2019, and the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 1 through 15 and the Supplementary Pension and Postemployment Benefit Information on page 68 and the Schedule of Proportionate Share of the Net OPEB Liability on page 69 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Government Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated ______, 2020, on our consideration of the Health System’s internal control over financial reporting and on our tests of its compliance withFINAL certain provisions of laws, DRAFT regulations, contracts, and grant agreements and other matters for the year ended June 30, 2020. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Health System’s internal control over financial reporting or on compliance. That report is an integral part of an audit preformed in accordance with Government Auditing Standards in considering the Health System’s internal control over financial reporting and compliance.
San Francisco, California ______, 2020
17
Financial Statements
FINAL DRAFT
Alameda Health System A Public Hospital Authority Statements of Net Position June 30, 2020 and 2019
Business type activity Component unit Health System Foundation 2020 2019 2020 2019 (amounts in thousands) Assets Current assets: Cash and cash equivalents$ 9,418 $ 15,903 $ 5,431 $ 5,153 Patient accounts receivable, net 84,361 127,225 - - Due from third-party payors 179,764 173,885 - - Contributions receivable - - 803 263 Due from County of Alameda 75,790 29,888 - - Due from State of California 23,867 19,525 - - Inventory 10,528 9,529 - - Other current assets 11,890 11,634 427 402
Total current assets 395,618 387,589 6,661 5,818
Noncurrent assets: Restricted cash equivalents 25,341 24,468 - - Noncurrent contributions receivable, net - - 589 - Cash restricted for acquisition of capital assets - - 302 1,433 Capital assets Nondepreciable 30,605 93,089 - - Depreciable 166,329 60,830 8 4 Capital assets, net 196,934 153,919 8 4 Investments - - 3,328 3,341
Total assets 617,893 565,976 10,888 10,596
Deferred Outflows of Resources Deferred outflows of resources - pension 77,035 169,908 - - Deferred outflows of resources - other postemployment benefits 8,513 19,329 - -
Total deferred outflows of resources 85,548 189,237 - -
Total assets and deferred outflows of resources $ 703,441 $ 755,213 $ 10,888 $ 10,596
FINAL DRAFT
19 See accompanying notes. Alameda Health System A Public Hospital Authority Statements of Net Position (continued) June 30, 2020 and 2019
Business type activity Component unit Health System Foundation 2020 2019 2020 2019 (amounts in thousands) Liabilities Current liabilities: Accounts payable and accrued expenses$ 45,797 $ 55,446 $ 863 $ 603 Accrued compensation 24,541 20,257 - - Due to third-party payors 184,941 200,880 - - Due to County of Alameda 23,936 2,872 - - Current portion of accrued compensated absences 20,087 18,725 - - Current portion of self-insurance liability 7,027 6,920 - - Current maturities of long-term obligations 7,156 11,612 - -
Total current liabilities 313,485 316,712 863 603
Noncurrent liabilities: Liquidity facility - County of Alameda 108,346 109,035 - - Other long-term liabilities 22,664 9,977 - - Accrued compensated absences, net of current portion 15,731 12,194 - - Net pension liability 356,383 502,133 - - Other postemployment benefits obligations 20,562 43,743 - - Self-insurance liability, net of current portion 24,319 24,626 - - Long-term obligations, net of current maturities - 7,156 - -
Total noncurrent liabilities 548,005 708,864 - -
Total liabilities 861,490 1,025,576 863 603
Deferred Inflows of Resources Deferred inflows of resources - pension 94,947 21,144 - - Deferred inflows of resources - other postemployment benefits 24,790 9,096 - -
Total deferred inflows of resources 119,737 30,240 - -
Net position (deficit) Net investment in capital assets 196,934 153,919 803 4 Restricted for capital assets 25,341 24,468 302 1,433 Restricted for health programs - - 9,723 8,560 Unrestricted net (deficit) position (500,061) (478,990) (803) (4)
Total net (deficit) position (277,786) (300,603) 10,025 9,993
Total liabilities, deferred inflows of resources, and net (deficit) position $ 703,441 $ 755,213 $ 10,888 $ 10,596
FINAL DRAFT
See accompanying notes. 20 Alameda Health System A Public Hospital Authority Statements of Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2020 and 2019
Business type activity Component unit Health System Foundation 2020 2019 2020 2019 (amounts in thousands)
Operating revenues: Patient service revenues, net $ 511,506 $ 564,337 $ - $ - Capitation revenues 88,472 67,504 - - Other government programs 425,427 387,867 - - Other operating revenues 30,407 27,222 - -
Total operating revenues 1,055,812 1,046,930 - -
Operating expenses: Salaries and benefits 745,085 746,368 - - Physician contract services 84,722 91,609 - - Purchased services 83,576 74,525 - - Materials and supplies 85,944 87,822 - - Facilities 32,276 31,150 - - Depreciation and amortization 24,581 15,116 - 3 General and administrative 18,188 18,856 1,521 1,354 Fundraising - - 684 864 Grant related program expenses 10,473 9,766 2,831 2,295
Total operating expenses 1,084,845 1,075,212 5,036 4,516
Operating loss ( 29,033) ( 28,282) ( 5,036) ( 4,516)
Nonoperating revenues (expenses): Contribution revenue - - 6,199 3,837 Covid-19 revenue 18,803 - - - Interest and investment income ( 240) ( 140) - - Interest expense ( 3,693) ( 2,439) - - Other nonoperating revenue 229 256 - -
Total net nonoperating revenues (expenses) 15,099 ( 2,323) 6,199 3,837
Income (loss) before other revenues, expenses, gains, losses, and transfers ( 13,934) ( 30,605) 1,163 ( 679)
Capital contributions 2,805 7,500 - -
Capital transfers - AHS and County 32,804 ( 7,000) - -
Capital transfers - AHS and Foundation 1,142 4,650 ( 1,131) ( 4,650)
Decrease (increase) in net (deficit) position 22,817 ( 25,455) 32 ( 5,329)
Net (deficit) position, beginning of the year ( 300,603) ( 275,148) 9,993 15,322 Net (deficit) position, end of theFINAL year $ DRAFT (277,786) $ (300,603) $ 10,025 $ 9,993
21 See accompanying notes. Alameda Health System A Public Hospital Authority Statements of Cash Flows Years Ended June 30, 2020 and 2019
Business type activity Component unit Health System Foundation 2020 2019 2020 2019 (amounts in thousands)
Cash flows provided by (used in) operating activities: Cash received for operations $ 898,083 $ 905,674 $ - $ - Cash received from contributors and grantors 10,473 9,766 - - Cash received from tax collections 117,802 125,493 - - Cash paid to suppliers and contractors ( 304,963) ( 321,854) ( 3,292) ( 3,387) Cash paid to employees for services and benefits ( 711,647) ( 674,561) ( 1,253) ( 1,000)
Net cash provided by (used in) operating activities 9,748 44,518 ( 4,545) ( 4,387)
Cash flows (used in) provided by noncapital financing activities: Receipt of working capital loan from County of Alameda 1,219,641 1,243,359 - - Repayment of working capital loan from County of Alameda ( 1,220,330) ( 1,220,330) - - Interest payments on working capital loan from County of Alameda ( 3,693) ( 2,439) - - Proceeds from grants for COVID-19 pandemic 18,803 - - - Contributions received - - 4,739 3,060 Receipt of rental income 229 256 - -
Net cash (used in) provided by noncapital financing activities 14,650 20,846 4,739 3,060
Cash flows used in capital and related financing activities: Purchase and construction of capital assets ( 67,596) ( 70,292) ( 7) - Proceeds from other long-term liabilities 12,687 9,977 Repayment of long-term obligation (11,612) (12,135) - - Capital contributions 2,805 7,500 - - Capital tranfers 33,946 ( 2,350) - - Grants to Alameda Health System for purchase of property and equipment - - (1,131) (4,567)
Net cash used in capital and related financing activities ( 29,770) ( 67,300) ( 1,138) ( 4,567)
Cash flows (used in) provided by investing activities: Purchase of investments - - (2,436) ( 3,055) Proceeds from sales of investments - - 2,358 2,897 Interest and investment income ( 240) ( 140) 169 461
Net cash (used in) provided by investing activities ( 240) ( 140) 91 303
Change in cash and cash equivalents (5,612) (2,076) (853) (5,591) Cash and cash equivalents, and restricted cash equivalents, beginning of year 40,371 42,447 6,586 12,177
Cash and cash equivalents, and restricted cash equivalents, end of year $ 34,759 $ 40,371 $ 5,733 $ 6,586
FINAL DRAFT
See accompanying notes. 22 Alameda Health System A Public Hospital Authority Statements of Cash Flows (continued) Years Ended June 30, 2020 and 2019
Business type activity Component unit Health System Foundation 2020 2019 2020 2019 (amounts in thousands) Cash and cash equivalents, and restricted cash equivalents: Unrestricted $ 9,418 $ 15,903 $ 5,431 $ 5,153 Restricted cash 25,341 24,468 302 1,433
Cash and cash equivalents, and restricted cash equivalents $ 34,759 $ 40,371 $ 5,733 $ 6,586
Reconciliation of operating loss to net cash provided by (used in) operating activities: Operating loss $ ( 29,033) $ ( 28,282) $ (5,036) $ (4,516) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Depreciation and amortization 24,581 15,116 3 3 Grants to Alameda Health System for purchase of property and equipment - - 1,131 4,567 Capital transfers - - ( 1,131) ( 4,650) Allowance for uncollectible pledges - - 73 ( 6) Changes in: Patient accounts receivable, net 42,864 ( 7,152) - - Due from third-party payors ( 5,879) ( 38,642) - - Contributions receivable, net - - 89 49 Due from County of Alameda ( 45,902) 980 - - Due from State of California ( 4,342) 19,110 - - Inventory (999) (142) - - Other current assets ( 256) ( 578) ( 25) ( 255) Investments - - 91 ( 160) Deferred outflows of resources 103,689 ( 38,234) - - Accounts payable and accrued expenses ( 22,336) 1,854 260 581 Accrued compensation 4,284 2,464 - - Due to third-party payors ( 15,939) 20,285 - - Due to County of Alameda 21,064 423 - - Accrued compensated absences 4,899 297 - - Self-insurance liability ( 200) 1,547 - - Net pension liability ( 145,750) 159,932 - - Other long-term liabilities 12,687 ( 2,329) - - Other postemployment benefits obligations ( 23,181) 38,604 - - Deferred inflows of resources 89,497 ( 100,735) - -
Net cash provided by (used in) operating activities $ 9,748 $ 44,518 $ (4,545) $ (4,387)
FINAL DRAFT
23 See accompanying notes. Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 1 – ORGANIZATION AND REPORTING ENTITY
Alameda Health System (Health System) is a Public Hospital Authority created originally under the name of Alameda County Medical Center (Medical Center) on July 1, 1998, pursuant to California Health and Safety Code Section 101850. The governance, management, administration, and control of health care facilities were transferred from the County of Alameda (County) to the Medical Center in 1998. The Medical Center started doing business as the Health System on January 1, 2013. The Health System is reflected in the County’s comprehensive annual financial report as a discretely presented component unit.
The Health System provides a continuum of acute and long-term care to residents of the County. In addition to offering general acute care, skilled nursing, and rehabilitative care, the Health System provides an adult day health center and a trauma center. The Health System is currently staffed for 272 acute, 69 acute psychiatric, and 325 sub-acute skilled nursing and acute rehabilitation beds.
The Health System is governed by a nine-member Board of Trustees (Trustees); eight members of which are appointed by a majority vote of the Board of Supervisors of the County. Trustees are appointed for three-year terms and can be reappointed for up to three consecutive complete terms. The remaining position on the Board of Trustees is filled by a representative of the Medical Staff of the Health System, which is also appointed by the Board of Supervisors.
Under the terms of the transfer arrangement (Master Contract) between the County and the Health System, certain operating assets, liabilities, and the net position of health care operations were transferred from the County to the Health System. The Health System leases land, hospital facilities, and other equipment from the County for one dollar annually. Leased facilities include Fairmont Hospital, Highland Hospital, John George Hospital, and community ambulatory care clinics. The County has the authority to terminate any or all of the transfer agreements with or without cause.
The Alameda Health System Foundation (Foundation) is a discretely presented component unit of the Health System and is included in these financial statements. The Foundation’s mission is to raise funds and generate community support for the Health System. The Articles of Incorporation and Bylaws of the Foundation provide that the Health System approve the Foundation’s Board members and that upon dissolution, the Foundation’s remaining assets will be distributed to the Health System. The Foundation is organized as an exempt entity under Section 501(c)(3) of the Internal RevenueFINAL Code. Complete financial DRAFTstatements of the Foundation can be obtained from the Foundation, 350 Frank H. Ogawa Plaza, Suite 900, Oakland, California 94612.
Alameda Health Partners (AHP) is a blended component unit of the Health System and is included in these financial statements. AHP was established as a governmentally financed public benefit corporation under the California Corporations Code. AHP is a wholly controlled subsidiary of the Health System. AHP’s mission is to serve the public purposes of Section 1400.2 of California’s Welfare and Institutions Code. The Articles of Incorporation and Bylaws of AHP provide that the Health System is the sole Corporate Member of AHP, which includes substantial reserved power over AHP, including the power to appoint or remove AHP Board members and approve any changes to AHP’s Bylaws. Complete financial statements of AHP can be obtained from AHP, 1411 E. 31st Street, Oakland, California 94612.
24 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting – The financial statements provide information about the Health System’s Enterprise Fund, the Foundation, a discretely presented component unit, and AHP, a blended component unit. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements, and relates to the timing of measurements made, regardless of the measurement focus applied. The financial statements are reported using the economic resources measurement focus and accrual basis of accounting, wherein revenues are recognized when earned and expenses are recognized when incurred, regardless of the timing of cash flows.
The Enterprise Fund, a proprietary fund, distinguishes operating revenues and expenses from nonoperating items. Operating revenues are defined as transactions deemed by management to be ongoing or central to the provision of health care services. Operating revenues are derived from direct patient care, monthly premium payments received for patients enrolled in managed care, and other programs, as well as revenues from the sale of other goods and services. Revenues derived from interest income and income from rents are classified as nonoperating in the accompanying statements of revenues, expenses, and changes in net position. Consistent with the treatment in the accompanying statements of cash flows, all expenses, with the exception of interest expense, are treated as operating expenses in the accompanying statements of revenues, expenses, and changes in net position.
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 disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments – Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, approximate their carrying values. The Health System’s policy is to recognize transfers in and transfers out of Levels 1, 2, and 3 as of the end of the reporting period.
Cash and cash equivalents – For purposes of the statements of cash flows, the Health System considers cash held in bank accounts and short-term investments with original maturities of three months or less to be cash and cash equivalents. This includesFINAL cash deposited with the County DRAFT as part of the Alameda County Investment Pool. Restricted cash equivalents – Restricted cash equivalents includes cash held on behalf of patients and cash held that is restricted for certain programs or capital improvements.
Patient accounts receivable – The Health System provides care to patients without requiring collateral or other security. Patient charges not covered by a third-party payor are billed directly to the patient if it is determined that the patient has the ability to pay. A provision for uncollectible accounts is recognized based on management’s estimate of amounts that ultimately may be uncollectible. Additionally, third-party contractual adjustments are accrued on an estimated basis in the period the related services are rendered. Patient accounts receivable are reported net of allowances for contractual adjustments and bad debts and amounted to $84.4 million at June 30, 2020, and $127.2 million at June 30, 2019.
Inventory – Inventory balances consist of operating supplies and pharmaceuticals and are recorded at cost and adjusted by periodic counts.
25 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Capital assets, net – The Health System defines capital assets, net, as assets with an individual cost of $10,000 or greater and an estimated useful life in excess of one year. Capital assets, net, are stated at cost when purchased or constructed, or for donated property, at the asset’s estimated fair value at the time the donated property is received. Depreciation is provided using the straight-line method over the assets’ estimated useful lives.
Useful lives by property classification are as follows:
Asset Class Estimated Useful Lives (in Years)
Equipment and software 3 to 20
Land improvements 5 to 20
Building improvements 5 to 40
The Health System evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. Impairment losses on capital assets are measured using the method that best reflects the diminished service utility of the capital asset. Management evaluates prominent events or changes in circumstances to determine whether an impairment loss should be recognized. Based on this evaluation, there were no impairment losses in the years ended June 30, 2020 and 2019.
Investments – Investments in marketable securities are reported at fair value and are based on quoted market prices. Net appreciation or depreciation in investments, including realized gains or losses and unrealized appreciation or depreciation on those investments, as well as all dividends, interest, and other investment income, is reported in the statements of revenues, expenses, and changes in net position.
Fair value measurements – Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Health System determines the fair values of its assets and liabilities based on a fair value hierarchy that includes three levels of inputs that may be used to measure fair value (Level 1, Level 2, and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Health System has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.FINAL Level 2 inputs are inputs otDRAFTher than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the Health System’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the Health System’s own data. The valuation levels are not necessarily an indication of the risk or liquidity associated with the investments. All assets and liabilities of the Health System are Level 1.
Compensated absences – Accumulated unpaid vacation is recorded as a liability when future payments for such compensated absences have been earned by employees. Benefits for which an employer is liable and that are directly associated with payments to be made for compensated absences or termination obligations are also accrued with the related liability. Employees earn either vacation time or paid time off (PTO) depending on the employees’ bargaining unit and accrual rates, which vary based on length of employment.
26 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Risk management – The Health System is exposed to various risks of loss from torts; medical malpractice; theft of, damage to, and destruction of assets; business interruption; errors and omissions; employee illnesses; natural disasters; and employee, health, dental, and accident benefits. Commercial insurance coverage is purchased for claims arising from such matters. The Health System is self-insured for general liability, medical malpractice, workers’ compensation, and unemployment claims. The self-insurance programs are administered through a third- party administrator, and estimated losses are accounted for on the accrual basis.
Net (deficit) position – Net (deficit) position is classified in three components:
Net investment in capital assets – Represents the difference between the net book value of capital assets and the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets.
Restricted – Represents the portion of net position that is externally restricted for capital projects, restricted grant funds, and other uses.
Unrestricted – Represents the portion of net position that does not meet the definition of net investment in capital assets and restricted net position.
When both restricted and unrestricted net position are equally available, restricted resources are depleted first before unrestricted resources are used.
As of June 30, 2020 and 2019, the Foundation’s restricted net position of $10.0 million and $10.0 million, respectively, represent assets restricted by donors for specific purposes.
Net patient service revenue – Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, including the State of California (State), and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. 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.
Charity care – The Health System provides care without charge or at amounts less than its established rates to patients who meet certain criteriaFINAL under its charity care policy.DRAFT Accumulated costs for services provided to those patients are recorded as unreimbursed charges for services that are fully discounted. The cost associated with providing services to these patients that are not reimbursed is considered charity care cost.
Capitation revenue – The Health System has entered into capitation arrangements with the County to provide medical services to eligible participants. Under these agreements, the Health System receives monthly capitation payments based on the number of health program participants, regardless of services actually performed by the Health System. The Health System is in turn responsible for certain covered medical services for these capitated patients.
27 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Medicare accelerated payments and CARES Act grants – On March 11, 2020, the World Health Organization officially declared COVID-19, the disease caused by the novel coronavirus, a pandemic. Management is closely monitoring the evolution of this pandemic, including how it may affect operations and the general population. Management has not yet determined the full financial impact of these events. Centers for Medicare and Medicaid Services (CMS) distributed $50 billion of the $100 billion in the form of grants to hospitals. The Health System received approximately $15.8 million in grants, which is included as COVID-19 revenue in nonoperating revenues (expense) in the statements of revenues, expenses, and changes in net position, and will have to submit reports documenting lost revenue and expenses incurred to support the grant funds, among other terms and conditions. On September 19, 2020 and October 22, 2020, the Department of Health and Human Services (HHS) released updated information for health care providers that received Provider Relief Fund (PRF) payments, which may impact the recognition of the payments and the available uses for the funds. The Health System recognized PRF revenues in fiscal year 2020 based on guidance available at the time, although new guidance issued may impact revenue recognition for the purpose of substantiating lost revenue and expenses incurred during the reporting period. Management believes that these changes will not have a material impact to the financial statements as of and for the year ended June 30, 2020.
Separately, CMS initiated an Accelerated Payment Program (MAPP) to hospitals. The accelerated payments represent advance payments for services to be provided and were based on a hospital’s historical Medicare volume. Medicare payments for services rendered will continue for the next year. On October 8, 2020, CMS released updated fact sheet relating to the repayment terms for certain Medicare accelerated payments, which may impact on the classification of these payments in the consolidated statements of net position as of June 30, 2020. One year after receipt of MAPP funds, CMS will begin recouping the accelerated payments from billing for services rendered until they are fully repaid. Any MAPP funds not recouped after seventeen months from the start of CMS recoupment will be charged interest at 4% per annum. The Health System is not participating in MAPP.
Net pension liability and related balances –
Alameda County Employees’ Retirement Association (ACERA) Plan
The ACERA plan is a cost-sharing multiple employer plan and, accordingly, only the Health System’s proportionate share of the net pension liability and related balances are reported in the accompanying financial statements. For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions and pension expense for the ACERAFINAL plan, information about the DRAFT fiduciary net position, and additions to/deductions from the fiduciary net position have been determined on the same basis as they are reported by the ACERA plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. ACERA audited financial statements are publicly available reports that can be obtained at ACERA’s website (www.acera.org). Reported results pertain to liability and asset information within the following defined timeframes:
Valuation Date (VD) – December 31, 2019
Measurement Date (MD) – December 31, 2019
Measurement Period (MP) – January 1, 2018 to December 31, 2019
28 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Alameda Health System Defined Benefit (AHS DB) Plan and Alameda Hospital Pension Plan (AH Plan)
For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions and pension expense for the AHS DB and AH plans, information about the fiduciary net position and additions to/deductions from the fiduciary net position have been determined by the Health System and its actuary. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. The AHS DB plan had no investments at June 30, 2020 (measurement date). The investments of the AH pension plan are valued at fair value and reported in a pension trust fund. The AHS DB and AH plans do not have separately issued financial statements. Reported results included in the Health System’s financial statements pertain to information within the following defined timeframes:
AHS DB Plan:
Valuation Date (VD) – January 1, 2020 Measurement Date (MD) – June 30, 2020 Measurement Period (MP) – January 1, 2020 to June 30, 2020
AH Plan:
Valuation Date (VD) – July 1, 2019 Measurement Date (MD) – June 30, 2020 Measurement Period (MP) – July 1, 2019 to June 30, 2020
Deferred inflows/outflows of resources – In addition to assets, the statements of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period(s) and therefore will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the statement of financial position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period(s) and therefore will not be recognized as an inflow of resources (revenue/contra expense)FINAL until that time. DRAFT The Health System has deferred outflows and inflows of resources related to the net pension liability and other postemployment benefit obligations. Actuarial gains and losses, changes in actuarial assumptions, and projected compared to actual investment earnings identified during the measurement period are deferred and amortized as a component of pension expense in future periods. Gains and losses arise due to unexpected differences in participant demographics (e.g., salary increases, termination rates, retirement rates). In addition, contributions made after the measurement date are reported as deferred outflows of resources until the next measurement period. See Note 14 for further discussion on these deferrals related to the net pension liability, and Note 15 for further discussion on these deferrals related to the other postemployment benefit obligations.
29 Alameda Health System A Public Hospital Authority Notes to Financial Statements
New accounting pronouncements – In January 2017, the Government Accounting Standards Board (GASB) issued GASB Statement No. 84, Fiduciary Activities (GASB No. 84). GASB No. 84 establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. In May 2020, the GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance (GASB No. 95), which extended the effective date for GASB No. 84 to reporting periods beginning July 1, 2020. The Health System is currently assessing the impact of this standard on the Health System’s financial statements.
In June 2017, the GASB issued GASB Statement No. 87, Leases (GASB No. 87), which is effective for financial statements for periods beginning after December 15, 2019. GASB No. 87 increases the usefulness of financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. GASB No. 87 also establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. GASB No. 95 extended the effective date for GASB No. 87 to reporting periods beginning July 1, 2021. The Health System is currently assessing the impact of this standard on the Health System’s financial statements.
In April 2018, the GASB issued GASB Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements (GASB No. 88). Among other things, GASB No. 88 clarifies which liabilities governments should include in their note disclosures related to debt. GASB No. 88 requires that all debt disclosures present direct borrowings and direct placements of debt separately from other types of debt. GASB No. 88 further defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. This statement further requires that additional essential information related to debt be disclosed in notes to financial statements, including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related to significant events of default with finance-related consequences, significant termination events with finance-related consequences, and significant subjective acceleration clauses. The Health System adopted GASB No. 88 in the year ended June 30, 2020. The adoption did not result in a material impact to the Health System’s financial statements. FINAL DRAFT In June 2018, the GASB issued GASB Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period (GASB No. 89). GASB No. 89 establishes accounting requirements for interest cost incurred before the end of a construction period. This statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business type activity or enterprise fund. GASB No. 95 extended the effective date for GASB No. 89 to reporting periods beginning July 1, 2021. The Health System is currently assessing the impact of this standard on the Health System’s financial statements.
30 Alameda Health System A Public Hospital Authority Notes to Financial Statements
In May 2019, the GASB also issued GASB Statement No. 91, Conduit Debt Obligation (GASB No. 91). GASB No. 91 provides a single method of reporting conduit debt obligations by issuers and eliminates diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. GASB No. 95 extended the effective date for GASB No. 91 to reporting periods beginning July 1, 2022. The Health System is currently assessing the impact of this standard on the Health System’s financial statements.
NOTE 3 – CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH EQUIVALENTS
The composition of cash and cash equivalents, and restricted cash equivalents held at June 30, 2020 and 2019, were as follows: 2020 2019 (amounts in thousands) Cash and cash equivalents: Cash on hand $ 38 $ 39 Deposits with bank 9,380 15,864
$ 9,418 $ 15,903
Restricted cash equivalents Cash with Alameda County Investment Pool 25,341 24,468
$ 34,759 $ 40,371
Alameda Health System $ 28,971 $ 26,634 Alameda Health Partners 5,788 13,737 $ 34,759 $ 40,371
Deposits – custodial credit riskFINAL – Custodial credit risk forDRAFT deposits is the risk that in the event of a bank failure, the Health System’s deposits may not be returned to it. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, an organization will not be able to recover the value of its investment that is in the possession of another party. The Health System does not have a policy for custodial credit risk on deposits or investments. Under the California Government Code, a financial institution is required to secure deposits made by state or local governmental units in excess of federally insured amounts by pledging securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. The collateral is held by the pledging financial institution’s trust department and is considered held in the Health System’s name.
The Health System had cash on deposit in banks of $13.7 million at June 30, 2020, and $17.1 million at June 30, 2019, that was covered by depository insurance or collateralized by the pledging financial institution. The carrying values at June 30, 2020 and 2019, were $3.6 million and $2.1 million, respectively.
31 Alameda Health System A Public Hospital Authority Notes to Financial Statements
AHP had cash on deposit in banks of $6.7 million at June 30, 2020, and $13.7 million at June 30, 2019, that was covered by depository insurance or collateralized by the pledging financial institution. The carrying values at June 30, 2020 and 2019, were $5.8 million and $13.7 million, respectively.
The Foundation had cash on deposit in banks of $6.0 million at June 30, 2020, and $6.8 million at June 30, 2019, of which $5.7 million at June 30, 2020, and $6.3 million at June 30, 2019, was not covered by federal depository insurance.
The Health System maintains its unrestricted cash and restricted cash in the Alameda County Investment Pool (Pool). Income earned or losses arising from pooled investments are allocated quarterly based on Pool participants’ average cash balances. The Health System considers its pooled deposits held with the County to be demand deposits and therefore cash and cash equivalents for financial reporting purposes. The Health System’s deposits in the Pool were $25.3 million and $24.5 million at June 30, 2020 and 2019, respectively. As of June 30, 2020 and 2019, the total amount invested by all public agencies in the Pool was approximately $6.8 billion and $6.2 billion with a weighted average maturity of 674 days and 420 days, respectively. The Pool is unrated. The County’s Treasury Oversight Committee has responsibility for the pool. The pool consists of U.S. government and agency securities, commercial paper, mutual funds, and the Local Agency Investment Fund as authorized by State statutes and the County’s investment policy. For further information regarding the County’s Pool (such as interest rate, credit, and concentration of credit risks), contact the County Treasury, Alameda County, 1221 Oak Street, Oakland, California 94612.
NOTE 4 – ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
The Health System grants credit without collateral to its patients, most of whom are local residents and are insured under third-party payor agreements. The mix of net receivables from patients and third-party payors at June 30, 2020 and 2019, was as follows: Net AR by Payor 2020 2019
Medicare 27.0% 24.2% Medi-Cal 41.9% 37.9% Commercial FINAL DRAFT24.3% 31.6% Self pay 4.4% 3.7% Other government 2.4% 2.6%
100.0% 100.0%
32 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 5 – DUE FROM / DUE TO THIRD-PARTY PAYORS
Due from third-party payors consists of the following components as of June 30, 2020 and 2019:
2020 2019 (amounts in thousands)
PRIME $ 24,010 $ 13,660 Global Payment Program (GPP) - 15,165 Supplemental funding – rate range 21,000 20,410 Supplemental funding – Quality Incentive Program (QIP) and Enhanced Payment Program (EPP) 120,100 123,540 Medicare audit receivable - 395 Graduate Medical Expenditures (GME) 13,800 - Other receivables from miscellaneous third parties 854 715
Total due from third-party payors $ 179,764 $ 173,885
Due to third-party payors consists of the following components as of June 30, 2020 and 2019:
2020 2019 (amounts in thousands)
Medi-Cal settlement reserves (Section 1115 Waiver) $ 78,096 $ 73,102 Federally Qualified Health Center (FQHC) 52,895 40,163 Medi-Cal cost report settlement 20,754 36,023 Assembly Bill (AB) 85 realignment 8,000 26,683 Medicare audit payable 2,453 - Physician SPA 19,741 23,341 Global Payment Program (GPP) 846 - Other payables from miscellaneous third parties 2,156 1,568
Total due to third-party payors $ 184,941 $ 200,880
NOTE 6 – DUE FROM (DUE TO)FINAL STATE OF CALIFORNIA DRAFT Due from (due to) State of California consists of the following components as of June 30, 2020 and 2019:
2020 2019 (amounts in thousands)
AB 915 supplemental reimbursement $ (2,300) $ (4,282) Sales tax 19,288 20,628 Other State supplemental programs 6,879 3,179
Total due from State of California $ 23,867 $ 19,525
33 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 7 – CAPITAL ASSETS, NET
Capital assets, net, for the Foundation are immaterial to the financial statements as a whole and for the fiscal years ended June 30, 2020 and 2019, totaled $8 thousand and $4 thousand, respectively. Changes in capital assets, net, of the Health System for the fiscal years ended June 30, 2020 and 2019, were as follows:
Balance Balance July 1, 2019 Additions Retirements Transfers June 30, 2020 (amounts in thousands)
Capital assets, not being depreciated: Assets not placed in service $ 84,068 $ 10,713 $ - $ (73,197) $ 21,584 Land 9,021 - - - 9,021
Total capital assets, not being depreciated 93,089 10,713 - (73,197) 30,605
Capital assets, being depreciated: Land improvements 316 - - - 316 Building and leasehold improvements 44,637 5,305 (502) 18,716 68,156 Equipment 169,331 51,578 (24,006) 54,481 251,384
Total capital assets, being depreciated 214,284 56,883 (24,508) 73,197 319,856
Less accumulated depreciation for: Land improvements (214) (21) - - (235) Building and leasehold improvements (22,849) (2,738) 502 - (25,085) Equipment (130,391) (21,822) 24,006 - (128,207)
Total accumulated depreciation (153,454) (24,581) 24,508 - (153,527)
Total capital assets, being depreciated, net 60,830 32,302 - 73,197 166,329
Capital assets, net $ 153,919 $ 43,015 $ - $ - $ 196,934
Balance Balance July 1, 2018 Additions Retirements Transfers June 30, 2019 (amounts in thousands)
Capital assets, not being depreciated: Assets not placed in service$ 31,621 $ 54,173 $ - $ (1,726) $ 84,068 Land 9,021 - - - 9,021
Total capital assets, not being depreciated 40,642 54,173 - (1,726) 93,089
Capital assets, being depreciated: Land improvementsFINAL 934 DRAFT - (618) - 316 Building and leasehold improvements 60,467 472 (16,902) 600 44,637 Equipment 169,949 3,341 (5,085) 1,126 169,331
Total capital assets, being depreciated 231,350 3,813 (22,605) 1,726 214,284
Less accumulated depreciation for: Land improvements (810) (22) 618 - (214) Building and leasehold improvements (37,372) (2,379) 16,902 - (22,849) Equipment (122,761) (12,715) 5,085 - (130,391)
Total accumulated depreciation (160,943) (15,116) 22,605 - (153,454)
Total capital assets, being depreciated, net 70,407 (11,303) - 1,726 60,830
Capital assets, net$ 111,049 $ 42,870 $ - $ - $ 153,919
34 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 8 – RELATED-PARTY TRANSACTIONS
Transactions with Alameda County
Liquidity facility – The Health System receives certain services from the County under the terms of the Master Contract. The Health System uses the County’s Consolidated Treasury function to fund weekly cash flow to meet payroll and vendor payments. The liquidity facility functions as a revolving line of credit that sweeps the daily cash receipts from the Health System to pay down the loan balance, which increases as the Health System draws funds for operating needs.
The County Board of Supervisors on August 10, 2004, passed a resolution to limit the working capital loan to $200.0 million and established a schedule for repayment of the principal through fiscal year 2019. The amortization schedule required a payment of $15.0 million in fiscal year 2014 and $20.0 million for the remaining years of the loan through fiscal year 2019.
The Health System and the County signed an interim agreement, which was effective from October 28, 2014, through February 27, 2015. The interim agreement was extended through December 31, 2015. The purpose of the interim agreement was to allow the Health System and the County time to develop a longer term agreement on repayment of the Health System’s obligation to the County’s Consolidated Treasury. Under this agreement, the Health System’s net obligation could not exceed $195.0 million. The net obligation or the net negative cash balance is defined as the gross working capital loan balance minus restricted cash.
During fiscal year 2016, the interim agreement was replaced with an Agreement on the Repayment of Debt (Debt Restructure Agreement) to provide ongoing liquidity support to the Health System. As of June 30, 2020 and 2019, the net obligation was $83.0 million and $84.6 million, respectively, and was below the current ceiling of $125.0 million and $130.0 million, respectively, described in the Debt Restructure Agreement. Further reductions down to $50.0 million are scheduled over the life of the Debt Restructure Agreement through June 30, 2034. This is in recognition of the variability of the timing of receipts from supplemental government programs. The Debt Restructure Agreement contains other requirements, such as the availability of monthly reporting. The Health System was in compliance with the Debt Restructure Agreement throughout the reporting periods at June 30, 2020 and 2019.
The interest rate per the Debt Restructure Agreement is 1% for the years ended June 30, 2020 and 2019. The interest expense paid, the grossFINAL and net working capital loan DRAFT balances, and target net working capital loan balance at the end of the fiscal years were as follows:
2020 2019 (amounts in thousands)
Total interest paid on County liquidity facility $ 3,693 $ 2,439 Total gross working capital loan balance $ 108,346 $ 109,035 Net working capital loan balance (net of restricted cash) $ 83,005 $ 84,567 Net working capital loan maxim allowed by the Debt Restructure Agreement $ 125,000 $ 130,000
Medical service reimbursements – The Health System is reimbursed by the County at a negotiated annual amount for care of the County’s medically indigent patients and amounts under other supplemental programs. The County reimbursed the Health System $88.4 million during fiscal year 2020 and $67.5 million during fiscal year 2019 for these services, which is included in capitation revenue.
35 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The Health System is reimbursed by the County’s at negotiated rates for behavioral health services of the County’s medically indigent patients. The County reimbursed the Health System $25.1 million during fiscal year 2020 and $34.2 million during fiscal year 2019 for these services, which is included in net patient service revenues. The Health System has recorded receivables of $19.6 million and $24.6 million from the County related to these services, which is included in due from County of Alameda on the statements of net position at June 30, 2020 and 2019, respectively.
In addtion to providing behavioral health services to the County’s medically indigent patients, the Health System is also required to submit reports to the County for uncompensated behavioral health services. During the fiscal year ended June 30, 2020, the Health System’s settlements from the County were $44.7 million, which included a $31.8 million for settlement of fiscal years 2014 through 2019, and $12.9 million for settlement of fiscal year 2020. During the fiscal year ended June 30, 2019, the Health System’s settlements from the County was zero (see Note 12).
Pension obligation bond commitments – The County issued pension obligation bonds in 1995 and 1996 and contributed the net bond proceeds to the pension plan. A portion of the obligation is attributable to the participation of the Health System’s employees in the ACERA plan and allows ACERA to provide pension obligation bond credits to the Health System, thus reducing contributions otherwise payable to ACERA over time.
Other county services – Other County departments provide the Health System with certain services, such as sheriffs, motor pool, laboratory testing, tele-communications, building repairs, and maintenance. The Health System also leases a number of buildings from the County, the majority of which are covered under a $1 annual medical facilities lease that expires in 2028. The Health System’s total charges for County provided services for the years ended June 30, 2020 and 2019, and related outstanding payables as of June 30, 2020 and 2019, were as follows:
2020 2019 (amounts in thousands)
Charges for County provided services $ 3,672 $ 4,372 Total outstanding payables to County $ 979 $ 2,872
Capital Designation Fund – The Capital Designation Fund was created as part of the Debt Restructure Agreement dated March 29, 2016 with the County Board of Supervisors. The Health System agreed to deposit $7.0 million by June 30th each fiscal year startingFINAL in 2019 and ending 2035 DRAFT into a Capital Designation Fund. At the August 8, 2018 County Board of Supervisors' meeting approved the Health System to access up to $7 million per year for ten years to reimburse for Epic implementation expenditures. To access these funds, the Health System is required to meet the following conditions:
Health System is in compliance with the terms of the Debt Restructure Agreement at June 30th of each fiscal year; Health System has deposited $7 million into the Capital Designation Fund establish by the County by June 30th of each fiscal year; Health System has achieved project benchmarks established by the County; Health System has presented quarterly updates on its finances and the Electronic Health Records (EHR) project to the Board of Supervisors or Health Committee; Health System signs an agreement by June 30, 2018 with the County that any reimbursement for depreciation and interest claimed on County-owned assets operated by AHS, including but not limited to the Acute Care Tower, will be deposited with the County Auditor in a Capital Fund designated for maintenance and investment in the County's facilities; and
36 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Health System obtains annual County Board of Supervisors approval for disbursement of funds up to $7 million upon certification by the County Administrator, and County Auditor-Controllers that AHS is in compliance with the terms of the conditions cited above.
Payment was issued to the County for $7.0 million in fiscal years ending June 30, 2020 and 2019. The Health System has a receivable due from the County of $14.0 million at June 30, 2020 included in due from County of Alameda on the statement of net position.
Capital Cost Transfer – On July 26, 2018, the Health System entered into the “Capital Cost Transfer Agreement” with the County. Per the Capital Cost Transfer Agreement, the Health System agrees to remit to the County all State and federal reimbursement associated with depreciation and interest claimed on the County owned facilities operated by the Health System. This funding will be used to maintain the County's investment in their assets since the Health System is approved to use the Capital Designation funds to fund the EHR project. The funding is transfer to the County upon completion of the final P-14 audits for each fiscal year. The Health System has a receivable of $25.8 million and $4.4 million at June 30, 2020 and 2019, respectively, included in due from County of Alameda on the statement of net position. The Helath System has a payable of $21.4 million and zero at June 30, 2020 and 2019, respectively, included in due to County of Alameda on the statement of net position.
NOTE 9 – LONG-TERM OBLIGATIONS
The following table summarizes the activity related to long-term obligations during the years ended June 30, 2020 and 2019: Additional Balance Obligations Retirements Balance Amounts June 30, and Net and Net June 30, Due Within 2019 Increases Decreases 2020 One Year (amounts in thousands) Long-term obligations: Pension obligation bonds due to County$ 18,768 $ - $ (11,612) $ 7,156 $ 7,156
Long-term obligations 18,768 - (11,612) 7,156 7,156
Other noncurrent liabilities: Accrued compensated absences 30,919 4,899 - 35,818 20,087 Self-insurance liability 31,546 773 (973) 31,346 7,027 Other long-term liabilities FINAL 9,977 DRAFT 12,687 - 22,664 - Net pension liability 502,133 318 (146,068) 356,383 - Other postemployment benefits obligations 43,743 - (23,181) 20,562 - Liquidity facility - County of Alameda 109,035 1,571 (2,260) 108,346 -
Total noncurrent liabilities $ 746,121 $ 20,248 $ (184,094) $ 582,275 $ 34,270
37 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Additional Balance Obligations Retirements Balance Amounts June 30, and Net and Net June 30, Due Within 2018 Increases Decreases 2019 One Year (amounts in thousands) Long-term obligations: Pension obligation bonds due to County$ 30,903 $ - $ (12,135) $ 18,768 $ 11,612
Long-term obligations 30,903 - (12,135) 18,768 11,612
Other noncurrent liabilities: Accrued compensated absences 30,622 2,113 (1,816) 30,919 18,725 Self-insurance liability 29,999 1,585 (38) 31,546 6,920 Other long-term liabilities - 9,977 - 9,977 - Net pension liability 342,201 159,932 - 502,133 - Other postemployment benefits obligations 5,139 38,604 - 43,743 - Liquidity facility - County of Alameda 86,006 23,029 - 109,035 -
Total noncurrent liabilities$ 524,870 $ 235,240 $ (13,989) $ 746,121 $ 37,257
Debt service requirements for the long-term obligations were as follows:
Pension Obligation Bonds due to County Fiscal Years Ending June 30 Principal Interest Total
2021 $ 7,156 $ - $ 7,156
Total $ 7,156 $ - $ 7,156
The Health System is a member of the ACERA plan and in prior years Alameda County issued bonds to provide for the funding of pension obligations. It has been determined that the Health System is legally obligated for the assigned share of the bond debt. NOTE 10 – NET PATIENT SERVICEFINAL REVENUE DRAFT Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, including estimated adjustments (contractual allowances) under reimbursement agreements with third-party payors and the uncollectible portion of patient service revenues.
38 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The Health System has agreements with third-party payors that provide for payments to the Health System at amounts different from its established rates. These payment arrangements include:
Medicare – Inpatient acute care services and substantially all outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates. These rates vary according to a patient classification system that is based on clinical, diagnostic, acuity, and other factors. The Health System is reimbursed for certain services at tentative rates with final settlement determined after submission of annual cost reports by the Health System and audits thereof by the Medicare administrative contractor. The Medicare administrative contractor has audited the Health System’s cost reports through June 30, 2016. The Health System recognized in the statements of revenues, expenses, and changes in net position an increase of approximately $2.4 million in 2020, in net patient services revenue, pertaining to the settlement of previous years’ cost reports.
Medi-Cal – Inpatient acute services rendered to Medi-Cal program beneficiaries are paid at cost for Highland Hospital, Fairmont Hospital, and San Leandro Hospital. The Health System is paid at an interim per diem rate with final settlements determined after submission of annual cost reports and audits thereof by the California Department of Health Care Services (DHCS). Alameda Hospital, effective with fiscal year 2017, inpatient acute services are also reimbursed at cost. Outpatient services are reimbursed at a combination of cost or prospective payment system rates (FQHC). Laws and regulations governing the Medicare and Medi-Cal programs are complex and subject to interpretation and change. The programs’ administrative procedures preclude final determination of amounts due for services to program patients until after the cost reports are audited or otherwise reviewed by and settled with the respective administrative agencies. All Medi-Cal cost reports through 2011 have been finalized, however 2012 through 2019 are in various stages of audit and/or finalization. Medi-Cal cost reports for 2020 will be filed by November 30, 2020, and are subject to audit and possible adjustment. Net Medi-Cal program patient services revenue amounted to approximately $202.5 million and $279.4 million in 2020 and 2019, respectively. The Health System recognized in the statements of revenues, expenses, and changes in net position a decrease of approximately $3.4 million and $13.0 million in 2020 and 2019, respectively, in net patient services revenue pertaining to the settlement of previous years’ cost reports.
The Health System has also entered into payment agreements with certain Medicare and Medi-Cal managed care plans as well as commercial insurance carriers, health maintenance organizations, and preferred provider organizations. The basis for payment to the Health System under these agreements includes prospectively determined rates per discharge,FINAL discounts from established DRAFT charges, and prospectively determined daily rates. Net patient service revenues for the fiscal years ended June 30, 2020 and 2019, were calculated as follows:
2020 2019 (amounts in thousands)
Gross patient service revenues $ 3,281,180 $ 3,437,988 Contractual allowances (2,705,149) (2,820,934) Bad debt provision (64,525) (52,717)
Net patient service revenues $ 511,506 $ 564,337
39 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The mix of gross patient service revenue by payor for the fiscal years ended June 30, 2020 and 2019, were:
2020 2019
Medi-Cal 55.3% 54.5% Medicare 27.5% 29.9% Commercial insurance 6.0% 7.9% Other government 6.8% 4.9% Self pay 4.4% 2.8%
NOTE 11 – CAPITATION REVENUE
Health Program for Alameda County (HPAC)
The Health Program for Alameda County (HPAC) provides health care coverage for the County's indigent population. The indigent population is not qualified for full-scope Medi-Cal coverage and reports a gross monthly income at or below the 200% Federal Poverty Level. The Health System contracts with the County and other primary care community based organizations to provide health care services.
As a result of Medicaid Coverage Expansion, HPAC continues to provide coverage for the remaining uninsured population of Alameda County. For the years ended June 30, 2020 and 2019, the Health System recognized $88.4 million and $67.5 million in HPAC capitation revenue, respectively. Included in capitation revenue was $46.3 million and $28.7 million in 2020 and 2019, respectively, of AB 85 Realignment revenue (discussed in Note 12) that was passed on from the State to the County.
In addition to the direct cost of charity care (Note 13), the Health System recognizes the unreimbursed costs of care provided to medically indigent patients covered by HPAC as contractual allowances. The following table summarizes the estimated HPAC unreimbursed cost: June 30, 2020 June 30, 2019 (amounts in thousands)
HPAC unreimbursed cost$ 14,535 $ 8,953 Percent of operating expensesFINAL DRAFT 1.3% 0.8%
Alameda Alliance for Health
The Health System entered into a capitation agreement with Alameda Alliance for Health in April 2018 to provide primary care services for their Medi-Cal members. As a result, the Health System recorded $7.4million and $5.1 million in revenue for the years ended June 30, 20120, and 2019, respectively.
40 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 12 – OTHER GOVERNMENT PROGRAM REVENUE AND OTHER OPERATING REVENUE
The following is a breakdown of government program revenue for the fiscal years ended June 30, 2020 and 2019:
2020 2019 (amounts in thousands)
Components of the Medi-Cal waiver: PRIME $ 22,304 $ 27,175 Section 1115 waiver including GPP 97,281 116,083 Supplemental funding – Quality Incentive Program (QIP) and Enhanced Payment Program (EPP) 68,448 63,540 Parcel tax revenue 4,736 5,536 Sales tax revenue 116,462 125,493 Supplemental funding – Behavioral Health Services 44,700 - Supplemental funding – Rate Range 31,828 30,000 Supplemental funding – Graduate Medical Education (GME) 23,304 - Other program revenue 16,364 20,040
Other government program revenue $ 425,427 $ 387,867
Public Hospital Redesign and Incentives in Medi-Cal Program (PRIME)
Over 5 years, beginning in the year ended June 30, 2016, up to $7.5 billion in federal funds will be available from PRIME. As a result of participating in PRIME, the Health System recorded $22.3 million and $27.2 million in revenue for the years ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and 2019, $24.0 million and $13.7 million, respectively, is recorded as a receivable in due from third-party payors as shown in Note 5.
State of California Medi-Cal Programs (Section 1115 Waiver)
CMS authorized California to invest savings generated through California’s Medi-Cal Hospital/Uninsured Care Demonstration Project (Demonstration) to achieve critical objectives, such as improved quality of care and better care coordination through safety net providers. The Demonstration, as described above, is a system initiated in fiscal year 2006 for paying selectedFINAL hospitals for hospital careDRAFT provided to Medi-Cal and uninsured patients. The Demonstration was negotiated between the State’s Department of Health Care Services and CMS in 2005, covered the period from July 1, 2005 to August 31, 2010, and was extended through October 31, 2010. The implementing State legislation (S.B. 1100) was enacted by the Legislature in September 2005. The five-year Demonstration affects payments for 23 public hospitals, identified as Designated Public Hospitals (DPHs) and private and nondesignated public safety net hospitals that serve large numbers of Medi-Cal patients. The Demonstration restructures inpatient hospital fee-for-service (FFS) payments and Disproportionate Share Hospital (DSH) payments, as well as the financing method by which the State draws down federal matching funds. Under the Demonstration, payments for the public hospitals are comprised of: 1) FFS cost-based reimbursement for inpatient hospital services (exclusive of physician component); 2) DSH payments; and 3) distribution from a newly created pool of federal funding for uninsured care, known as the Safety Net Care Pool (SNCP). The nonfederal share of these three types of payments will be provided by the public hospitals rather than the State, primarily through certified public expenditures (CPE) whereby the hospital would expend its local funding for services to draw down the federal financial participation (FFP).
41 Alameda Health System A Public Hospital Authority Notes to Financial Statements
For the inpatient hospital cost-based reimbursement, each hospital will provide its own CPE and receive the entire resulting federal match. For the DSH and SNCP distributions, the CPEs of all the public hospitals will be used in the aggregate to draw down the federal match.
The Demonstration authorized the State to create a Health Care Coverage Initiative in ten selected counties during fiscal year 2008 through fiscal year 2010 (with an extension to October 31, 2010) to expand health care coverage for eligible low-income, uninsured individuals using a $180 million annual allotment of federal funds from the SNCP. Selected counties certify their public expenditures to claim federal funding to reimburse their health care services costs. The selected counties also receive federal reimbursement for administrative costs associated with the implementation and ongoing administration of the covered initiative programs. This funding is separate from the SNCP funding that is available. Senate Bill 1448, passed in July 2006, implemented the Health Care Coverage Initiative. The Health System receives a portion of the funding through Alameda County.
Effective November 1, 2010, CMS and the State agreed on the standard terms and conditions of the 5-year renewal of the waiver officially called the California Bridge to Reform Demonstration (Waiver). The Waiver established the Low Income Health Program, which provides federal matching funding for enrollees. The funds available through the Waiver help California implement health care reform through investments in its safety net delivery system and expansion of coverage for adults between 0% and 200% of the Federal Poverty Level (FPL).
The Health System has been informed by California Association of Public Hospital and Health Systems (CAPH) that CMS has instructed the DHCS to finalize all years through fiscal year 2015 under the Waiver program by December 31, 2020. The Health System has estimated net liabilities for the period from fiscal year 2008 through fiscal year 2015 based on the revised analysis provided by CAPH. As of June 30, 2020 and 2019, the Health System recorded a payable of $78.1 million and $73.1 million, respectively, for the Waiver program as shown in Note 5. During 2020, other government program revenue was decreased $5.0 million as a result of the increase in the net liability.
Global Payment Program (GPP)
Effective January 1, 2016, California’s Section 1115 Waiver Renewal (Renewal), called Medi-Cal 2020, was approved by CMS. As part of the Renewal, the Global Payment Program (GPP) establishes a statewide pool of funding for the remaining uninsured by combining federal disproportionate share (DSH) and uncompensated care funding (SNCP) where selectedFINAL Designated Public Hospital DRAFT systems like the Health System can achieve their goal of “global budget” by meeting a service threshold that incentivizes movement from high cost, avoidable services to providing higher value and preventative services. The Health System recognized $97.3 million and $116.1 million in revenue for the years ended June 30, 2020 and 2019, respectively, for Section 1115 Waiver programs, including GPP. As of June 30, 2020 and 2019, the Health System recorded a payable of $0.8 million and a receivable of $15.2 million, respectively, for the GPP program as shown in Note 5.
42 Alameda Health System A Public Hospital Authority Notes to Financial Statements
AB 85 Realignment
Accountability for providing health care to the uninsured has, historically, shifted back and forth between the Counties and State of California. In the 1991 Realignment Act, responsibility for these services was transferred to the Counties and funding was provided to the Counties through increases to the State sales tax and vehicle license fees. In 2013, due to passage of The Affordable Care Act (ACA), and the shift from uninsured to Medi-Cal enrollees, the State determined that the cost of services to the uninsured would decrease and the funding needed by the counties would need to be proportionately reduced through a realignment redirection. In fiscal year 2017, not all Realignment funding for Alameda County was redirected on an interim basis, and the County paid the funding to the Health System with the understanding that the Health System would be responsible for any repayment calculated on final reconciliation. Based on the interim reconciliation as of June 30, 2020, the Health System determined that all fiscal year 2017 Realignment funding would be returned. These funds were paid back in October 2020. As a result, the Health System recognized a liability of $8.0 million and $26.7 million as of June 30, 2020 and 2019, respectively. The Health System recognized no reserve for the year ended June 30, 2020 and 2019, for the AB 85 realignment revenue of $46.3 million and $28.7 million, respectively, that was passed on from the State to the County as part of HPAC (discussed in Note 11).
Sales Tax Revenue
The State collects and remits to the Health System Measure A – Essential Health Services Tax. Measure A was approved by the voters of the County in 2004. Starting in 2005 funds were provided for emergency medical, hospital inpatient, outpatient, public health, mental health, and abuse services to indigent, low-income, and uninsured residents of the County. Measure AA was passed by the voters of the County in June 2014 to extend the Essential Health Services Tax through June 30, 2034. Total tax revenues included in other government program revenues were $116.5 million for the year ended June 30, 2020, and $125.5 million for the year ended June 30, 2019. Sales taxes receivable from the State were $19.3 million and $20.6 million as of June 30, 2020 and 2019, respectively, as shown in Note 6.
Medi-Cal Managed Care Supplemental Programs
In order to partially bridge the gap between Medi-Cal base rates and the actual cost of providing care, California’s public health care systems have been financing and receiving supplemental payments for services provided to Medi-Cal managed care enrollees.FINAL As Medi-Cal is a state/federal DRAFT partnership, federal funding must be matched by a “non-federal share”, which for supplemental payments is financed by the public hospitals at no additional cost to the State. Each public health system has provided the non-federal share to the State, and the State has then provided the total enhanced payment with the federal match back to the public health care systems, via Medi-Cal managed care plans.
Medi-Cal Managed Care Supplemental Programs have included supplemental funding to get up to cost for Seniors and Persons with Disabilities (SPD) pursuant to SB208, supplemental funding to get up to cost for services provided to Medi-Cal Expansion (MCE) Enrollees pursuant to AB85, and supplemental Managed Care Rate Range funding.
43 Alameda Health System A Public Hospital Authority Notes to Financial Statements
These types of arrangements must meet new requirements under the Medicaid and Children’s Health Insurance Program (CHIP) Managed Care Final Rule. The managed care rule limits the ability of states to direct payments to health care providers, unless certain conditions are met. Payments tied to performance and payments that provide a uniform pre-determined increase over contracted rates are allowable exceptions under the rule. The supplemental funding for services provided to SPD and MCE enrollees do not meet the requirements of the final rule. In order to retain this critical funding, these payments were restructured into two new CMS approved programs, effective July 1, 2017: The Quality Incentive Program (QIP) and the Enhanced Payment Program (EPP).
The QIP is meant to meet the managed care rule’s exception that allows payments tied to performance. QIP is structured similarly to the PRIME program, however the QIP’s measured do not directly overlap with any of the quality measures being used in PRIME, but are designed to be complementary.
The EPP divides public health care systems into five different classes, with payment terms defined according to class. The Health System is in a class with other County-run or County affiliated public health care systems with Level I or II Trauma and predominantly fee-for-service Medi-Cal managed care contracts. Enhanced funding available to the class is distributed pro-rata based on unitization encounter data reported to the State.
As a result of participating in the QIP and EPP programs, the Health System recognized $68.4 million and $63.5 million in revenue for the years ended June 30, 2020 and 2019, respectively. The revenue is estimated based on analysis prepared by the California Association of Public Hospitals (CAPH) in development of the program, however actual amounts earned will not be known until well after the fiscal year 2020. The estimates are based on actual amounts for the period July 1, 2017 through December 31, 2018. EPP and QIP payments for fiscal year 2018 were made in fiscal year 2020. The Health System has recognized 90% of the estimated amount.
Supplemental Funding – Seniors and Persons with Disabilities (SPD)
Effective October 19, 2010, SB 208 allows the DHCS to implement changes to the federal Waiver that expired on October 31, 2010. SB 208 implements provisions of the Waiver for specified uninsured adults that are not otherwise eligible for Medicare or Medi-Cal. SB 208 allows the State to implement additional goals of the Waiver to improve health care delivery systems and health care outcomes for SPD. This is accomplished by transferring the responsibility for the provision of care from the Medi-Cal FFS program to health plans under the managed Medi- Cal program. FINAL DRAFT Senate Bill 208 (Chapter 714, Statutes of 2010) provided for the possibility of a voluntary Inter-Governmental Transfer (IGT) relating to Medi-Cal managed care services provided by DPHs. The purpose of the IGT program is to provide funding to preserve and strengthen the availability and quality of services provided by DPHs and their affiliated public providers, to the extent permitted by law. This IGT program consists of two IGT agreements to provide a portion of the nonfederal share of risk-based payments to managed care health plans as described in Welfare and Institutions Code, Sections 14182.15(d)(1) and 14182.15(d)(2).
IGTs provide the ability for the DPHs to receive matching federal funds to increase reimbursement for care to the SPD population. This program ended June 30, 2017. The Health System recognized additional reimbursement of $0.6 million for the year ended June 30, 2019.
44 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Supplemental Funding – Rate Range
The Health System participated in the Rate Range IGT for Medi-Cal managed care plans covering inpatient and outpatient services. Capitation rate ranges for DHCS County Organized Health Systems (COHS) managed care programs were developed in accordance with rate setting guidelines established by CMS. As a result of participating in the Rate Range IGT, the Health System recognized $31.8 million and $30.0 million in revenue for the years ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and 2019, the Health System recorded a receivable of $21.0 million and a receivable of $20.4 million, respectively, for this program as shown in Note 5.
Supplemental Funding – Graduate Medical Education (GME)
The Health System participates in the Medicare Graduate Medical Education program which provides direct resources for resident stipends, supervisory physician salaries, and administrative costs of the Health System's residency program, as well as indirect costs associated with the Health System’s residency program that would otherwise result in higher patient cares costs in teaching hospitals relative to non-teaching hospitals. On March 19, 2020, CMS approved the graduate medical education (GME) funding for designated public hospitals to be effective January 1, 2017. The Health System recognized $23.3 million in fiscal year 2020, of which $16.3 million was related to fiscal year 2019 and earlier. As of June 30, 2020 and 2019, $13.8 million and zero, respectively, is recorded as a receivable in due from third-party payors as shown in Note 5.
Other Operating Revenue
The Health System receives funding for administration of various Medi-Cal programs, including funding under Medi- Cal Administrative Activities (MAA) to reimburse certain costs of administering the Medi-Cal program. MAA revenues of $3.1 million and $2.9 million were included in other operating revenues for the years ending June 30, 2020 and 2019, respectively. Grant revenues of $7.3 million and $6.8 million were included in other operating revenues for the years ended June 30, 2020 and 2019, respectively.
NOTE 13 – CHARITY CARE
The Health System provides services to patients who are financially screened and qualified to receive charity care under the guidelines of AB 774.FINAL The Health System records DRAFT the amount of unreimbursed costs for services and supplies for patients who qualify for the charity care program and county programs based on the Medi-Cal cost to charge ratio. The following table summarizes the estimated cost of charity care:
June 30, 2020 June 30, 2019 (amounts in thousands)
Charity care cost$ 14,965 $ 10,806 Percent of operating expenses 1.4% 1.0%
45 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 14 – RETIREMENT PLANS
The Health System participates in three post-retirement plans. The tables below summarize net pension liabilities and related balances as of and for the years ended June 30, 2020 and 2019. Further detail describing the ACERA plan follows the summary table below, further details describing the other postemployment medical benefits plan follows in Note 15. The AHS DB Plan and the AH Plan are not considered material for additional disclosures, with certain exceptions as indicated.
2020 ACERA OPEB AHS DB Plan AH Plan Total (amounts in thousands)
Net pension liability $ 355,519 $ - $ 434 $ 430 $ 356,383 Other postemployment benefits obligations $ - $ 20,562 $ - $ - $ 20,562 Deferred outflows of resources $ 76,740 $ 8,513 $ 295 $ - $ 85,548 Deferred inflows of resources $ (94,876) $ (24,790) $ (71) $ - $ (119,737) Pension expense $ 74,968 $ - $ 491 $ 366 $ 75,825 Other postemployment benefits expense $ - $ 3,328 $ - $ - $ 3,328
2019 ACERA OPEB AHS DB Plan AH Plan Total (amounts in thousands)
Net pension liability $ 501,587 $ - $ 387 $ 159 $ 502,133 Other postemployment benefits obligations $ - $ 43,743 $ - $ - $ 43,743 Deferred outflows of resources $ 169,449 $ 19,329 $ 183 $ 276 $ 189,237 Deferred inflows of resources $ (20,995) $ (9,096) $ (56) $ (93) $ (30,240) Pension expense $ 105,832 $ - $ 425 $ 244 $ 106,501 Other postemployment benefits expense $ - $ 7,674 $ - $ - $ 7,674
Alameda County Employees’ Retirement Association (ACERA)
Plan description – The Health System participates in the cost-sharing multiple employer employee benefit plans of ACERA. ACERA began operations on January 1, 1948, and is governed by the California Constitution and state and federal laws, including but not limited to the County Employees Retirement Law of 1937 (1937 Act), beginning at California Government Code Section 31450 et. seq., Public Employees’ Pension Reform Act (PEPRA), and the bylaws and policies adopted by the Board of Retirement. ACERA provides service and FINALdisability retirement benef its,DRAFT annual cost-of-living adjustments (COLA), and death benefits to plan members and their beneficiaries. ACERA also provides other nonhealth postemployment benefits, such as supplemental COLA and a lump sum death benefit.
The 1937 Act provides the authority for the establishment of ACERA benefit provisions. In most cases where the law provides options concerning the allowance of credit for service, the offering of benefits, or the modification of benefit levels, the law generally requires approval of the employers’ governing board for the option to take effect. Separately, in 1984, the Alameda County Board of Supervisors and the Board of Retirement approved the adoption of Article 5.5 of the 1937 Act. This adoption permitted the establishment of a Supplemental Retirees Benefit Reserve (SRBR) for ACERA.
46 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Article 5.5 of the 1937 Act provides for the systematic funding of the SRBR and stipulates that it be used only for the benefit of retired members and their beneficiaries. The law grants discretionary authority over the use of the SRBR funds to the Board of Retirement. Supplemental benefits currently provided through the SRBR include supplemental COLA, supplemental retired member death benefits, active death equity benefits, and the retiree monthly medical allowance, vision, dental, and Medicare Part B coverage. The payment of supplemental benefits from the SRBR is subject to available funding and must be periodically re-authorized by the Board of Retirement. SRBR benefits are not vested. In 2006, the Board of Retirement approved the allocation of SRBR funds to postemployment medical benefits and other pension benefits. These two programs provide the supplemental benefits described above.
Employers participating in ACERA include County of Alameda (General and Safety), First 5 Alameda County, Housing Authority of the County of Alameda, Alameda Health System, Livermore Area Recreation and Park District (LARPD), Superior Court of California—County of Alameda, and Alameda County Office of Education. The Health System’s employees are classified as general members. All full-time employees of participating employers who are appointed to permanent positions are statutorily required to become members of ACERA, with the exception of Health System employees of Alameda Hospital and San Leandro Hospital, unless they are subject to an existing memorandum of understanding. Effective October 31, 2013, all newly hired unrepresented employees of any Health System facility are prohibited from membership.
Any new member who becomes a member on or after January 1, 2013, is placed into Tier 4 and is subject to the provisions of PEPRA, California Government Code 7522 et seq. and Assembly Bill (AB) 197.
General members enrolled in Tiers 1, 2, or 3 are eligible to retire once they attain the age of 70, regardless of service, or at age 50 with five or more years of retirement service credit and a total of 10 years of qualifying membership. A non-Tier 4 general member with 30 years of service is eligible to retire regardless of age. General members enrolled in Tier 4 are eligible to retire once they have attained the age of 52 and have acquired five years of retirement service credit or at age 70, regardless of service. The retirement benefit the member will receive is based upon age at retirement, final average compensation, years of retirement service credit, and retirement plan and tier.
ACERA provides an annual cost-of-living benefit to all retirees. The cost-of-living adjustment, based upon the consumer price index (CPI) for the San Francisco-Oakland-San Jose Area (with 1982-84 as the base period), is capped at 3.0% for General TiersFINAL 1 and 3 and Safety Ti erDRAFT 1 and at 2.0% for general Tiers 2 and 4 and Safety Tiers 2, 2C, 2D, and 4.
Additional information regarding benefit tiers, eligibility requirements, and benefits are described in ACERA comprehensive annual financial report (CAFR). The CAFR for December 31, 2019, may be obtained by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California 94612.
Contributions – Member and employer contribution rates are based on recommendations made by an independent actuary and adopted by the Board of Retirement. These rates are based on membership type (general and safety) and tier (Tiers 1, 2, 3, and 4). Active members are required by statute to contribute toward pension plan benefits. Participating employers are required by statute to contribute the necessary amounts to fund estimated benefits not otherwise funded by member contributions or expected investment earnings.
47 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Participating agencies contribute to the retirement plan based upon actuarially determined contribution rates adopted by the ACERA Board of Retirement. Employer contribution rates are adopted annually based upon recommendations received from ACERA’s actuary after the completion of the annual actuarial valuation. The average employer contribution rate as of December 31, 2019 (based on the December 31, 2017 valuation for the second half of 2018/2019 and on the December 31, 2018 valuation for the first half of 2019/2020), was 27.60%.
Members are required to make contributions to ACERA regardless of the retirement plan or tier in which they are included. The average member contribution rate as of December 31, 2019 (based on the December 31, 2017 valuation for the second half of 2018/2019 and on the December 31, 2018 valuation for the first half of 2019/2020), was 9.53% of compensation.
Actuarial methods and assumptions used to determine total pension liability – For the measurement period ending December 31, 2019 (the measurement date), the total pension liability was determined by rolling forward the December 31, 2018 total pension liability. The actuarial assumptions used to develop the December 31, 2019 and 2018 total pension liability are based on the assumptions adopted annually by the Retirement Board for use in the December 31, 2019 and 2018, respectively. These assumptions were applied to all periods included in the measurement: Valuation Date December 31, 2019 December 31, 2018
Actuarial cost method Entry age normal Entry age normal Actuarial assumptions, Discount rate 7.25% 7.25% Inflation 3.00% 3.00%
FINAL DRAFT
48 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Valuation Date December 31, December 31, 2019 2018
Salary increases General: 3.90% to 8.30% and General: 3.90% to 8.30% and Safety: 4.30% to 11.30%, vary by service, Safety: 4.30% to 11.30%, vary by service, including inflation including inflation
Investment rate of return 7.25% net of pension plan investment, 7.25% net of pension plan investment, expenses, including inflation expenses, including inflation
Mortality rate table Headcount-Weighted RP-2014 Healthy Headcount-Weighted RP-2014 Healthy Annuitant Mortality Table projected Annuitant Mortality Table projected generationally with the two-dimensional MP- generationally with the two-dimensional MP- 2016 projection scale adjusted for future 2016 projection scale adjusted for future mortality improvements based on a review of mortality improvements based on a review of the mortality experience in the December 1, the mortality experience in the December 1, 2013 - November 30, 2016 actuarial 2013 - November 30, 2016 actuarial experience study experience study
Post retirement benefit increase 3.00% of Tier 1 and Tier 3 retirement income 3.00% of Tier 1 and Tier 3 retirement income
2.00% of Tier 2 and Tier 4 retirement income 2.00% of Tier 2 and Tier 4 retirement income
NonOPEB - Payable when the current NonOPEB - Payable when the current allowance from the Pension Plan drops below allowance from the Pension Plan drops below 85% of the original Pension Plan benefit 85% of the original Pension Plan benefit indexed with CPI. Benefits are assumed to indexed with CPI. Benefits are assumed to increase by the difference between inflation increase by the difference between inflation and the cost-of-living benefit guaranteed in the and the cost-of-living benefit guaranteed in the Pension Plan, subject to other limitations Pension Plan, subject to other limitations
The changes in net pension liability obligations for the ACERA plan, the AHS DB Plan, and the AH Plan are as follows: Reporting Date June 30, 2020 June 30, 2019 (amounts in thousands)
Beginning net pension liability $ 502,133 $ 342,201 Pension expense FINAL DRAFT 75,825 106,501 Employer contributions (54,694) (50,653) New net deferred inflows/outflows (111,785) 125,018 Change in allocation of prior deferred inflows/outflows (3,175) 31 New net deferred flows due to change in proportion (8,954) 555 Recognition of prior deferred inflows/outflows (40,873) (19,623) Recognition of prior deferred flows due to change in proportion (2,094) (1,897)
Ending net pension liability $ 356,383 $ 502,133
49 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation but before deduction investment expenses, used in the derivation of the long-term expected investment rate of return assumptions are summarized in the following table: Long-Term (Arithmetic) Target Expected Real Allocation Rate of Return
Domestic Large Cap Equity 22.40% 5.75% Domestic Small Cap Equity 5.60% 6.37% Developed International Equity 19.50% 6.89% Emerging Market Equity 6.50% 9.54% U.S. Core Fixed Income 11.25% 1.03% High Yield Bonds 1.50% 3.99% International Bonds 2.25% 0.19% TIPS 2.00% 0.98% Real Estate 8.00% 4.47% Commodities 3.00% 3.78% Hedge Funds 9.00% 4.30% Private Equity 9.00% 7.60%
Total 100.00%
Discount rate
The discount rate used to measure the total pension liability was 7.25% as of December 31, 2019 and 2018. In order to reflect the provisions of Article 5.5 of the 1937 Act, future allocations of 50% excess earnings to the SRBR have been treated as an additional outflow against the plan’s fiduciary net position in the GASB crossover test. It is estimated that the additional outflow would average approximately 0.60% of assets over time, based on the results of the actuary’s stochastic modeling of the 50% allocation of future excess earnings to the SRBR.
The projection of cash flows used to determine the discount rate assumes plan member contributions will be made at the current member contribution rates, and that employer contributions will be made at rates equal to the actuarially determined contributionFINAL rates plus additional fu tureDRAFT contributions that would follow from the allocation of excess earnings to the SRBR. Projected employer contributions that are intended to fund the service cost for the future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments for the current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability as of December 31, 2019 and 2018.
Pension plan fiduciary net position – The net pension liability was measured as of December 31, 2019 and 2018. Plan fiduciary net position was valued as of the measurement date while the total pension liability was determined based upon rolling forward the total pension liability from actuarial valuations as of December 31, 2018 and 2017, respectively.
50 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The total pension liability and fiduciary net position include liabilities and assets for nonhealth postemployment benefits (NonOPEB). The assets for NonOPEB are held in the SRBR to pay nonvested supplemental COLA and the retired death benefit. The liability and assets associated with the Other Postemployment Benefits (postemployment health related benefits) (OPEB) component of the SRBR have been excluded from the total pension liability and the fiduciary net position reported above.
Detailed information about pension plan fiduciary net position is available in the separately issued ACERA financial report.
Sensitivity of the net pension liability to changes in the discount rate – The following presents the net pension liability of ACERA as of December 31, 2019, which is allocated to all employers, calculated using the discount rate of 7.25%, as well as what ACERA’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.25%) or 1-percentage-point higher (8.25%) than the current rate.
Discount Rate - Current Discount Discount Rate + 1% (6.25%) Rate (7.25%) 1% (8.25%) (in thousands)
ACERA plan net pension liability $ 611,077 $ 355,519 $ 144,053
Recognition of gains and losses – Under GASB No. 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time.
The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense.
The amortization period differs depending on the source of the gain or loss:
Difference between projected Five-year straight-line amortization and actual earnings
All other amounts Straight-line amortization over the FINAL DRAFTaverage expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period
The average of the expected service lives of all employees is determined by:
Calculating each active employee’s expected remaining service life as the present value of $1 per year of future service at zero percent interest.
Setting the remaining service life to zero for each nonactive or retired member.
Dividing the sum of the above amounts by the total number of active employee, nonactive, and retired members.
51 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The average of the expected service lives of all employees that are provided with pensions through the ACERA plan, is 5.37 years as determined as of December 31, 2018 (the beginning of the measurement period ending December 31, 2019).
Pension expense and deferred outflows and deferred inflows – As of the beginning of the measurement period (December 31, 2018), the net pension liability for the ACERA plan is $501.6 million (The net pension liability of the risk pool as of December 31, 2018, is $2.9 billion).
For the measurement period ended December 31, 2019 (the measurement date), the Health System incurred a pension expense of $75.0 million for the ACERA plan (the pension expense for the risk pool for the measurement period is $420.4 million).
As of December 31, 2019 and 2018, the Health System reports deferred outflows and deferred inflows of resources related to the ACERA plan. The deferred outflows and inflows recognized in the 2019 measurement period are as follows: Deferred Deferred Outlfows of Inflows of Resources Resources (amounts in thousands)
Pension contributions subsequent to the measurement date$ 28,285 $ - Difference between expected and actual experience 3,467 6,238 Changes in assumptions 38,888 4,924 Net difference between projected and actual earnings on pension plan investments 61 74,609 Adjustment due to differences in proportions 6,334 9,176
Total $ 77,035 $ 94,947
FINAL DRAFT
52 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The deferred outflows and inflows recognized in the 2018 measurement period are as follows:
Deferred Deferred Outlfows of Inflows of Resources Resources (amounts in thousands)
Pension contributions subsequent to the measurement date$ 28,079 $ - Difference between expected and actual experience 610 13,240 Changes in assumptions 69,867 7,260 Net difference between projected and actual earnings on pension plan investments 62,503 - Adjustment due to differences in proportions 8,849 644
Total $ 169,908 $ 21,144
Amounts reported as deferred outflows and deferred inflows of resources related to pensions, other than the employer-specific item, will be recognized in future pension expense as follows:
Deferred Outflows/ (Inflows) of Resources (amounts in Measurement periods ending December 31, thousands)
2021 $ 16,958 2022 (11,281) 2023 6,844 2024 (29,992) 2025 (499) Thereafter FINAL DRAFT 58 $ (17,912)
ACERA’s financial statements and required supplementary information are audited annually by independent auditors. The audit report and December 31, 2019 financial statements may be obtained by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California 94612.
53 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 15 – OTHER POSTEMPLOYMENT BENEFITS MEDICAL PLAN
Plan description – The Health System participates in an OPEB plan, wherein cost-sharing multiple employer medical benefits are administered by ACERA for retired members and their eligible dependents. The OPEB plan is not a benefit entitlement program and benefits are subject to modification and/or deletion by the ACERA Board of Retirement. Annually, based on the recommendation of the Board of Retirement, the Board of Supervisors designates a portion of the County’s and Health System’s contribution to retirement towards medical premiums of retirees.
The Health System arranges health insurance coverage for employees, negotiating coverage levels and premium rates annually with several carriers. Employees who meet certain eligibility conditions and make the required contributions may continue coverage in those same health plans after retirement until they become Medicare eligible. Currently, the Health System uses a single blended rate for budgeting and setting premium and contribution rates for both active employees and non-Medicare eligible retirees. The Health System funds the premiums for employees while ACERA funds the premiums for retirees. ACERA establishes the amount of the Monthly Medical Allowance (MMA). The MMA has been set at $578 per month and $558 per month in 2020 and 2019, respectively, for retirees who are not purchasing insurance through the Medicare exchange. For those purchasing individual insurance through the Medicare exchange, the MMA will be $443 per month and $427 per month in 2020 and 2019, respectively, and subject to the following subsidy schedule:
Completed Years Percentage of Service Subsidized 10 to 14 50% 15 to 19 75% 20+ 100%
Funding policy – Retired employees from the Health System receive a monthly medical allowance toward the cost of their health insurance from the SRBR. The SRBR is a funded trust that receives fifty percent of the investment earnings that are in excess of the target investment return of the ACERA pension fund. The Health System does not make postemployment medical benefit payments directly to retirees and does not have the ability to fund these benefits. However, the Health System’s pension contribution would be lower if not for the excess interest transfer to the SRBR. FINAL DRAFT
Determination of proportionate share – The reporting date for the employer under GASB No. 75 is June 30, 2020. The reporting date and measurement date for the plan under GASB No. 74 are December 31, 2019. Consistent with the provisions of GASB No. 75, the assets and liabilities measured as of December 31, 2019 are not adjusted or rolled forward to the June 30, 2020 reporting date. Other results, such as the total deferred inflows and outflows would also be allocated based on the determination of the Health System’s proportionate share of the OPEB liability, calculated at 18.2%. The determination is based on the January 1 through December 31, 2019 total employer contributions as provided by ACERA. The Health System’s share of the total OPEB liability is the ratio of the Health System’s total contributions to the total contributions for all employers.
54 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The net liability, service cost, interest on the total liability, current-period benefit changes, expenses portion of current-period difference between actual and expected experience in the total liability, expenses portion of current- period changes of assumptions or other inputs, member contributions, projected earnings on plan investments, expensed portion of current-period differences between actual and projected earnings on plan investments, administrative expense, recognition of beginning of year deferred outflows of resources as expense, and recognition of beginning of year deferred inflows of resources as expense, are allocated based on the Health System’s proportionate share of the liability.
Components of postemployment medical benefits expense as calculated under the requirements of GASB No. 75 are as follows as of June 30: 2020 2019 (amounts in thousands)
Service cost $ 5,039 $ 5,931 Interest 13,444 13,791 Changes in proportion (159) 17 Differences between expected and actual experience (1,149) (780) Changes of assumptions 345 (322) Projected earnings on plan investments (10,546) (13,356) Differences between actual and projected earnings on investments (4,942) 7,868 Administrative expense 247 230 Beginning of year deferred outflows 9,234 1,658 Beginning of year deferred inflows (8,360) (7,522) Net amortization of deferred amounts 175 159
Total postemployment medical benefits expense $ 3,328 $ 7,674
Components of deferred inflows and outflows of resources as calculated under the requirements of GASB No. 75 are as follows as of June 30: 2020 Deferred Deferred Outflows of Inflows of Resources - Resources - FINAL DRAFTOPEB OPEB (amounts in thousands)
Changes in proportion$ 663 $ 893 Difference between expected and actual experience - 12,146 Net difference between projected and actual earnings on OPEB plan investments - 10,293 Changes in assumptions 7,850 1,458
Total$ 8,513 $ 24,790
55 Alameda Health System A Public Hospital Authority Notes to Financial Statements
2019 Deferred Deferred Outflows of Inflows of Resources - Resources - OPEB OPEB (amounts in thousands)
Changes in proportion$ 839 $ - Difference between expected and actual experience - 7,271 Net difference between projected and actual earnings on OPEB plan investments 10,730 - Changes in assumptions 7,760 1,825
Total$ 19,329 $ 9,096
Amounts reported as deferred outflows and inflows of resources for postemployment medical benefits that will be recognized in postemployment medical benefits expense are as follows for the years ending June 30:
Deferred Outflows/(Inflows) of Resources - OPEB (amounts in thousands) Measurement periods ending December 31,
2021 (4,856) 2022 (4,856) 2023 1,846 2024 (6,157) 2025 (1,667) Thereafter (587) FINAL DRAFT $ (16,277)
The following table reports the ACERA total net OPEB liability, and the ACERA OPEB plan’s fiduciary net position as of June 30: 2020 2019 (amounts in thousands)
ACERA - total OPEB liability $ 1,083,115 $ 1,054,337 ACERA plan's fiduciary net position 970,180 821,440
ACERA net OPEB liability $ 112,935 $ 232,897
ACERA plan's fiduciary net position as a percentage of the total OPEB liability 89.6% 77.9%
56 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The following table summarizes the actuarial assumptions and methods used to determine the OPEB liabilities and OPEB plan fiduciary net position as of June 30, 2020: Valuation Date December 31, 2019
Actuarial cost method Entry age cost method Asset valuation method Not applicable Actuarial assumptions, Projected salary increases 3.00% per year due to CPI, plus 0.50% "across the board" salary increases, plus merit and promotional increases based on service
Mortality Headcount-Weighted RP-2014 Healthy Annuitant Mortality Table, projected generationally with two-dimensional MP-2016 projection scale Discount rate 7.25% Health care cost trend rates Non-Medicare medical plan Graded from 6.75% to 4.50% over 9 years Medicare medical plan Graded from 6.25% to 4.50% over 7 years Dental/Vision 4.00% Medicare Part B 4.50%
Sensitivity of postemployment medical benefits liability due to change in discount rates:
Discount Rate Current Discount Discount Rate -1% (6.25%) Rate (7.25%) +1% (8.25%) (in thousands)
ACERA plan net OPEB liability $ 45,913 $ 20,562 $ (484)
Sensitivity of postemployment medical benefits liability due to change in health care cost trend:
Current 1% Decrease Trend Rate 1% Increase FINAL DRAFT(in thousands)
ACERA plan net OPEB liability$ (2,819) $ 20,562 $ 49,363
ACERA’s financial statements and required supplementary information are audited annually by independent auditors. The audit report and December 31, 2019 financial statements may be obtained by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California 94612.
NOTE 16 – DEFINED CONTRIBUTION RETIREMENT SAVINGS PLANS
Deferred Compensation Plan – 403(b) Retirement Savings Plan – The Health System provides a retirement savings plan as allowed under the Internal Revenue Code Section 403(b). The plan allows employees to defer compensation earned. Individual accounts are maintained for each participant. The plan is administered by Prudential Financial and is governed by the Health System’s Board of Trustees.
57 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Contributions to the deferred compensation plan are funded through participant contributions. Participants can elect to reduce their compensation by a specific percentage of their qualified compensation and make pre-tax or post- tax deferrals. Elective deferrals in any calendar year cannot exceed the statutory limit for that year and eligible total compensation may be limited. The Health System does not make matching contributions to the plan. Total employee deferrals into the plan were $13.2 million for fiscal year 2020 and $12.9 million for fiscal year 2019.
Deferred Compensation Plan – Governmental 457(b) Plan – The Health System provides a nonqualified deferred compensation plan as allowed under the Internal Revenue Code Section 457(b). The plan allows eligible employees to defer a portion of their salary to the plan on a pre-tax basis. Individual accounts are maintained for each participant. The deferred compensation is not available to employees until termination, retirement, death, or an unforeseeable emergency.
Contributions to the deferred compensation plan are funded through participant contributions. Participants can elect to reduce their compensation by a specific dollar amount and make pre-tax deferrals. Elective deferrals in any calendar year cannot exceed the statutory limit for that year and eligible total compensation may be limited. The Health System does not make any matching contributions to the plan. Total employee deferrals into the plan were $12.0 million for fiscal year 2020 and $11.7 million for fiscal year 2019.
NOTE 17 – INSURANCE AND SELF-INSURANCE PLANS
The Health System is exposed to various risks of loss related to torts; medical malpractice; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; natural disasters; unemployment; and health benefits to employees and retirees.
The Health System is self-insured for workers’ compensation liability and partially self-insured for hospital professional liability. Excess workers’ compensation coverage is provided by the California State Association of Counties’ Excess Insurance Authority (CSAC), a joint powers authority, the purpose of which is to develop and fund programs of excess insurance and provide the joint purchase of coverage from independent third parties for its member entities. CSAC is governed by a Board of Directors consisting of representatives of its member entities.
The Health System purchased occurrence coverage for general, automobile, directors’ and officers’ liability and claims-made coverage for hospitalFINAL professional liability from DRAFTBETA Healthcare Group (Beta), a joint powers authority that operates insurance programs for certain California hospitals.
The Health System paid an annual premium of $9.5 million and $9.2 million to Beta and CSAC for the years ended June 30, 2020 and 2019, respectively. The Health System pays administrative fees to a third-party administrator (TPA) to process claims and reimburses the TPA for distributions. Claims have not exceeded the Health System’s policy limits in the past three years.
58 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Selected insurance coverage for fiscal years 2020 and 2019 are as follows:
Self- Insurance Policy Limit Retention (amounts in thousands)
Hospital professional (medical malpractice) liability $ 30,000 $ 100 Fiduciary liability $ 10,000 $ 10 Automobile insurance $ 20,000 $ - Director and officer $ 10,000 $ 150 Excess workers’ compensation Statutory limit $ 2,000 Privacy liability $ 10,000 $ 50 Crime $ 15,000 $ 3 Pollution liability $ 3,000 $ 100 Property $ 600,000 $ 50
Prior to July 1, 2001, the Health System participated in the County’s self-insurance program. The County has recorded an estimate of the ultimate cost of all Health System workers’ compensation claims and medical malpractice liability claims incurred before July 1, 2001. The Health System is self-insured for workers’ compensation for claims incurred after July 1, 2001. For medical malpractice liabilities, all claims made after July 1, 2001, are covered by the Health System’s purchased claims-made insurance policies with Beta. There are known claims and incidents that may result in the assertion of additional claims as well as claims from unknown incidents that have already occurred.
The estimated liabilities for workers’ compensation and hospital liability claims and contingencies is actuarially calculated considering the effects of inflation, recent claim settlement trends, including frequency and amount of pay-outs, and other economic and social factors. The workers’ compensation estimate includes allocated loss adjustment expenses, which represent the direct cost associated with the defense of individual claims as well as unallocated loss adjustment expenses, which represent the costs to administer all claims to final settlement, which may be years into the future.
The hospital liability estimate includes allocated loss adjustment expenses, which represent the direct cost associated with the defense ofFINAL individual claims for medi calDRAFT malpractice, general liability, and director and officer liability. Unallocated loss adjustment expenses are not included in the hospital liability estimate due to the fact that the excess insurance carrier for hospital liability claims provides all claims administration costs. Both estimates made have been discounted to their present value for amounts recorded using a rate of 2.0% as of June 30, 2020 and 2019.
59 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The change in the liability for all self-insurance is as follows:
Hospital Workers' Liability Compensation Total (amounts in thousands)
Balance, June 30, 2018 $ 3,581 $ 26,418 $ 29,999 Current year claims and changes in estimate 550 9,112 9,662 Settlements - (8,115) (8,115)
Balance, June 30, 2019 4,131 27,415 31,546 Current year claims and changes in estimate 501 (5,730) (5,229) Settlements - 5,029 5,029
Balance, June 30, 2020$ 4,632 $ 26,714 $ 31,346
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Operating leases – The Health System leases a number of facilities and equipment under operating leases. The leases expire between 1 and 20 years from June 30, 2020. Many of the leases include options to renew the lease after the expiration of the original term. Lease terms are renegotiated periodically to reflect market conditions. The Health System has determined that these leases are operating leases. The majority of the medical facilities are leased from the County at an annual rate of $1 per year. This lease continues until fiscal year 2035. In the case of some of the facilities leases, the rent paid to the landlord is adjusted to reflect local price indices or specific identifiable costs. The Health System does not have any interest in the residual value of the facilities or equipment.
At June 30, 2020, the future minimum lease payments under noncancellable leases were due as follows:
Years ending June 30, (amounts in thousands)
2021$ 4,123 2022 4,044 2023 4,114 2024FINAL DRAFT 4,188 2025 4,263 2026-2030 13,832 2031-2035 1,696
$ 36,260
60 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Other commitment – Under the agreement with the County, the Health System has agreed to deposit contributions in a Capital Designation Fund, which it may access for capital projects as approved by the Alameda County Board of Supervisors. The Health System will make the contributions by June 30 of each fiscal year as listed below:
Years ending June 30, (amounts in thousands)
2021$ 7,000 2022 7,000 2023 7,000 2024 7,000 2025 7,000 2026-2030 35,000 2031-2035 28,000
$ 98,000
Seismic retrofitting – Under State of California regulations, by January 2020, Alameda County must upgrade existing inpatient facilities to be in compliance with laws related to seismic retrofitting. Alameda County, in partnership with the Health System, is in the process of making significant capital investments in facility upgrades to ensure compliance with the seismic safety laws.
Litigation – The Health System is involved in various claims and litigation, as both plaintiff and defendant, arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, these matters will be resolved without material adverse effect on the Health System’s financial position.
Regulatory environment – The health care industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, governmental health care program participation requirements, reimbursement for patient services, and Medicare and Medi-Cal fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by health care providers. Violations of these laws and regulations could result in fines and penalties, as well as loss of significant repayment. Patient service revenues previously recognized are subject to future government review and interpretation. FINAL DRAFT Collective bargaining – The Health System has 5,024 employees. Employees working under union collective bargaining agreements represent approximately 88% of the workforce in eighteen different collective bargaining units. Twelve of the eighteen collective bargaining units are currently in active negotiations.
COVID-19 pandemic – The related adverse public health developments to the COVID-19 pandemic, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, their customers, economies, and financial markets globally, leading to increased market volatility and disruptions in normal business operations, including the Health System’s operations.
61 Alameda Health System A Public Hospital Authority Notes to Financial Statements
There are no employees deemed to be nonessential; however, the Health System has transitioned employees to work remote if possible starting in mid-March 2020. The Health System’s management has been closely monitoring the impact of COVID-19 on operations, including the impact on its patients and employees. The duration and intensity of the pandemic is uncertain but may influence operational decisions and may negatively impact collections of the Health System’s patient receivables.
FINAL DRAFT
62 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 19 – ALAMEDA HEALTH PARTNERS
As described in Note 1, AHP is a blended component unit of the Health System. See below for condensed financial statement data for AHP: 2020 2019 ASSETS
Current assets: Cash and cash equivalents $ 5,788,434 $ 13,737,393 Accounts receivable, net 5,390,649 6,616,193 Other receivable 5,773 19,419 Due from Alameda Health System 6,179,788 -
Total current assets 17,364,644 20,373,005
Total assets $ 17,364,644 $ 20,373,005
LIABILITIES AND NET POSITION
Liabilities: Current liabilities: Accounts payable and accrued expenses $ 5,912,084 $ 4,991,421 Salaries, wages, and related liabilities 1,147,752 666,557 Due to Alameda Health System - 792,656 Current portion of accrued compensated absences 1,677,323 808,808 Current portion of self-insurance liability 274,663 18,904
Total current liabilities 9,011,822 7,278,346
Noncurrent liabilities: Self-insurance liability, net of current portion 555,397 43,096
Total noncurrent liabilities 555,397 43,096 Total liabilities FINAL DRAFT 9,567,219 7,321,442 Net position: Unrestricted 7,797,425 13,051,563
Total net position 7,797,425 13,051,563
Total liabilities and net position $ 17,364,644 $ 20,373,005
63 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Year Ended Year Ended June 30, 2020 June 30, 2019
OPERATING REVENUE Net patient services revenue$ 30,697,465 $ 28,118,477 Professional services agreement revenue 43,716,824 47,564,865 Other government programs 1,180,654 808,683 Other operating revenue 6,933 1,148
Total operating revenue 75,601,876 76,493,173
OPERATING EXPENSES Salaries, wages, and benefits 27,386,147 19,733,417 Physician contract services 48,496,680 50,062,620 Purchased services from Alameda Health System 3,805,408 3,080,270 Other 2,702,693 1,973,292
Total operating expenses 82,390,928 74,849,599
Operating (loss) income (6,789,052) 1,643,574
NONOPERATING REVENUE Grants for COVID-19 pandemic 1,529,863 - Interest income 5,051 11,076
Total nonoperating revenue 1,534,914 11,076
(Decrease) increase in net position (5,254,138) 1,654,650
Total net position, beginning of year 13,051,563 11,396,913
Total net position, end of year $ 7,797,425 $ 13,051,563
FINAL DRAFT
64 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Year Ended Year Ended June 30, 2020 June 30, 2019 CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Cash received from customers - third parties$ 33,124,242 $ 31,035,339 Cash received from customers - related-party 36,744,380 56,778,518 Cash payments to contracted physicians (47,576,017) (50,479,101) Cash payments to suppliers (5,740,041) (5,020,562) Cash payments to employees (26,036,437) (19,207,611)
Net cash (used in) provided by operating activities (9,483,873) 13,106,583
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Proceeds from grants for COVID-19 pandemic 1,529,863 -
Net cash provided by financing activities 1,529,863 -
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES Interest income 5,051 11,076
Net cash provided by investing activities 5,051 11,076
Net change in cash and cash equivalents (7,948,959) 13,117,659
CASH AND CASH EQUIVALENTS, beginning of year 13,737,393 619,734
CASH AND CASH EQUIVALENTS, end of year$ 5,788,434 $ 13,737,393
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Operating (loss) income$ (6,789,052) $ 1,643,574 Adjustments to reconcile operating (loss) income to net cash from operating activities: Changes in assets and liabilities: Accounts receivable 1,225,544 2,916,862 Other receivable 13,646 - Due from Alameda Health System (6,179,788) 7,630,585 Accounts payableFINAL DRAFT 920,663 (416,481) Salaries, wages, and related liabilities 1,349,710 525,806 Due to Alameda Health System (792,656) 773,327 Self insurance liability 768,060 33,000
Net cash (used in) provided by operating activities$ (9,483,873) $ 13,106,673
65 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 20 – SUBSEQUENT EVENTS
Subsequent events are events or transactions that occur after the statement of net position date but before the financial statements are issued. The Health System recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the statement of net position, including the estimates inherent in the process of preparing the financial statements. The Health System’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the statement of net position but arose after the statement of net position date and before the financial statements are issued.
Effective July 1, 2020, the Health System entered into an Amended and Restated Professional Services Agreement (Restated PSA) with AHP, and rebranded AHP into the East Bay Medical Group (EBMG), a physician group that combines AHP and OakCare Medical Group, formerly an AHP contracted physician group, within a wholly owned subsidiary of the Health System. EBMG is responsible for providing all professional services per the Restated PSA based on the mix of physician specialties available within EBMG. EBMG will employ approximately 300 full time equivalent and services-as-needed providers. The Health System will be responsible for professional billing and effective July 1, 2020 and will transfer the rights to all outstanding AHP accounts receivable as of June 30, 2020. The Health System will be responsible for providing EBMG physicians with professional liability insurance effective July 1, 2020 and will assume the AHP’s self-insurance liabilities as of June 30, 2020. AHP’s contracted physicians will be transferred to the Health System as of July 1, 2020. The restated PSA is effective July 1, 2020 and ends on June 30, 2025. Per the restated PSA the primary source of revenue for EBMG will be professional services agreement revenue, as all net patient services revenue and other government program revenue will be recognized by the Health System. As a result of the restated PSA, AHP has transferred the following to the Health System, as of July 1, 2020: which included current assets of approximately $5,391,000, current liabilities of $275,000, noncurrent liabilities of approximately $555,000, and unrestricted net position of $4,561,000.
In July 2020, the Health System received approximately $8.3 million of PRF payments for Safety Net Hospitals and for rural and other providers in response to the COVID-19 pandemic.
On September 19, 2020 and October 22, 2020, HHS released updated information for health care providers that received PRF payments, which may impact the recognition of the payments and the available uses for the funds. Management believes that these changes will not have a material impact to the financial statements as of and for the year ended June 30, 2020.FINAL DRAFT
On October 22, 2020, the County of Alameda, California, Board of Supervisors (Board of Supervisors) approved an amendment to the Health System bylaws, making changes to the governing body qualifications, powers and duties of the Board of Trustees, and other changes to enable the Health System to biter serve the public. The Board of Supervisors also approved an action, requiring the resignation and/or removal of all Health System Board of Trustee Members, by November 30, 2020.
The Health System has evaluated subsequent events through ______, 2020, which is the date the financial statements are issued.
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Required Supplementary Information
FINAL DRAFT
Alameda Health System A Public Hospital Authority Supplementary Pension and Postemployment Benefit Information
SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY, ONE FISCAL YEAR
2020 (amounts in thousands)
Health system's proportionate of the net pension liability/(asset) 17% Health system's proportionate share of the net pension liability/(asset) $ 355,519 Health system's covered payroll2 $ 257,591 Health system's proportionate share of the net pension liability/(asset) as a percentage of its covered payroll 138% Health system's proportionate share of the fiduciary net position as a percentage of its total pension liability 82% Health systems proportionate share of the aggregate employer contributions$ 54,240
SCHEDULE OF CONTRIBUTIONS, TWO FISCAL YEARS
Fiscal Year1 Fiscal Year1 2019-20 2018-19 (amounts in thousands)
Actuarially determined contribution$ 54,270 $ 55,259 Contributions in relation to the actuarially determined contribution 54,270 55,259
Contribution deficiency (excess)$ - $ -
Covered payroll2 $ 257,591 $ 256,432 Contributions as a percentage of covered payroll2 21.07% 21.55%
1Historical information is required only for measurement periods for which GASB No. 68 is applicable.
2Covered payroll represents payroll on which contributions to a pension plan are based. FINAL DRAFT
68 Alameda Health System A Public Hospital Authority Schedule of Proportionate Share of the Net OPEB Liability
Proportionate Share of the Net Plan's Fiduciary Reporting Date for OPEB Liability as Net Position as a Employer under Proportion of the Proportionate Covered- a Percentage of Percentage of GASB No. 75 as of Net OPEB Share of Net employee its Covered- the Total OPEB June 30 Liability OPEB Liability Payroll1 employee Payroll Liability (amounts in thousands) 2019 18.8% 43,743 255,247 17.1% 77.9% 2020 18.2% 20,562 257,591 8.0% 89.6%
1 Covered-employee payroll shown represents compensation earnable and pensionable compensation and is defined as the payroll of employees that are provided with OPEB through the OPEB plan.
FINAL DRAFT
69 Final Draft 11/12/2020
DRAFT
Communication with Those Charged with Governance
Alameda Health System, a Public Hospital Authority (a Component Unit of the County of Alameda, California) FINALJune 30, 2020
Communication with Those Charged with Governance
To the Board of Trustees Alameda Health System
We have audited the financial statements of Alameda Health System, a Public Hospital Authority (a Component Unit of the County of Alameda, California) (the Health System), as of and for the year ended June 30, 2020, and have issued our report thereon dated ______, 2020. Professional standards require that we provide you with the following information related to our audit.
Our Responsibility under Governmental Auditing Standards and Auditing Standards Generally Accepted in the United States of America
As stated in our engagement letter dated April 19, 2016, as amended April 12, 2019, our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your responsibilities.
Our responsibility is to plan and perform the audit in accordance with auditing standards generally accepted in the United States of America and GovernmentDRAFT Auditing Standards issued by the Comptroller General of the United States, and to design the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free from material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Health System’s internal control over financial reporting. Accordingly, we considered the Health System’s internal control solely for the purposes of determining our audit procedures and not to provide assurance concerning such internal control.
We are also responsible for communicating significant matters related to the financial statement audit that, in our professional judgment, are relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. PlannedFINAL Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in the Audit Committee meeting on June 20, 2020.
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Significant Audit Findings and Issues
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Health System are described in Note 2 to the financial statements. During the year ended June 30, 2020, management adopted Government Accounting Standards Board Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. There have been no other changes in the application of existing policies during fiscal year 2020. We noted no transactions entered into by the Health System during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate(s) affecting the financial statements were:
• Management’s estimate of net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. 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. We evaluated the key factors and assumptions used to develop the estimatedDRAFT net realizable amounts. We found management’s basis to be reasonable in relation to the financial statements taken as a whole.
• Management’s estimate of revenues and receivables due from various government reimbursement mechanisms. These are described as revenues from other government programs on the statements of revenues, expenses, and changes in net position. Management estimates these revenues on a program by program basis, based on the best information available from counterparties. Prior experience with the programs is considered. Estimates and reserves are made for potentially uncollectible amounts. These are described in detail in Note 12 to the financial statements. We found management’s basis to be reasonable in relation to the financial statements taken as a whole.
• Management’s estimate of Provider Relief Fund program revenues from the Department of Health and Human Services (HHS). These are described as COVID-19 revenue, included in nonoperating revenues on the statements of revenues, expenses, and changes in net position. Management estimates these revenues based on the best information available from HHS. TheseFINAL are described in detail in Note 2 to the financial statements. We found management’s basis to be reasonable in relation to the financial statements taken as a whole.
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• Management’s estimate, via Alameda County Employees’ Retirement Association (ACERA), of the minimum pension liability is actuarially determined using assumptions on the long-term rate of return on pension plan assets, the discount rate used to determine the present value of benefit obligations, and the rate of compensation increases. These assumptions are provided by management. We have evaluated the key factors and assumptions used to develop the estimate. We found management’s basis to be reasonable in relation to the financial statements taken as a whole.
• Management’s estimated liability for professional liabilities and workers’ compensation claims is recognized based on management’s estimate of historical claims experience and known activity subsequent to year end. We evaluated the key factors and assumptions used to develop the actuarial estimates of uninsured losses for professional liabilities and workers’ compensation. We found management’s basis to be reasonable in relation to the financial statements taken as a whole.
• Management’s estimates of the useful lives of capital assets are based on the intended use and are within accounting principles generally accepted in the United States of America. We found management’s basis to be reasonable in relation to the financial statements taken as a whole.
• Management’s estimated liability for postemployment medical benefits is actuarially determined using assumptions on the long-term rate of return on plan assets, the discount rate used to determine the present value of benefit obligations, and the rate of compensation increases. These assumptions are provided by management. We have evaluated the key factors and assumptions used to develop the liability for postemployment medical benefits. We found management’s basis to be reasonable in relation to the financial statements taken as a whole. Financial Statement Disclosures DRAFT The disclosures in the financial statements are consistent, clear, and understandable. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were those surrounding related-party transactions, significant concentration of net patient accounts receivable, capital assets, employee benefit plans, postemployment medical benefits, insurance plans, long-term debt, and commitments and contingencies.
Significant Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all factual and judgmental misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management.FINAL None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements as a whole. There were no uncorrected misstatements.
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Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated ______, 2020.
Management Consultation with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the Health System’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
Independence
We are required to disclose to those charged with governance, in writing, all relationships between the auditors and the Health System that in the auditor’s professional judgment, may reasonably be thought to bear on our independence. We know of no such relationships and confirm that, in our professional judgment, we are independent of the Health System within the meaning of professional standards. DRAFT Other Significant Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Health System’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.
This information is intended solely for the use of the Board of Trustees and management of the Health System, and is not intended to be, and should not be, used by anyone other than these specified parties.
San Francisco, California ______,FINAL 2020
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