2019 Audit Results: Alameda Health System — A Public Hospital Authority
June 30, 2019 Board of Trustees Dear Board of Trustees:
Thank you for your continued engagement of Moss Adams LLP. We are pleased to have the opportunity to Alameda Health System meet with you to discuss the results of our audit of the financial statements of Alameda Health System (the Health System) for the year ended June 30, 2019. The accompanying report, which is intended solely for the use of the Board and management, presents important information regarding the Health System’s financial statements and our audit that we believe will be of interest to you. It is not intended and should not be used by anyone other than these specified parties. We conducted our audit with the objectivity and 1 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. Agenda
• Auditor Opinion and Report • Statements of Net Position • Operations • Communication with Those Charged with Governance • GASB Accounting Updates
2 Auditor Opinion & Report Scope of Services
We have performed the following services for Alameda Health System:
• Annual financial statement audit as of and for the year ended June 30, 2019 • Annual single audit as of and for the year ended June 30, 2019
We have also performed the following nonattest services:
• Assisted in the drafting the financial statements of Alameda Health System 4 • Assisted with tax preparation services Auditor Report on the Financial Statements
Unmodified Opinion
• Financial statements are presented fairly and in accordance with U.S. GAAP • GAGAS and Uniform Guidance audit reports are unmodified
5 Statements of Net Position Assets and Deferred Outflows (in millions)
2017 = $670 $300 2018 = $650 $250 226 2019 = $755
$200 189 174
154 151 145 7 $150 135 127 120 111 98 $100 90 87 81 71
$50 24 24 24 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 2017 = $955
502 $500 2018 = $925
2019 = $1,055 $400 388 342
8 $300
201 181 $200 170 129 131 109 113 98 86 $100 64 72 56 55 62 57 60 29 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 $125 30.0% $98 22.5% 21.2% $100 25.0% 20.0% 15.3% $75
9 15.0% $50 10.0% $25 5.0%
$0 0.0% 2017 2018 2019 2017 2018 2019 Operations Income Statements Year-to-Year Comparison
Total Operating Expenses (in millions)
June 30, 2019 June 30, 2018 $1,075 $1,027
Salaries, Wages 69% & Benefits 68% Physician Contract 11 Services
Purchased Services 9% 9% Materials & Supplies
Facilities 8% 7%
Depreciation & Amortization 8% 8% Other 3% 3% 2% 3% 1% 2% Communication with Those Charge with Governance
• Significant accounting policies • Accounting estimates are reasonable • No audit adjustments
12 • No issues discussed prior to our retention as auditors • No disagreements with management • No awareness of instances of fraud or noncompliance with laws and regulations GASB Accounting Updates GASB Accounting Updates
• GASB Statement No. 87, Leases. Effective for the Health System beginning July 1, 2020.
• GASB Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period. Effective for the Health System beginning July 1, 2020.
• GASB Statement No. 84, Fiduciary Activities. Effective for the Health System beginning 14 July 1, 2019. 15 THANK YOU Final Draft 11/7/2019
DRAFT
Report of Independent Auditors and Financial Statements with Required Supplementary Information
Alameda Health System, a Public Hospital Authority (a Component Unit of the County of Alameda, California) FINALJune 30, 2019 and 2018 Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) ...... 1
REPORT OF INDEPENDENT AUDITORS ...... 17
FINANCIAL STATEMENTS
Statements of Net Position ...... 20
Statements of Revenues, Expenses, and Changes in Net Position ...... 22
Statements of Cash Flows ...... 23
Notes to Financial Statements ...... 25
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
Supplementary Pension and Postemployment Benefit Information (unaudited) ...... 65
SUPPLEMENTARY INFORMATION
Schedule of Expenditures of Federal Awards ...... 67
Notes to Schedule of Expenditures of Federal Awards ...... 68
REPORT OF INDEPENDENT AUDITORS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS ...... 70
REPORT OF INDEPENDENT AUDITORS ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY UNIFORM GUIDANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE AND SUPPLEMENTARY SCHEDULE OF STATE OF CALIFORNIA EMERGENCY MANAGEMENT AGENCY GRANT EXPENDITURES ...... 72
SCHEDULEFINAL OF FINDINGS AND QUESTIONED COSTS ...... DRAFT 75
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS ...... 78
SUPPLEMENTARY SCHEDULE OF STATE OF CALIFORNIA EMERGENCY MANAGEMENT AGENCY GRANT EXPENDITURES ...... 79
Management’s Discussion and Analysis
DRAFT
FINAL
Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 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, 2019 and 2018. 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. It also provides 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. It includes 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 statementsDRAFT 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 statement 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 blended component unit of Alameda 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. FINAL
1 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
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 2019 2018 2017 2019/2018 2018/2017 (amounts in thousands)
Current assets $ 387,589 $ 363,851 $ 413,571 $ 23,738 $ (49,720) Noncurrent assets Restricted cash - capital 24,468 23,858 23,683 610 175 fund Capital assets, net 153,919 111,049 87,445 42,870 23,604
Total noncurrent assets 178,387 134,907 111,128 43,480 23,779
Total assets $ 565,976 $ 498,758 $ 524,699 $ 67,218 $ (25,941)
Deferred outflows of resources $ 189,237 $ 151,003 $ 145,248 $ 38,234 $ 5,755
Current liabilities $ 316,712 $ 293,747 $ 295,661 $ 22,965 $ (1,914) Noncurrent liabilities Long-term obligations, net 7,156 18,768 30,903 (11,612) (12,135) Other noncurrent liabilities 701,708 481,419 600,227 220,289 (118,808) Total noncurrent liabilities 708,864 500,187 DRAFT 631,130 208,677 (130,943) Total liabilities $ 1,025,576 $ 793,934 $ 926,791 $ 231,642 $ (132,857)
Deferred inflows of resources $ 30,240 $ 130,975 $ 28,520 $ (100,735) $ 102,455
Net position (deficit) Net investment in capital assets $ 153,919 $ 111,049 $ 87,445 $ 42,870 $ 23,604 Restricted for capital projects 24,468 23,858 23,683 610 175 Unrestricted deficit (478,990) (410,055) (396,492) (68,935) (13,563)
Total net deficit $ (300,603) $ (275,148) $ (285,364) $ (25,455) $ 10,216
FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF NET POSITION - 2019
Please refer to Table I – Comparative Statements of Net Position above.
Assets – 2019 Total assetsFINAL increased by $67.3 million or 13.5% to $566.0 million at June 30, 2019, from June 30, 2018. Current assets increased $23.8 million from June 30, 2018, 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 2.3days to 73.0 days at June 30, 2019 from 70.7 days at June 30, 2018. Key factors were an increase in billed patient charges and a slow down in the collection cycle during the last quarter of fiscal year 2019.
2 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
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 for fiscal year was delayed until fiscal year 2020. 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.
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, 2019.
Noncurrent assets increased $43.5 million from June 30, 2018, as a result of the following reason:
Net capital assets increased by $42.9 million primarily due to equipment purchases, electronic health record (EHR) project, and the San Leandro Hospital’s rehabilition 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 Governmental Accounting Standards Board (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, suchDRAFT as plan experience and investment earnings, as defined by GASB 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, 2018 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 increased by $208.7 million from June 30, 2018 to June 30, 2019, for the following reasons:
Amounts due to the County of Alameda Liquidity Facility increased by $23.0 million due to timing of cash receiptsFINAL 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.
3 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
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.
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 Governmental 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 No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, decreased by $21.9 million as determined by actuarial consultants.
FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF NET POSITION – 2018 Please refer to Table I – Comparative Statements of Net PositionDRAFT on page 2. Assets – 2018
Total assets decreased by $25.9 million or 4.9% to $498.8 million at June 30, 2018, from June 30, 2017.
Current assets decreased $49.7 million from June 30, 2017, as a result of the following reasons:
Patient accounts receivable, net increased by $21.7 million or 22.1%. Net Days in Accounts Receivable increased 4.2 days to 70.7 days at June 30, 2018 from 66.5 days at June 30, 2017. Key factors were an increase in billed patient charges and a recent slow down in the collection cycle.
Due from third-party payors decreased by $91.2 million or 40.3%. Several supplemental revenue receivables were paid as appeals and audits of governmental programs for prior years were processed by the agencies.
Due from County of Alameda increased by $14.0 million or 83.0% 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 subsequentFINAL quarter ending September 30, 2018.
Noncurrent assets increased $23.8 million from June 30, 2017, as a result of the following reason:
Net capital assets increased by $23.6 million primarily due to equipment purchases, electronic health record (EHR) project, and construction projects at San Leandro and Alameda Hospitals.
4 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Deferred Outflows of Resources – 2018
Total deferred outflows of resources increased by $5.8 million to $151.0 million at June 30, 2018, from June 30, 2017.
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 Pensions, and GASB No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, decreased by $57.2 million as determined by actuarial consultants, which was offset by increases in pension and postemployment benefit actuarial assumptions and calculations of deferred outflows of resources of $63.0 million.
Liabilities – 2018
Total liabilities decreased by $132.9 million or 14.3% to $793.9 million at June 30, 2018 from June 30, 2017.
Current liabilities decreased by $2.0 million from June 30, 2017 as a result of the following reasons:
Accounts payable and accrued expenses decreased $8.5 million due to the timing of payments to vendors.
Due to third-party payors increased $10.7 million with additional reserves for potential program overpayments. DRAFT Noncurrent liabilities decreased by $130.9 million from June 30, 2017, to June 30, 2018, for the following reasons:
Amounts due to the County of Alameda Liquidity Facility decreased by $43.2 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, decreased by $46.2 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 $40.4 million as determined by the actuarial consultants.
Long-term obligations, net of current maturities decreased by $12.1 million according to payment schedules.FINAL
5 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Deferred Inflows of Resources – 2018
Total deferred inflows of resources increased by $102.5 million to $131.0 million at June 30, 2018, from June 30, 2017.
Differences in expected and actual activities, such as plan experience and investment earnings, as defined by Governmental GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and GASB No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, increased by $62.9 million as determined by actuarial consultants, and increased by amortization of deferred inflows of resources of $39.6 million.
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 Comparative Net Position table. Total net position decreased by $25.4 million at June 30, 2019, and increased by $10.2 million at June 30, 2018, over the prior year.
TABLE II COMPARATIVE STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
June 30, June 30, June 30, Change in Change in 2019 2018 2017 2019/2018 2018/2017 (amounts in thousands)
Revenues Patient service revenues, net $ 564,337 $ 566,157 $ 535,671 $ (1,820) $ 30,486 Capitation revenue 67,504 33,678 59,679 33,826 (26,001) Other government programs 387,867DRAFT 378,822 349,152 9,045 29,670 Other operating revenues 27,222 26,914 25,472 308 1,442
Total revenues 1,046,930 1,005,571 969,974 41,359 35,597
Operating Expenses Salaries and benefits 746,368 696,588 662,927 49,780 33,661 Physician contract services and purchased services 166,134 169,203 159,285 (3,069) 9,918 Materials and supplies 87,822 86,995 82,678 827 4,317 Depreciation and amortization 15,116 16,524 15,140 (1,408) 1,384 Other operating costs 59,773 57,701 52,869 2,072 4,832
Total operating expenses 1,075,213 1,027,011 972,899 48,202 54,112
Operating loss (28,283) (21,440) (2,925) (6,843) (18,515)
Nonoperating (expenses) revenues, net (2,323) (680) 58 (1,643) (738)
Loss before other revenues, expenses, gains, losses and transfers (30,606) (22,120) (2,867) (8,486) (19,253) Capital contributions 7,500 9,000 - (1,500) 9,000 Capital transfers (2,350) 2,048 2,730 (4,398) (682)
Increase in net deficit (25,456) (11,072) (137) (14,384) (10,935)
Net deficit, beginning of the year (275,148) (285,364) (285,227) 10,216 (137)
Cumulative effect of restatement - 21,288 - (21,288) 21,288
Total net deficit, beginning of the year, as restated (275,148) (264,076) (285,227) (11,072) 21,151 Net deficit, end of theFINAL year $ (300,604) $ (275,148) $ (285,364) $ (25,456) $ 10,216
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.
6 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
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. DRAFT All other expenses decreased by $1.6 million for fiscal year 2019 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.
FINANCIAL ANALYSIS – COMPARATIVE STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – 2018
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 betweenFINAL total operating revenues and total operating expenses. The operating loss for fiscal year 2018 was $21.4 million compared to the operating loss of $2.9 million for fiscal year 2017.
Operating Revenue – 2018
7 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Total operating revenue, composed of net patient services revenue, capitation revenue, other government program revenue, and other operating revenue, increased by $35.6 million to $1.0 billion for fiscal year 2018 over the prior fiscal year due to the following reasons:
Net patient service revenue and other government program revenue increased by $30.5 million due to higher patient charges and supplemental revenue programs, which was partially offset by a decrease of $26.0 million in capitation revenue.
Operating Expenses – 2018
Total operating expenses increased by $54.1 million to $1.0 billion for the year ended June 30, 2018, over the prior fiscal year.
Salaries and benefits increased by $33.7 million for fiscal year 2018 over fiscal year 2017 due to the following:
Paid full time equivalents increased by 6.3% from 4,148 at June 30, 2017, to 4,409 at June 30, 2018, which resulted in higher salary and benefit expense. Another contributing factor was negotiated salary increases in union agreements.
All other expenses increased by $20.4 million for fiscal year 2018 over fiscal year 2017 due to the following:
Physician contract services increased by $5.8 million from new contracts. Facilities increased by $2.9 million due to higher utilityDRAFT cost and facility repairs. Materials and supplies expense increased by $4.3 million; $3.3 million of the increase was pharmaceuticals purchased for patient care.
Grant-related program expenses increased by $1.4 million.
VOLUME AND UTILIZATION
PAYOR MIX
Please refer to Table III – Payor Mix as follows.
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% decreaseFINAL in HPAC County Programs, 0.4% decrease in Medicare, and 0.5% decrease in Commercial Insurance.
8 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Payor Mix – 2018
Payor Mix during fiscal year 2018 was consistent with fiscal year 2017. Patient revenue for HPAC County Programs increased by 0.9% to 5.3% and Medicare increased by 1.5% to 30.3% over fiscal year 2017. This was offset by a decrease in Medi-Cal by 1.2% to 53.3% and Commercial Insurance decreased by 1.0% to 8.4% over fiscal year 2017.
TABLE III – PAYOR MIX
June 30, June 30, June 30, Change in % Change in % 2019 2018 2017 2019/2018 2018/2017
Medi-Cal 54.5% 53.3% 54.5% 1.2% -1.2% HPAC County Programs 4.9% 5.3% 4.4% -0.4% 0.9% Medicare 29.9% 30.3% 28.8% -0.4% 1.5% Self pay - Other 2.8% 2.7% 2.9% 0.1% -0.2% Commercial Insurance 7.9% 8.4% 9.4% -0.5% -1.0%
Total 100.0% 100.0% 100.0%
INPATIENT VOLUME
Please refer to Table IV – Average Daily Census, Table V – Patient Days, and Table VI – Average Length of Stay on page 10. Inpatient Volume – 2019 DRAFT 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.
Inpatient Volume – 2018
Total inpatient census, patient days, and average length of stay in fiscal year 2018 was consistent with fiscal year 2017 with someFINAL minor changes between service areas. These changes are described below.
Maternity/Gynecology average daily census increased by 3 patients per day for a net increase of 1,165 patient days.
9 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Step-down Unit average daily census increased by 4 patients per day for a net increase of 1,107 patient days.
Medical-Surgical average daily census decreased by 3 patients per day for a net decrease of 1,186 patient days.
Psychiatry average daily census decreased by 2 patients per day for a net decrease of 515 patient days.
TABLE IV – AVERAGE DAILY CENSUS
Change in Change in June 30, June 30, June 30, Census Census 2019 2018 2017 2019/2018 2018/2017
Skilled nursing and subacute 279 278 277 1 1 Medical-surgical 134 125 128 9 (3) Psychiatry 68 66 68 2 (2) Acute rehabilitation 23 18 18 5 - Maternity/gynecology 12 12 9 - 3 Step-down unit 42 43 39 (1) 4 Intensive care unit 29 29 30 - (1) Level 2 nursery 4 3 4 1 (1)
Total average daily census 591 574 573 17 1
TABLE V – PATIENTDRAFT DAYS Change in Change in June 30, June 30, June 30, Patient Days Patient Days 2019 2018 2017 2019/2018 2018/2017
Skilled nursing and subacute 101,894 101,246 101,059 648 187 Medical-surgical 48,945 45,486 46,672 3,459 (1,186) Psychiatry 24,765 24,158 24,673 607 (515) Acute rehabilitation 8,348 6,658 6,568 1,690 90 Maternity/gynecology 4,284 4,328 3,163 (44) 1,165 Step-down unit 15,460 15,567 14,460 (107) 1,107 Intensive care unit 10,602 10,683 10,934 (81) (251) Level 2 nursery 1,378 1,253 1,487 125 (234)
Total patient days 215,676 209,379 209,016 6,297 363 FINAL
10 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
TABLE VI – AVERAGE LENGTH OF STAY (ALOS)
Change in Change in June 30, June 30, June 30, ALOS ALOS 2019 2018 2017 2019/2018 2018/2017
Skilled nursing and subacute 281.5 310.6 308.1 (29.1) 2.5 Medical-surgical 6.4 5.7 5.6 0.7 0.1 Psychiatry 9.1 8.2 7.5 0.9 0.7 Acute rehabilitation 14.3 14.7 13.9 (0.4) 0.8 Maternity/gynecology 2.1 2.5 2.0 (0.4) 0.5 Step-down unit 8.0 7.7 7.5 0.3 0.2 Intensive care unit 3.5 3.3 3.0 0.2 0.3 Level 2 nursery 4.4 4.1 4.3 0.3 (0.2)
Total average length of stay 11.6 11.0 10.5 0.6 0.5
OUTPATIENT VOLUME
Please refer to Table VII – Outpatient Visits on page 13.
Outpatient Volumes – 2019
Overall total clinic visits decreased by 20,389 or 5.9% from fiscal year 2018. Highland visits decreased by 17,474 or 9.5%. DRAFT 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 227 or 1.8%.
Fairmont visits decreased by 370 or 31.0%.
Total emergency room (ER) visits decreased by 12,484 or 9.5% from fiscal year 2018. HighlandFINAL 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%.
11 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Outpatient Volumes – 2018
Overall total clinic visits increased by 7,204 or 2.1% from fiscal year 2017.
Highland visits increased by 3,020 or 1.7%.
Eastmont visits increased by 1,117 or 1.7%.
Winton visits increased by 4,603 or 14.4%.
Newark visits decreased by 739 or 2.7%.
Behavioral Health visits decreased by 1,970 or 8.7%.
Alameda visits increased by 1,718 or 15.5%.
Fairmont visits decreased by 545 or 31.3%.
Total emergency room (ER) visits decreased by 4,664 or 3.4%.
Highland Emergency Room and Trauma Center visits decreased by 2,677 or 3.8%. San Leandro Emergency Room visits decreased by 1,956DRAFT or 5.5%. Alameda Emergency Room visits decreased by 36 or 0.2%.
John George Psychiatric Emergency Room visits decreased 2,254 or 14.4%.
FINAL
12 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
TABLE VII OUTPATIENT VISITS
Change in Change in June 30, June 30, June 30, Visits Visits 2019 2018 2017 2019/2018 2018/2017 (amounts in thousands)
Clinics Highland 166,204 183,678 180,658 (17,474) 3,020 Eastmont 60,209 65,487 64,370 (5,278) 1,117 Winton 39,318 36,627 32,024 2,691 4,603 Newark 26,932 26,377 27,116 555 (739) Behavioral Health 19,919 20,659 22,629 (740) (1,970) Alameda 13,002 12,785 11,067 217 1,718 Fairmont 825 1,195 1,740 (370) (545)
Total clinic visits 326,409 346,808 339,604 (20,399) 7,204
Emergency Room (ER) Highland ER and Trauma 61,004 67,662 70,339 (6,658) (2,677) San Leandro ER 28,191 33,487 35,443 (5,296) (1,956) Alameda ER 16,554 16,766 16,802 (212) (36) John George Psych ER 13,069 13,387 13,382 (318) 5
Total emergency visits 118,818 131,302 135,966 (12,484) (4,664)
CAPITAL ASSET AND DEBT ADMINISTRATION DRAFT 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 include Newark Wellness Center and San Leandro Hospital.
In January 2018, the Health System Board of Trustees approved Epic as the organization’s single electronic health record (EHR) system. This $200 million investment is system-wide, including hospitals, wellness centers, and long-term facilities, and will transform the healthcare experience for patients at the Health System. The anticipated go-live date was September 28, 2019. DEBT ADMINISTRATIONFINAL 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 within 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.
13 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS
LEGISLATIVE IMPACT ON THE HEALTH SYSTEM OPERATING ENVIRONMENT
The Affordable Care Act (ACA) or “Obamacare” is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The ACA was enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding public and private insurance coverage, and reducing the costs of healthcare for individuals and the government. It introduced a number of mechanisms including mandates, subsidies, and insurance exchanges meant to increase coverage and affordability. The law also requires insurance companies to cover all applicants within new minimum standards and offer the same rates regardless of pre-existing conditions or sex. Additional reforms aimed to reduce costs and improve healthcare outcomes by shifting the system towards quality over quantity through increased competition, regulation, and incentives to streamline the delivery of healthcare. In 2011 the Congressional Budget Office projected that the ACA would lower both future deficits and Medicare spending. The ACA includes numerous provisions that take effect between 2010 and 2020.
The ACA has two primary mechanisms for increasing insurance coverage: expanding Medicaid eligibility to include individuals within 138% of the federal poverty level (FPL), and creating state-based insurance exchanges where individuals and small business can buy health insurance plans; those individuals with incomes between 100% and 400% of the FPL will be eligible for subsidies to do so.
Significant reforms, most of which took effect on January 1, 2014, include: Health insurance exchanges operate as a new avenueDRAFT by which individuals and small businesses in every state can compare policies and buy insurance (with a government subsidy if eligible). In addition, the law established four tiers of coverage: bronze, silver, gold, and platinum. All categories offer the same set of essential health benefits. What the categories specify is the division of premiums and out-of-pocket costs: bronze plans will have the lowest monthly premiums and highest out-of-pocket costs, and vice versa for platinum plans. The percentages of health care costs that plans are expected to cover through premiums (as opposed to out-of-pocket costs) are, on average: 60% (bronze), 70% (silver), 80% (gold), and 90% (platinum).
Low-income individuals and families whose incomes are between 100% and 400% of the FPL will receive federal subsidies on a sliding scale if they purchase insurance via an exchange. Those from 133% to 150% of the FPL will be subsidized such that their premium costs will be 3% to 4% of income.
Medicaid eligibility expanded to include individuals and families with incomes up to 133% of the FPL, including adults without disabilities and without dependent children. The law also provides for a 5% “income disregard”, making the effective income eligibility limit for Medicaid 138% of the FPL.
FINAL U.S. citizens and legal residents will be required to have and maintain health insurance, or pay a fine starting at $95 per person in 2014, increasing to $695 in 2016.
14 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
Under the ACA, the Federal Government finances 100% of the Federal Medicaid Assistance Percentages (FMAP) of the costs of those made newly eligible for Medicaid from January 1, 2014, to December 31, 2016. The Health System recognized approximately $126.3 million for fiscal year 2016 under programs associated with the FMAP. Effective January 1, 2017, the Federal Government’s participation level began to decrease on a phased basis over the next 4 calendar years. These FMAP changes reduce the Health System’s supplemental program revenues that are cost-based for newly eligible Medi-Cal patients. Effective January 1, 2017, the FMAP fell to 95% of cost; January 1, 2018, it fell to 94%; January 1, 2019, it will decline to 93%. Effective January 1, 2020, the Federal Government participation level will decline to 90% with no further decreases beyond.
Additionally, as part of the renewed Waiver (Medi-Cal 2020), CMS authorized California to invest savings generated through the Demonstration to achieve critical objectives, such as improved quality of care and better care coordination through safety net providers. Over five years, up to $7.464 billion in federal funds will be available from Public Hospital Redesign and Incentives in Medi-Cal program (PRIME). As a result of participating in PRIME, the Health System earned $38.2 million for fiscal year 2018 and $27.2 million for fiscal year 2019.
On April 25, 2016, CMS released a Medicaid Managed Care Final Rule. This final rule seeks to modernize how states purchase managed care services for Medicaid beneficiaries, strengthen the consumer experience and revise key consumer protections. This final rule is the first major update to Medicaid and Children's Health Insurance Program (CHIP) regulations in more than a decade. Some key goals include: supporting State efforts to advance delivery system reform and improve the quality of care; strengthening the beneficiary experience of care and key beneficiary protections; strengthening program integrity by improving accountability and transparency; and aligning key Medicaid and CHIP managed care requirements with other health coverage programs. Under this ruling, some of the supplemental reimbursement programs in which the Health System is currently participating will change from cost-based to alternative payment methodologies.DRAFT CMS, Department of Healthcare Services (DHCS), and California Association of Public Hospitals (CAPH) are working on revising the current cost-based reimbursement funding structures towards quality measures. Effective July 1, 2017, new programs Enhanced Payment Program (EPP) and Quality Incentive Payment (QIP) went into effect to meet the new requirements and help retain critical funding. While the exact impact to the Health System cannot be determined as of this audit, the potential loss in supplemental funding is estimated at $20 to $30 million. The Health System has accrued $60 million in net revenue for these programs, based on 90% of estimated amounts determined in analysis created in developing the program. Ultimate payments will be based on actual encounter data and allocations across other Designated Public Hospitals, and will not be known until well after fiscal year 2019. The estimates are based on actual amounts for the period July 1, 2017 through December 31, 2017. EPP and QIP payments for fiscal year 2018 will be made in fiscal year 2020.
On May 19, 2016, DHCS informed all California hospitals that operate Federally Qualified Heath Centers (FQHCs) that CMS is requiring DHCS to exclude hospital-based FQHC costs from the calculation of the Disproportionate Share (DSH) Limit. The ruling had an immediate impact on fiscal year 2015, later on determined to impact fiscal years 2013 and 2014. The Health System (along with other public health systems) has challenged CMS’s decision, andFINAL the ruling was in favor of the hospitals. CMS has since appealed the decision, and then dropped the appeal. In fiscal year 2017, the Health System included reserves for the potential financial impact if the challenge turns unfavorable for fiscal years from 2013 and forward. These reserves were no longer needed in fiscal year 2018.
15 Alameda Health System A Public Hospital Authority Management’s Discussion and Analysis As of and for the Years Ended June 30, 2019, 2018, and 2017
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 which sweeps daily cash receipts from the Health System which 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 at June 30, 2019, was $130.0 million and at June 30, 2018, it was $135.0 million. 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 statements.
Throughout the fiscal years 2019 and 2018, the Health System was below the flexible maximum balance of $180.0 million and $185.0 million, respectively. 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 schedule end of year ceiling of $130.0 million. At June 30, 2018, the Health System had a Net Negative Balance (NNB) of $62.1 million and was below the Agreement’s limit reduction schedule end of year ceiling of $135.0 million.
Contacting the Health System’s Financial Management This financial report is designed to provide a general overviewDRAFT 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.
FINAL
16
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, 2019 and 2018, 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 freeDRAFT 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.
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 appropriateFINAL 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.
17
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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, 2019 and 2018, 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, 2019 and 2018, 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 16 and the Supplementary Pension and Postemployment Benefit Information on pages 67 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 generallyDRAFT 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 November __, 2019, on our consideration of the Health System’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters for the year ended June 30, 2019. The purpose of that report is soley 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 preformedFINAL in accordance with Government Auditing Standards in considering the Health System’s internal control over financial reporting and compliance.
San Francisco, California ______, 2019
18
Financial Statements
DRAFT
FINAL
Alameda Health System A Public Hospital Authority Statements of Net Position June 30, 2019 and 2018
Business type activity Component unit Health System Foundation 2019 2018 2019 2018 (amounts in thousands) Assets Current assets: Cash and cash equivalents $ 15,903 $ 18,589 $ 5,153 $ 6,177 Patient accounts receivable, net 127,225 120,073 - - Due from third-party payors 173,885 135,243 - - Contributions receivable - - 263 307 Due from County of Alameda 29,888 30,868 - - Due from State of California 19,525 38,635 - - Inventory 9,529 9,387 - - Other current assets 11,634 11,056 402 148
Total current assets 387,589 363,851 5,818 6,632
Noncurrent assets: Restricted cash equivalents 24,468 23,858 - - Cash restricted for acquisition of capital assets - - 1,433 6,000 Capital assets Nondepreciable 93,089 40,642 - - Depreciable 60,830 70,407 4 6 Capital assets, net 153,919 111,049 4 6 Investments - - 3,341 3,180
Total assets 565,976 498,758 10,596 15,818
Deferred Outflows of Resources Deferred outflows of resources - pension 169,908 140,725 - - Deferred outflows of resources - other postemployment benefits 19,329 10,278 - -
Total deferred outflows of resources 189,237 151,003 - -
Total assets and deferred outflows of resources $ 755,213 $ 649,761 $ 10,596 $ 15,818 DRAFT
FINAL
20 See accompanying notes. Alamada Health System A Public Hospital Authority Statements of Net Position (continued) June 30, 2019 and 2018
Business type activity Component unit Health System Foundation 2019 2018 2019 2018 (amounts in thousands) Liabilities Current liabilities: Accounts payable and accrued expenses $ 55,446 $ 55,921 $ 603 $ 496 Accrued compensation 20,257 17,793 - - Due to third-party payors 200,880 180,595 - - Due to County of Alameda 2,872 2,449 - - Current portion of accrued compensated absences 18,725 18,270 - - Current portion of self-insurance liability 6,920 6,584 - - Current maturities of long-term obligations 11,612 12,135 - -
Total current liabilities 316,712 293,747 603 496
Noncurrent liabilities: Liquidity facility - County of Alameda 109,035 86,006 - - Other long-term liabilities 9,977 12,306 - - Accrued compensated absences, net of current portion 12,194 12,352 - - Net pension liability 502,133 342,201 - - Other postemployment benefits obligations 43,743 5,139 - - Self-insurance liability, net of current portion 24,626 23,415 - - Long-term obligations, net of current maturities 7,156 18,768 - -
Total noncurrent liabilities 708,864 500,187 - -
Total liabilities 1,025,576 793,934 603 496
Deferred Inflows of Resources Deferred inflows of resources - pension 21,144 99,999 - - Deferred inflows of resources - other postemployment benefits 9,096 30,976 - -
Total deferred inflows of resources 30,240 130,975 - -
Net position (deficit) Net investment in capital assets 153,919 111,049 4 6 Restricted for capital assets 24,468 23,858 1,433 6,000 Restricted for health programs - - 8,560 9,155 Unrestricted net (deficit) position DRAFT (478,990) (410,055) (4) 161 Total net (deficit) position (300,603) (275,148) 9,993 15,322
Total liabilities, deferred inflows of resources, and net (deficit) position $ 755,213 $ 649,761 $ 10,596 $ 15,818
FINAL
See accompanying notes. 21 Alameda Health System A Public Hospital Authority Statements of Revenues, Expenses, and Changes in Net Position Years Ended June 30, 2019 and 2018
Business type activity Component unit Health System Foundation 2019 2018 2019 2018 (amounts in thousands)
Operating revenues: Patient service revenues, net $ 564,337 $ 566,157 $ - $ - Capitation revenues 67,504 33,678 - - Other government programs 387,867 378,822 - - Other operating revenues 27,222 26,914 - -
Total operating revenues 1,046,930 1,005,571 - -
Operating expenses: Salaries and benefits 746,368 696,588 - - Physician contract services 91,609 89,135 - - Purchased services 74,525 80,068 - - Materials and supplies 87,822 86,995 - - Facilities 31,150 30,661 - - Depreciation and amortization 15,116 16,524 3 4 General and administrative 18,857 18,282 1,354 1,167 Fundraising - - 864 682 Grant related program expenses 9,766 8,758 2,295 2,335
Total operating expenses 1,075,213 1,027,011 4,516 4,188
Operating loss (28,283) (21,440) (4,516) (4,188)
Nonoperating (expenses) revenues: Contribution revenue - - 3,837 2,751 Interest and investment income (140) 808 - - Interest expense (2,439) (1,821) - - Other nonoperating revenue 256 333 - -
Total net nonoperating (expenses) revenues (2,323) (680) 3,837 2,751
Loss before other revenues, expenses, gains, losses, and transfers DRAFT (30,606) (22,120) (679) (1,437)
Capital contributions 7,500 9,000 - -
Capital transfers - AHS and County (7,000) - - -
Capital transfers - AHS and Foundation 4,650 2,048 (4,650) (2,048)
Increase in net (deficit) position (25,456) (11,072) (5,329) (3,485)
Net (deficit) position, beginning of the year (275,148) (285,364) 15,322 18,807
Cumulative effect of restatement - 21,288 - -
Total net (deficit) position, beginning of the year, as restated (275,148) (264,076) 15,322 18,807
Net (deficit) position, end of the year $ (300,604) $ (275,148) $ 9,993 $ 15,322
FINAL
22 See accompanying notes. Alameda Health System A Public Hospital Authority Statements of Cash Flows Years Ended June 30, 2019 and 2018
Business type activity Component unit Health System Foundation 2019 2018 2019 2018 (amounts in thousands)
Cash flows provided by (used in) operating activities: Cash received for operations $ 905,674 $ 955,687 $ - $ - Cash received from contributors and grantors 9,766 8,758 - - Cash received from tax collections 125,493 111,416 - - Cash paid to suppliers and contractors (321,855) (320,889) (3,387) (4,711) Cash paid to employees for services and benefits (674,561) (658,162) (1,000) (1,144)
Net cash provided by (used in) operating activities 44,517 96,810 (4,387) (5,855)
Cash flows provided by (used in) noncapital financing activities: Receipt of working capital loan from County of Alameda 1,243,359 1,093,508 - - Repayment of working capital loan from County of Alameda (1,220,330) (1,136,743) - - Interest payments on working capital loan from County of Alameda (2,439) (1,821) - - Contributions received - - 3,363 2,776 Receipt of rental income 256 333 - -
Net cash provided by (used in) noncapital financing activities 20,846 (44,723) 3,363 2,776
Cash flows used in capital and related financing activities: Purchase and construction of capital assets (60,314) (40,128) - - Repayment of long-term obligation (12,135) (13,848) - - Capital contributions 7,500 9,000 - - Capital tranfers (2,350) 2,048 - - Grants to Alameda Health System for purchase of property and equipment - - (4,567) -
Net cash used in capital and related financing activities (67,299) (42,928) (4,567) -
Cash flows (used in) provided by investing activities: Purchase of investments - - - (3,144) Proceeds from sales of investments - - - 3,144 Interest and investment income (140) 808 - -
Net cash (used in) provided by investing activities (140) 808 - -
Change in cash and cash equivalents DRAFT (2,076) 9,967 (5,591) (3,079) Cash and cash equivalents, and restricted cash equivalents, beginning of year 42,447 32,480 12,177 15,256
Cash and cash equivalents, and restricted cash equivalents, end of year $ 40,371 $ 42,447 $ 6,586 $ 12,177
FINAL
See accompanying notes. 23 Alameda Health System A Public Hospital Authority Statements of Cash Flows (continued) Years Ended June 30, 2019 and 2018
Business type activity Component unit Health System Foundation 2019 2018 2019 2018 (amounts in thousands) Cash and cash equivalents: Unrestricted $ 15,903 $ 18,589 $ 5,153 $ 6,177 Restricted cash 24,468 23,858 1,433 6,000
Cash and cash equivalents $ 40,371 $ 42,447 $ 6,586 $ 12,177
Reconciliation of operating loss to net cash provided by (used in) operating activities: Operating loss $ (28,283) $ (21,440) $ (4,516) $ (4,188) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Depreciation and amortization 15,116 16,524 3 4 Grants to Alameda Health System for purchase of property and equipment - - 4,567 - Capital transfers - - (4,650) (2,048) Allowance for uncollectible pledges - - (6) 24 Changes in: Patient accounts receivable, net (7,152) (21,729) - - Due from third-party payors (38,642) 91,244 - - Contributions receivable, net - - 49 269 Due from County of Alameda 980 (14,004) - - Due from State of California 19,110 3,426 - - Inventory (142) (109) - - Other current assets (578) 684 (255) (105) Investments - - (160) (38) Deferred outflows of resources (38,234) (5,755) - - Accounts payable and accrued expenses 1,854 (8,465) 581 227 Accrued compensation 2,464 (3,309) - - Due to third-party payors 20,285 10,669 - - Due to County of Alameda 423 111 - - Accrued compensated absences 297 1,670 - - Self-insurance liability 1,547 (2,181) - - Net pension liability 159,932 (46,190) - - Other long-term liabilities (2,329) 12,306 - - Other postemployment benefits obligations 38,604 (19,097) - - Deferred inflows of resources (100,735) 102,455 - -
Net cash provided by (used in) operating activities DRAFT$ 44,517 $ 96,810 $ (4,387) $ (5,855)
FINAL
24 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 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,DRAFT 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 Revenue Code. Complete financial statements 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 substantialFINAL 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.
25 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. DRAFT 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 statement 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 includes cash deposited with the County 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 FINAL 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 $598.6 million at June 30, 2019, and $469.4 million at June 30, 2018.
Inventory – Inventory balances consist of operating supplies and pharmaceuticals and are recorded at cost and adjusted by periodic counts.
26 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 – 20
Land improvements 5 – 20
Building improvements 5 – 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, 2019 and 2018.
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 asDRAFT 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. Level 2 inputs are inputs other 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 liabilitiesFINAL of the Health System are Level 1. Compensated absences – Accumulated unpaid vacation and sick leave 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.
27 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 are 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, 2019 and 2018, the Foundation’s restricted net position of $10.0 million and $15.2 million, respectively, represent assets restricted by donors for specificDRAFT 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 criteria under its charity care policy. 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. FINAL
28 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 ACERA plan, information about the 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, 2018
Measurement Date (MD) – December 31, 2018
Measurement Period (MP) – January 1, 2017 to December 31, 2018
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, informationDRAFT 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, 2019 (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, 2019 Measurement Date (MD) – June 30, 2019 Measurement Period (MP) – January 1, 2019 to June 30, 2019
AH Plan: ValuationFINAL Date (VD) – July 1, 2018 Measurement Date (MD) – June 30, 2019 Measurement Period (MP) – July 1, 2018 to June 30, 2019
29 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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) until that time.
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.
New accounting pronouncements – The GASB issued GASB Statement No. 87, Leases, (GASB No. 87), which intends to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. GASB No. 87 increases the usefulness of governments’ 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. The statement establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset.DRAFT Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. The adoption of GASB No. 87 is effective for the Health System beginning July 1, 2020. The Health System is currently assessing the impact of this standard on the Health System’s financial statements.
The GASB also 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 expenses 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. The adoption of GASB No. 89 is effective for the Health System beginning July 1, 2020. The Health System is currently assessing the impact of this standard on the Health System’s financial statements. FINAL
30 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The GASB issued GASB Statement No. 84, Fiduciary Activities, (GASB No. 84), which intends to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. GASB No. 84 describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. This statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. The requirements of GASB No. 84 will enhance consistency and comparability by (1) establishing specific criteria for identifying activities that should be reported as fiduciary activities and (2) clarifying whether and how business-type activities should report their fiduciary activities. The adoption of GASB No. 84 is effective for the Health System beginning July 1, 2019. The Health System is currently assessing the impact of this standard on the Health System 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, 2019 and 2018, were as follows: 2019 2018 (amounts in thousands) Cash and cash equivalents: Cash on hand $ 39 $ 37 Deposits with bank 15,864 18,552 DRAFT$ 15,903 $ 18,589 Restricted cash equivalents Cash with Alameda County Investment Pool 24,468 23,858
$ 40,371 $ 42,447
Alameda Health System $ 26,634 $ 41,827 Alameda Health Partners 13,737 620 $ 40,371 $ 42,447
Deposits – custodial credit risk – Custodial credit risk for 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 heldFINAL 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.
31 Alameda Health System A Public Hospital Authority Notes to Financial Statements
The Health System had cash on deposit in banks of $17.1 million at June 30, 2019, and $32.1 million at June 30, 2018, that was covered by depository insurance or collateralized by the pledging financial institution. The carrying values at June 30, 2019 and 2018, were $2.1 million and $17.9 million, respectively.
AHP had cash on deposit in banks of $13.7 million at June 30, 2019, and $620 thousand at June 30, 2018, that was covered by depository insurance or collateralized by the pledging financial institution. The carrying values at June 30, 2019 and 2018, were $13.7 million and $620 thousand, respectively.
The Foundation had cash on deposit in banks of $6.8 million at June 30, 2019, and $12.3 million at June 30, 2018, of which $6.3 million at June 30, 2019, and $11.8 million at June 30, 2018, 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 $24.5 million and $23.9 million at June 30, 2019 and 2018, respectively. As of June 30, 2019 and 2018, the total amount invested by all public agencies in the Pool was approximately $6.2 billion and $5.9 billion with a weighted average maturity of 420 days and 357 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. DRAFT
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, 2019 and 2018, was as follows:
2019 2018
Medicare 24.2% 27.1% Medi-Cal 37.9% 31.2% Commercial 31.6% 33.2% Self pay 3.7% 4.3% Other government 2.6% 4.2% FINAL
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, 2019 and 2018:
2019 2018 (amounts in thousands)
PRIME $ 13,660 $ 16,607 Global Payment Program (GPP) 15,165 23,330 Supplemental funding – rate range 20,410 25,732 Supplemental funding – Quality Incentive Program (QIP) and Enhanced Payment Program (EPP) 123,540 60,000 Medicare audit receivable 395 3,992 Physician State Plan Amendment (SPA) - 5,582 Other receivables from miscellaneous third parties 715 -
Total due from third-party payors $ 173,885 $ 135,243
Due to third-party payors consists of the following components as of June 30, 2019 and 2018:
2019 2018 (amounts in thousands)
Medi-Cal settlement reserves (Section 1115 Waiver) $ 73,102 $ 99,587 Federally Qualified Health Center (FQHC) 40,163 41,863 Medi-Cal cost report settlement 36,023 15,754 Assembly Bill (AB) 85 realignment 26,683 23,391 Physician SPA DRAFT 24,909 - Total due to third-party payors $ 200,880 $ 180,595
NOTE 6 – DUE FROM (DUE TO) STATE OF CALIFORNIA
Due from (due to) State of California consists of the following components as of June 30, 2019 and 2018:
2019 2018 (amounts in thousands)
AB 915 supplemental reimbursement $ (4,282) $ 12,253 Sales tax 20,628 18,284 Other State supplemental programs 3,179 8,098
Total Due from State of California $ 19,525 $ 38,635 FINAL
33 Alameda Health System A Public Hospital Authority Notes to Financial Statements
NOTE 7 – CAPITAL ASSETS, NET
Capital assets, net, of the Foundation are immaterial to the financial statements as a whole and for the fiscal years ended June 30, 2019 and 2018, totaled $4 thousand and $6 thousand, respectively. Changes in capital assets, net, of the Health System for the fiscal years ended June 30, 2019 and 2018 are as follows:
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 improvements 934 - (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 $ DRAFT 42,870 $ - $ - $ 153,919
Balance Balance July 1, 2017 Additions Retirements Transfers June 30, 2018 (amounts in thousands)
Capital assets, not being depreciated: Assets not placed in service $ 10,193 $ 25,858 $ - $ (4,430) $ 31,621 Land 9,021 - - - 9,021
Total capital assets, not being depreciated 19,214 25,858 - (4,430) 40,642
Capital assets, being depreciated: Land improvements 934 - - - 934 Building and leasehold improvements 56,167 3,058 - 1,242 60,467 Equipment 155,549 11,212 - 3,188 169,949
Total capital assets, being depreciated 212,650 14,270 - 4,430 231,350
Less accumulated depreciation for: Land improvements (787) (23) - - (810) Building and leasehold improvements (35,215) (2,157) - - (37,372) Equipment (108,417) (14,344) - - (122,761) Total accumulatedFINAL depreciation (144,419) (16,524) - - (160,943) Total capital assets, being depreciated, net 68,231 (2,254) - 4,430 70,407
Capital assets, net $ 87,445 $ 23,604 $ - $ - $ 111,049
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 2018. 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 2018.
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 (Agreement) to provide ongoing liquidity support to the HealthDRAFT System. As of June 30, 2019 and 2018, the net obligation was $84.6 million and $62.1 million, respectively, and was below the current ceiling of $130.0 million and $135.0 million, respectively, described in the Agreement. Further reductions down to $50.0 million are scheduled over the life of the Agreement through June 30, 2034. 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 throughout the reporting periods at June 30, 2019 and 2018.
The interest rate per the Agreement is 1% for the years ended June 30, 2019 and 2018. The interest expense paid, the gross and net working capital loan balances, and target net working capital loan balance at the end of the fiscal years were as follows: 2019 2018 (amounts in thousands)
Total interest paid on County liquidity facility $ 2,439 $ 1,821 Total gross working capital loan balance $ 109,035 $ 86,006 Net working capital loan balance (net of restricted cash) $ 84,567 $ 62,148 Net working capitalFINAL loan maximum allowed by the Debt Restructure Agreement $ 130,000 $ 135,000
35 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 $67.5 million during fiscal year 2019 and $33.7 million during fiscal year 2018 for these services, which is included in capitation revenue. In addition, the County reimbursed the Health System $34.2 million and $33.7 million for fiscal years 2019 and 2018, respectively, for behavioral health services, that were included in net patient service revenues. The Health System has recorded receivables of $24.6 million and $26.1 million from the County related to these services, included in due from County of Alameda on the statements of net position at June 30, 2019 and 2018, respectively.
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, 2019 and 2018, and related outstanding payables as of June 30, 2019 and 2018 were as follows: 2019 2018 (amounts in thousands)
Charges for County provided services $ 4,372 $ 3,983 Total outstanding payables to County DRAFT$ 2,872 $ 2,449
NOTE 9 – LONG-TERM OBLIGATIONS
The following table summarizes the activity related to long-term obligations during the years ended June 30, 2019 and 2018: 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-insuranceFINAL liability 29,999 1,585 (38) 31,546 6,920 Net pension liability 342,201 159,932 - 502,133 - Postemployment benefits 5,139 38,604 - 43,743 - Loan from County of Alameda 86,006 23,029 - 109,035 -
Total noncurrent liabilities $ 524,870 $ 225,263 $ (13,989) $ 736,144 $ 37,257
36 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 2017 Increases Decreases 2018 One Year (amounts in thousands) Long-term obligations: Pension obligation bonds due to County $ 44,751 $ - $ (13,848) $ 30,903 $ 12,135
Long-term obligations 44,751 - (13,848) 30,903 12,135
Other noncurrent liabilities: Accrued compensated absences 28,952 1,670 - 30,622 18,270 Self-insurance liability 32,180 944 (3,125) 29,999 6,584 Net pension liability 388,391 - (46,190) 342,201 - Postemployment benefits 45,524 2,400 (42,785) 5,139 - Loan from County of Alameda 129,241 - (43,235) 86,006 -
Total noncurrent liabilities $ 669,039 $ 5,014 $ (149,183) $ 524,870 $ 36,989
Debt service requirements for the long-term obligations are as follows:
Pension Obligation Bonds due to County Fiscal Years Ending June 30 Principal Interest Total 2020 $ DRAFT 11,612 $ - $ 11,612 2021 7,156 - 7,156
Total $ 18,768 $ - $ 18,768
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 SERVICE REVENUE
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.
The Health System has agreements with third-party payors that provide for payments to the Health System at amounts differentFINAL from its established rates. These payment arrangements include:
37 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 2019, 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, and Fairmont 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). For San Leandro and Alameda Hospitals, 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 2018 are in various stages of audit and/or finalization. Medi-Cal cost reports for 2019 will be filed by November 30, 2019 and are subject to audit and possible adjustment. Net Medi-Cal program patient services revenue amounted to approximately $279.4 million and $173.0 million in 2019 and 2018, respectively. The Health System recognized in the statements of revenues, expenses, and changes in net position a decrease of approximately $13.0 million and $8.7 million in 2019 and 2018, respectively, in net patient services revenue pertaining to the settlement of previous years’ cost reportsDRAFT.
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, discounts from established charges, and prospectively determined daily rates.
Net patient service revenues for the fiscal years ended June 30, 2019 and 2018, are calculated as follows:
2019 2018 (amounts in thousands)
Gross patient service revenues $ 3,437,988 $ 3,302,518 Contractual allowances (2,816,515) (2,676,928) Bad debt provision (52,717) (59,433)
Net patient service revenues $ 568,756 $ 566,157 FINAL
38 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, 2019 and 2018, were:
2019 2018
Medi-Cal 54.5% 53.3% Medicare 29.9% 30.3% Commercial insurance 7.9% 8.4% Other government 4.9% 5.3% Self pay 2.8% 2.7%
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, 2019 and 2018, the Health System recognized $67.5 million and $33.7 million in HPAC capitation revenue, respectively. Included in fiscal year 2019 capitation revenue was $28.7 million of AB 85 Realignment revenue (discussed in Note 12) that was passed on from the State to the County. DRAFT
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, 2019 and 2018:
2019 2018 (amounts in thousands)
Components of the Medi-Cal waiver: PRIME $ 27,175 $ 38,154 Section 1115 waiver including GPP 116,083 109,980 Supplemental funding – Quality Incentive Program (QIP) and Enhanced Payment Program (EPP) 63,540 60,000 Parcel tax revenue 5,536 5,120 Sales tax revenue 125,493 111,416 Supplemental funding – Medi-Cal Expansion (MCE) - 5,757 SupplementalFINAL funding – rate range 30,000 29,026 Supplemental funding – Seniors and Persons with Disabilities (SPD) - 634 Other program revenue 20,040 18,735
Other government program revenue $ 387,867 $ 378,822
39 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Public Hospital Redesign and Incentives in Medi-Cal Program (PRIME)
Over 5 years, beginning in the year ended June 30, 2016, up to $7.464 billion in federal funds will be available from PRIME. As a result of participating in PRIME, the Health System recorded $27.2 million and $38.2 million in revenue for the years ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and 2018, $13.7 million and $16.6 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)
The federal Centers for Medicare and Medicaid Services (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 selected hospitals for hospital care provided to Medi-Cal and uninsured patients. The Demonstration was negotiated between the State’s Department of Health 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 threeDRAFT 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).
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. TheFINAL 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).
40 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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, 2019 and 2018, the Health System recorded a payable of $73.1 million and $99.6 million, respectively, for the Waiver program as shown in Note 5.
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 selected Designated Public Hospital 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 $116.1 million and $110.0 million in revenue for the years ended June 30, 2019 and 2018, respectively, for Section 1115 Waiver programs, including GPP. As of June 30, 2019 and 2018, the Health System recorded a receivable of $15.2 million and $23.3 million, respectively, for the GPP program as shown in Note 5.
AB 85 Realignment
Accountability for providing healthcare 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 throughDRAFT increases to the State Sales Tax and Vehicle License Fees. In 2013, due to passage of the 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, 2019, the Health System determined that all fiscal year 2017 Realignment funding would be returned. These funds were paid back in October 2019. As a result, the Health System recognized a liability of $26.7 million and $23.4 million as of June 30, 2019 and 2018, respectively. The Health System recognized no reserve for the years ended June 30, 2019 for the AB 85 realignment revenue of $28.7 million 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 byFINAL 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 $125.5 million for the year ended June 30, 2019, and $111.4 million for the year ended June 30, 2018. Sales taxes receivable from the State were $20.6 million and $18.3 million as of June 30, 2019 and 2018, respectively, as shown in Note 6.
41 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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. As Medi-Cal is a state/federal 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.
These types of arrangements must meet new requirements under the Medicaid and 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 exceptionDRAFT 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 $63.5 million and $60 million in revenue for the years ended June 30, 2019 and 2018, 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 2019. The estimates are based on actual amounts for the period July 1, 2017 through December 31, 2017. EPP and QIP payments for fiscal year 2018 will be made in fiscal year 2020. The Health System has recognized 90% of the estimated amount. SupplementalFINAL Funding – Medi-Cal Expansion (MCE) Beginning January 1, 2014, the ACA provides 100% matching of federal medical assistance percentages (FMAP) for newly eligible Medi-Cal patients. That percentage dropped to 94% on January 1, 2018, and 93% on January 1, 2019. During fiscal years 2019 and 2018, the Health System estimated the difference between cost and interim payments received.
42 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Certain portions of the ACA provided Medi-Cal coverage for patients previously covered by HPAC in the County. The majority of these beneficiaries were enrolled in either the Alameda Alliance for Health or Anthem Blue Cross managed Medi-Cal plans. Due to payment mechanisms between the State and the health plans (capitation), an opportunity to receive supplemental funding similar to current rate range and SPD programs was made available to the DPHs. As a result, the Health System recorded $0.0 million and $5.8 million for the years ended June 30, 2019 and 2018, respectively, which is included in other governmental program revenue. The funding received during fiscal year 2018 was attributed to services provided in fiscal year 2017 and prior, however due to the retroactive calculations by DHCS and their actuaries, the amounts due the Health System were not known until much later. This program ended June 30, 2017.
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.
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 paymentsDRAFT 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, 2018.
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 $30.0 million and $29.0 million in revenue for the years ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and 2018, the Health System recorded a receivable of $20.4 million and a receivable of $25.7 million, respectively, for this program as shown in Note 5.
Other OperatingFINAL Revenue
The Health System receives funding for administration of various Medi-Cal programs, including funding under Medi-Cal Administrative Activities to reimburse certain costs of administering the Medi-Cal program. Grant revenues of $6.8 million and $6.9 million were included in other operating revenues for the years ended June 30, 2019 and 2018, respectively.
43 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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. The Health System records 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, 2019 June 30, 2018 (amounts in thousands)
Charity care cost $ 10,806 $ 9,095 Percent of operating expenses 1.0% 0.9%
In addition to the direct cost of charity care, 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, 2019 June 30, 2018 (amounts in thousands)
HPAC unreimbursed cost $ 8,953 $ 8,000 Percent of operating expenses 0.8% 0.8%
NOTE 14 – RETIREMENT PLANS DRAFT 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, 2019 and 2018. 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 within. 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
2018 ACERA OPEB AHS DB Plan AH Plan Total (amounts in thousands) Net pension liabilityFINAL$ 341,502 $ - $ 413 $ 286 $ 342,201 Other postemployment benefits obligations $ - $ 5,139 $ - $ - $ 5,139 Deferred outflows of resources $ 140,322 $ 10,278 $ 115 $ 288 $ 151,003 Deferred inflows of resources $ (99,838) $ (30,976) $ (14) $ (147) $ (130,975) Pension expense $ 78,417 $ - $ 336 $ 56 $ 78,809 Other postemployment benefits expense $ - $ 1,600 $ - $ - $ 1,600
44 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 disability retirement benefits, annual cost-of-living adjustments (COLA), and death benefits to plan members and their beneficiaries. ACERA also provides other non-health 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.
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 PartDRAFT 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 ofFINAL PEPRA, California Government Code 7522 et seq. and Assembly Bill (AB) 197.
45 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 Tiers 1 and 3 and Safety Tier 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, 2018, 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. Participating agencies contribute to the retirement plan basedDRAFT 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, 2018 (based on the December 31, 2016 valuation for the second half of 2017/2018 and on the December 31, 2017 valuation for the first half of 2018/2019), was 25.78%.
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, 2018 (based on the December 31, 2016 valuation for the second half of 2017/2018 and on the December 31, 2017 valuation for the first half of 2018/2019), was 9.06% of compensation. FINAL
46 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Actuarial methods and assumptions used to determine total pension liability – For the measurement period ending December 31, 2018 (the measurement date), the total pension liability was determined by rolling forward the December 31, 2017, total pension liability. The actuarial assumptions used to develop the December 31, 2018 and 2017 total pension liability are based on the assumptions adopted annually by the Retirement Board for use in the December 31, 2018 and 2017, respectively. These assumptions were applied to all periods included in the measurement: Valuation Date December 31, December 31, 2018 2017
Actuarial cost method Entry age normal Entry age normal Actuarial assumptions, Discount rate 7.25% 7.25% Inflation 3.00% 3.00%
Valuation Date December 31, December 31, 2018 2017 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-dimensionalDRAFT 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 experience 2013 - November 30, 2016 actuarial experience study 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 and increase by the difference between inflation and the cost-of-living benefit guaranteed in the the cost-of-living benefit guaranteed in the Pension Plan, subject to other limitations Pension Plan, subject to other limitations FINAL
47 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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, 2019 June 30, 2018 (amounts in thousands)
Beginning net pension liability $ 342,201 $ 388,391 Pension expense 106,501 78,809 Employer contributions (50,653) (46,597) New net deferred inflows/outflows 125,018 (58,366) Change in allocation of prior deferred inflows/outflows 31 4,252 New net deferred flows due to change in proportion 555 10,684 Recognition of prior deferred inflows/outflows (19,623) (35,465) Recognition of prior deferred flows due to change in proportion (1,897) 493
Ending net pension liability $ 502,133 $ 342,201
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 DRAFT22.40% 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% 98.00% 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%
Discount rate
The discount rate used to measure the total pension liability was 7.25% as of December 31, 2018 and 2017. In order to reflectFINAL 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.
48 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 contributions rates plus additional future 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, 2018 and 2017.
Pension plan fiduciary net position – The net pension liability was measured as of December 31, 2018 and 2017. 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, 2017 and 2016, respectively.
The total pension liability and fiduciary net position include liabilities and assets for non-health 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. DRAFT 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, 2018, 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 $ 754,512 $ 501,587 $ 292,273
Recognition of gains and losses – Under GASB 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 recognizedFINAL in future pension expense.
49 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 average 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.
The average of the expected service lives of all employees that are provided with pensions through the ACERA plan, which is 5.43 years determined as of December 31, 2017 (the beginning of the measurement period ending December 31, 2018). DRAFT Pension expense and deferred outflows and deferred inflows – As of the beginning of the measurement period (December 31, 2017), the net pension liability for the ACERA plan is $341.5 million (The net pension liability of the risk pool as of December 31, 2017 is $2.0 billion).
For the measurement period ended December 31, 2017 (the measurement date), the Health System incurred a pension expense of $105.8 million for the ACERA plan (the pension expense for the risk pool for the measurement period is $544.8 million). FINAL
50 Alameda Health System A Public Hospital Authority Notes to Financial Statements
As of December 31, 2018 and 2017, the Health System reports deferred outflows and deferred inflows of resources related to the ACERA plan. 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
The deferred outflows and inflows recognized in the 2017 measurement period are as follows:
Deferred Deferred Outlfows of Inflows of DRAFTResources Resources (amounts in thousands)
Pension contributions subsequent to the measurement date $ 25,014 $ - Difference between expected and actual experience 1,027 20,638 Changes in assumptions 103,943 9,135 Net difference between projected and actual earnings on pension plan investments 57 69,089 Adjustment due to differences in proportions 10,684 1,137
Total $ 140,725 $ 99,999 FINAL
51 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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)
2020 $ 72,237 2021 19,152 2022 19,189 2023 37,870 2024 316 Thereafter -
$ 148,764
ACERA’s financial statements and required supplementary information are audited annually by independent auditors. The audit report and December 31, 2018, financial statements may be obtained by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California, 94612.
NOTE 15 – OTHER POSTEMPLOYMENT BENEFITS MEDICALDRAFT 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. FINAL
52 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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 $558 per month and $540 per month in 2019 and 2018, 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 $427 per month and $414 per month in 2019 and 2018, respectively, and subject to the following subsidy schedule:
Completed Years Percentage of Service Subsidized 10 - 14 50% 15 - 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. DRAFT Determination of Proportionate Share – The reporting date for the employer under GASB 75 is June 30, 2019. The reporting date and measurement date for the plan under GASB 74 are December 31, 2018. Consistent with the provisions of GASB 75, the assets and liabilities measured as of December 31, 2018 are not adjusted or rolled forward to the June 30, 2019 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 18.78%. The determination is based on the January 1, through December 31, 2018 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.
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 proportionFINALate share of the liability.
53 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Components of postemployment medical benefits expense as calculated under the requirements of GASB No. 75 are as follows as of June 30: 2019 2018 (amounts in thousands)
Service cost $ 5,931 $ 5,048 Interest 13,791 13,069 Changes in proportion 17 158 Differences between expected and actual experience (780) (605) Changes of assumptions (322) 1,651 Projected earnings on plan investments (13,356) (11,062) Differences between actual and projected earnings on investments 7,868 (6,884) Administrative expense 230 225 Beginning of year deferred outflows 1,658 - Beginning of year deferred inflows (7,522) - Net amortization of deferred amounts 159 -
Total postemployment medical benefits expense $ 7,674 $ 1,600
Components of deferred inflows and outflows of resources as calculated under the requirements of GASB No. 75 are as follows as of June 30: DRAFT2019 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 FINAL
54 Alameda Health System A Public Hospital Authority Notes to Financial Statements
2018 Deferred Deferred Outflows of Inflows of Resources - Resources - OPEB OPEB (amounts in thousands)
Changes in proportion $ 900 $ - Difference between expected and actual experience - 3,439 Net difference between projected and actual earnings on OPEB plan investments - 27,537 Changes in assumptions 9,378 -
Total $ 10,278 $ 30,976
Amounts reported as deferred outflows and inflows of resources for postemployment medical benefits will be recognized in postemployment medical benefits expense are as follows for the year ending June 30:
Deferred Outflows/(Inflows) of Resources - OPEB (amounts in thousands) Measurement periods ending December 31,DRAFT 2020 $ 1,078 2021 1,078 2022 1,078 2023 7,991 2024 (263) Thereafter (729)
$ 10,233
The following table reports the ACERA total net OPEB liability, and the ACERA OPEB plan’s fiduciary net position as of June 30: 2019 2018 FINAL (amounts in thousands) ACERA - total OPEB liability $ 1,054,337 $ 1,029,354 ACERA plan's fiduciary net position 821,440 1,001,876
ACERA net OPEB liability $ 232,897 $ 27,478
ACERA plan's fiduciary net position as a percentage of the total OPEB liability 77.9% 97.3%
55 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, 2019: Valuation Date December 31, 2018
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% Healthcare cost trend rates Non-Medicare medical plan Graded from 7.00% to 4.50% over 10 years Medicare medical plan Graded from 6.50% to 4.50% over 8 years Dental/vision and Medicare Part B 4.00%
Sensitivity of postemployment medical benefits liability due to change in discount rates:
Discount Rate Current Discount Discount Rate -1% (6.25%)DRAFTRate (7.25%) +1% (8.25%) (in thousands)
ACERA plan net OPEB liability $ 68,288 $ 43,743 $ 23,235
Sensitivity of postemployment medical benefits liability due to change in healthcare cost trend:
Current 1% Decrease Trend Rate 1% Increase (in thousands)
ACERA plan net OPEB liability $ 20,760 $ 43,743 $ 71,922
ACERA’s financial statements and required supplementary information are audited annually by independent auditors. The audit report and December 31, 2018, financial statements may be obtained by writing to ACERA, 475 14th Street,FINAL Suite 1000, Oakland, California, 94612.
56 Alameda Health System A Public Hospital Authority Notes to Financial Statements
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.
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 $12.9 million for fiscal year 2019 and $12.6 million for fiscal year 2018.
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 $11.7 million for fiscal year 2019 and $10.9 million for fiscalDRAFT year 2018.
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 hospital professional liability from BETA Healthcare Group (Beta), a joint powers authority thatFINAL operates insurance programs for certain California hospitals.
The Health System paid an annual premium of $9.2 million and $8.4 million to Beta and CSAC for the years ended June 30, 2019 and 2018, 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.
57 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Selected insurance coverage for fiscal years 2019 and 2018 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 $ 3,000 $ 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. DRAFT 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 of individual claims for medical 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, 2019 and 2018. FINAL
58 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, July 1, 2017 $ 3,974 $ 28,206 $ 32,180 Current year claims and changes in estimate (393) 4,055 3,662 Settlements - (5,843) (5,843)
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
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, 2019. 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 2028. In the case of some of the facilities leases, the rent paid to the landlord DRAFT 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, 2019, the future minimum lease payments under non cancellable leases were due as follows.
Years ending June 30, (amounts in thousands)
2020 $ 5,194 2021 5,240 2022 5,161 2023 5,000 2024 4,190 2025-2029 16,676 2030-2034 3,015
$ 44,476
FINAL
59 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Other commitment – 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)
2020 $ 7,000 2021 7,000 2022 7,000 2023 7,000 2024 7,000 2025-2029 35,000 2030-2034 35,000
$ 105,000
No deposit contributions to the Capital Designation Fund were required during the fiscal year ended June 30, 2018.
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 claimsDRAFT 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
60 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: 2019 2018 ASSETS
Current assets: Cash and cash equivalents $ 13,737,393 $ 619,734 Accounts receivable, net 6,616,193 9,533,055 Due from Alameda Health System - 7,630,585
Total current assets 20,353,586 17,783,374
Total assets $ 20,353,586 $ 17,783,374
LIABILITIES AND NET POSITION
Current liabilities: Accounts payable and accrued expenses $ 4,991,421 $ 5,407,902 Salaries, wages, and related liabilities 1,475,365 949,559 Due to Alameda Health System 773,237 - Current portion of self-insurance liability 18,904 7,964 Total current liabilities DRAFT 7,258,927 6,365,425 Noncurrent liabilities: Self-insurance liability, net of current portion 43,096 21,036
Total noncurrent liabilities 43,096 21,036
Total liabilities 7,302,023 6,386,461
Net position: Unrestricted 13,051,563 11,396,913
Total net position 13,051,563 11,396,913
Total liabilities and net position $ 20,353,586 $ 17,783,374 FINAL
61 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Year Ended Year Ended June 30, 2019 June 30, 2018
OPERATING REVENUE Net patient service revenue $ 28,118,477 $ 29,278,856 Professional services agreement revenue 48,374,696 37,622,597
Total operating revenue 76,493,173 66,901,453
OPERATING EXPENSES Salaries, wages, and benefits 19,733,417 13,285,875 Physician contract services 50,062,620 45,339,690 Purchased services from Alameda Health System 2,967,458 2,266,525 Other 2,086,104 679,956
Total operating expenses 74,849,599 61,572,046
Operating income 1,643,574 5,329,407
NONOPERATING REVENUE Interest income 11,076 3,592
Increase in net position 1,654,650 5,332,999
Total net position, beginning of year 11,396,913 6,063,914 Total net position, end of year DRAFT$ 13,051,563 $ 11,396,913
FINAL
62 Alameda Health System A Public Hospital Authority Notes to Financial Statements
Year Ended Year Ended June 30, 2019 June 30, 2018 CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Cash received from customers - third parties $ 31,035,339 $ 21,060,126 Cash received from customers - related-party 56,778,518 31,019,060 Cash payments to contracted physicians (50,479,101) (41,068,822) Cash payments to suppliers (5,020,562) (3,327,481) Cash payments to employees (19,207,611) (12,958,646)
Net cash provided by (used in) operating activities 13,106,583 (5,275,763)
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES Interest income 11,076 3,592
Net cash provided by investing activities 11,076 3,592
Net change in cash and cash equivalents 13,117,659 (5,272,171)
CASH AND CASH EQUIVALENTS, beginning of year 619,734 5,891,905
CASH AND CASH EQUIVALENTS, end of year $ 13,737,393 $ 619,734
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Operating income $ 1,643,574 $ 5,329,407 Adjustments to reconcile operating income to net cash from operating activities: DRAFT Changes in assets and liabilities: Accounts receivable 2,916,862 (8,218,730) Due from Alameda Health System 7,630,585 (6,603,537) Accounts payable (416,481) 4,270,868 Salaries, wages, and related liabilities 525,806 327,229 Self insurance liability 33,000 (381,000) Due to Alameda Health System 773,237 -
Net cash provided by (used in) operating activities $ 13,106,583 $ (5,275,763) FINAL
63
Required Supplementary Information
DRAFT
FINAL
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
2019 (amounts in thousands)
Health system's proportionate of the net pension liability/(asset) 18% Health system's proportionate share of the net pension liability/(asset) $ 501,587 Health system's covered payroll2 $ 255,247 Health system's proportionate share of the net pension liability/(asset) as a percentage of its covered payroll 197% Health system's proportionate share of the fiduciary net position as a percentage of its total pension liability 75% Health systems proportionate share of the aggregate employer contributions $ 50,653
SCHEDULE OF CONTRIBUTIONS, TWO FISCAL YEARS
Fiscal Year1 Fiscal Year1 '2018-19 '2017-18 (amounts in thousands)
Actuarially determined contribution $ 55,259 $ 48,060 Contributions in relation to the actuarially determined contribution 55,259 48,060 Contribution deficiency (excess) DRAFT$ - $ - Covered payroll2 $ 256,432 $ 251,124 Contributions as a percentage of covered payroll2 21.55% 19.14%
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.
SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY
Proportionate Share of the Net Plan's Fiduciary Reporting Date OPEB Liablity as Net Position as a for Employer Proportion of the Proportionate Covered- a Percentage of Percentage of under GASB 75 Net OPEB Share of Net employee its Covered- the Total OPEB as of June 30 Liability OPEB Liability Payroll1 employee Payroll Liability (amounts in thousands) 2018 18.7% $ 5,139 $ 239,207 2.2% 97.3% 2019FINAL18.8% 43,743 255,247 17.1% 77.9%
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.
65
Supplementary Information
FINAL DRAFT
Alameda Health System a Public Hospital Authority Schedule of Expenditures of Federal Awards Year Ended June 30, 2019
Program Title Number Pass-Through Federal Federal Grantor/Pass-Through Grantor (CFDA) Identifying Number Expenditures U.S. Department of Justice, Office of Victims of Crime Passed Through California Emergency Management Agency Crime Victim Assistance 16.575 RC17 33 1146 $ 29,847 Crime Victim Assistance 16.575 RC18 34 1146 316,168 Crime Victim Assistance 16.575 XS16 01 1146 102,876 Crime Victim Assistance 16.575 KD17 01 1146 200,460 Crime Victim Assistance 16.575 KE18 01 1146 113,441 Total U.S. Department of Justice, Office of Victims of Crime 762,792 U.S. Department of Labor Passed Through Alameda County Health Care Foundation WIA Youth Activities 17.259 P485230 345,082 Total WIAO Cluster 345,082 Total U.S. Department of Labor 345,082 U.S. Department of Health and Human Services Direct Programs: Ryan White HIV/AIDS Dental Reimbursements Community Based Dental Partnership 93.924 T22HA31181 38,885 Ryan White HIV/AIDS Dental Reimbursements Community Based Dental Partnership 93.924 900148 198,989 Subtotal of direct programs 237,874 Passed Through Children's Hospital & Research Center at Oakland Coordinated Services and Access to Research for Coordinated Services and Access to Research for Women, Infants, Children, and Youth 93.153 2 H12HA 247770-6-00 163,249 Passed Through Alameda County Health Care Services Agency Mental Health Clinical and AIDS Service-Related Training Grants 93.224 PHG01CH40500 703,286 Total Health Center Program Cluster 703,286 Passed Through Alameda County Health Care Services Agency Medical Assistance Program 93.778 MAA MOU 2017-2018 2,929,109 Total Medicaid Cluster 2,929,109 Passed Through the Regents of the University of California Allergy, Immunology and Transplantation Research 93.855 3U01A1034989-24SI 7,250 Passed Through the Regents of the University of California Research on Healthcare Cost, Quality and Outcomes 93.226 5R01HS024426-02 65,171 Total R&D Cluster 72,421 Passed Through Tri-City Health Center, California Grants to Provide Outpatient Early Intervention Services with Respect to HIV Disease 93.918 6 H76 HA 00160-026-01 331,605 Passed Through Alameda County Public Health Department, Office of AIDS Administration HIV Emergency Relief Project Grants 93.914 PHG08HA60200 55,367 HIV Care Formula Grants 93.917 PHG08HA60100 474,717 HIV PreventionFINAL Activities - Health Department Based DRAFT93.940 PHG08HA61000 61,116 Passed Through Alameda County Behaviorial Health Care Highland Hospital Substance Abuse Program 93.959 900077 409,582
Subtotal of pass-through programs 5,200,452 Total U.S. Department of Health and Human Services 5,438,326 Total Expenditures of Federal Awards $ 6,546,200
67 See accompanying notes to schedule of expenditures of federal awards. Alameda Health System a Public Hospital Authority Notes to Schedule of Expenditures of Federal Awards Year Ended June 30, 2019
NOTE 1 – ORGANIZATION
Alameda Health System (the “Health System”) is a Public Hospital Authority created originally under the name of Alameda County Medical Center (the “Medical Center”) on July 1, 1998, pursuant to California Health and Safety Code Section 101850. The governance, management, administration, and control of healthcare facilities were transferred from the County of Alameda (the “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 289 acute, 69 acute psychiatric, and 325 sub-acute, skilled nursing and rehab beds.
The Health System is governed by a nine-member board of trustees (“Trustees”), eight members of which have been 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.
NOTE 2 – BASIS OF ACCOUNTING
The schedule of expenditures of federal awards (the “Schedule”) includes the federal grant activity of the Health System. All federal awards received directly from federal agencies as well as federal awards passed through other entities are included in this Schedule except for assistance related to Medical Assistance (“Medi-Cal”) and Medicare Hospital Insurance (“Medicare”) described in Note 4.
The Schedule is presented using the accrual basis of accounting, which is described in Note 2 to the Health System’s basic financial statements. Expenditures reported include any property or equipment acquisitions incurred under the federal program. Under the accrual basis of accounting, expenditures are recognized when incurred, regardless of timing of cash flows. Such expenditures are recognized following the cost principles contained in the Title 2 U.S. Code of Federal Regulations (“CFR”) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements, for Federal Awards (“Uniform Guidance”), wherein certain types of expenditures are not allowable or are limited as to reimbursement.
NOTE 3 – RELATIONSHIP TO THE BASIC FINANCIAL STATEMENTS
The information in the accompanying Schedule is presented in accordance with the requirements of the Uniform Guidance. BecauseFINAL the Schedule presents only a select portionDRAFT of the operations of the Health System, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Health System. Federal expenditures agree or can be reconciled with the amounts reported in the Health System’s basic financial statements.
68 Alameda Health System a Public Hospital Authority Notes to Schedule of Expenditures of Federal Awards Year Ended June 30, 2019
NOTE 4 – MEDI-CAL AND MEDICARE PROGRAMS
Direct Medi-Cal and Medicare expenditures are excluded from the Schedule. These expenses represent fees for services and are not included in the Schedule or in determining major programs. The Health System provides Medi-Cal and Medicare services through its facilities.
The Health System participates in the California Medi-Cal Administrative Activities (“MAA”) program, which offers reimbursement under the federal Medical Assistance Program (CFDA number 93.778) for a portion of the costs related to specific, approved activities that are necessary for the proper and efficient administration of the Medi- Cal program.
NOTE 5 – SUBRECIPIENTS
The Health System did not provide federal awards to subrecipients during the year ended June 30, 2019.
NOTE 6 – INDIRECT COSTS
The Health System has elected not to use the 10 percent de minimus indirect cost rate allowed under the Uniform Guidance. The Health System negotiates indirect cost rates separately for each contract.
FINAL DRAFT
69 Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
To the Board of Directors Alameda Health System
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by Comptroller General of the United States, the financial statements of the Alameda Health System (the “Health System”), an enterprise fund of the County of Alameda and its discretely presented component unit, Alameda Health System Foundation (the “Foundation”), as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the Health System’s basic financial statements, and have issued our report thereon dated November X, 2019.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Health System’s internal control over financial reporting (“internal control”) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Health System’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Health System’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attentionFINAL by those charged with governance. DRAFT Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
70 Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Health System’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Health System’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
San Francisco, California November X, 2019
FINAL DRAFT
71 Report of Independent Auditors on Compliance for Each Major Federal Program; Report on Internal Control over Compliance Required by the Uniform Guidance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance and Supplementary Schedule of State of California Emergency Management Agency Grant Expenditures
To the Board of Directors Alameda Health System
Report on Compliance for Each Major Federal Program
We have audited the Alameda Health System’s (the “Health System”) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Health System’s major federal programs for the year ended June 30, 2019. The Health System’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the Health System’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). ThoseFINAL standards and the Uniform Guidance require DRAFT that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Health System’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
72 We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Health System’s compliance.
Opinion on Each Major Federal Program
In our opinion, the Health System complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2019.
Report on Internal Control Over Compliance
Management of the Health System is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Health System's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Health System's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknessesFINAL or significant deficiencies may exist that haveDRAFT not been identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified a certain deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item 2019-001 that we consider to be a significant deficiency.
73 The Health System's response to the internal control over the compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Health System's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance and Supplementary Schedule of State of California Emergency Management Agency Grant Expenditures
We have audited the financial statements of Alameda Health System as of and for the year ended June 30, 2019, and have issued our report thereon dated November X, 2019, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the financial statements. The accompanying supplementary schedule of State of California Emergency Management Agency Grant Expenditures is presented for purposes of additional analysis as required by the State of California and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards and the supplementary schedule of State of California Emergency Management Agency Grant Expenditures are fairly stated in all material respects in relation to the financial statements as a whole.
San Francisco, California NovemberFINAL X, 2019 DRAFT
74 Alameda Health System a Public Hospital Authority Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Section I – Summary of Auditor’s Results
Financial Statements Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major federal programs: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? Yes No Identification of Major Federal Programs and Type of Auditors Report Issued on Compliance for Major Federal Programs:
Type of Auditor’s Report Issued on Compliance for Major Federal CFDA Numbers Name of Major Federal Program or Cluster Programs
93.778 Medical Assistance Program Unmodified
Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes No
Section II – Financial Statement Findings None reportedFINAL. DRAFT
75 Alameda Health System a Public Hospital Authority Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Section III – Federal Award Findings and Questioned Costs
Finding Number 2019-001: Allowable Costs/Cost Principles (Significant Deficiency over Internal Control over Major Federal Program)
CFDA Federal Agency/Pass-through Award Questioned Number Entity – Program Name Award Number Year Costs
93.778 U.S. Department of Health and MAA MOU 2018-2019 2018-2019 $48,980 Human Services – Alameda County Health Care Services Agency – Medical Assistance Program
Criteria: The California Department of Health Services requires time study forms to be completed in accordance with the CMAA/TCM Implementation Plan (Plan) approved May 3, 2013. California counties and their subrecipients that receive funding for Medi-Cal Administrative Activities and Targeted Case Management Programs are required to have participating employees complete a monthly Work Log Time Survey. Section 7, The Components of a Worker Log Time Survey Document, of the Plan states the following:
Participants are required to complete, sign, and date the document on the last working day of the time survey period and give the document to their supervisor. o Any deviation to the signature requirement must be accompanied by a documented justification.
By signing the completed Worker Log Time Survey documents, the participant is certifying that they have read and understand requirements of the program in which they participate (CMAA and/or TCM), they understand their role in the program in which they participate (CMAA and/or TCM), and that all of the information contained in the Worker Log Time Survey is true, accurate, and correct.
Condition: During our audit of allowable costs for the Medi-Cal Administrative Activities Grant (“MAA”), we selected 25 Work Log Time Survey forms for review for the fiscal year 2019 grant period, and noted the following:
In 2 of the 25 sampled, we noted that time study hours were less than the time reported in payroll records. It is the Health System’s policy to round up time to the nearest 15-minute increment, however, in these instances the time was rounded down, resulting in 1.25 hours of underreported time. In 3FINAL of the 25 sampled, we noted that time study DRAFThours were more than the time reported in payroll records. It is the Health System’s policy to round up time to the nearest 15-minute increment, however, in these instances the time was rounded up, resulting in 23.50 hours of overreported time.
The identified errors represent 2% of sampled allowable costs. Extrapolation of sampled errors was estimated at $48,980.
76 Alameda Health System a Public Hospital Authority Schedule of Findings and Questioned Costs Year Ended June 30, 2018
Context: We noted employee’s time was under and over-rounded on the time study, which is used to track costs to be billed, as compared to their payroll time card.
Cause and Effect: The Health System did not have proper controls in place to review time study forms for accuracy as well as quarterly County invoicing to ensure that the correct employee costs were being billed.
Questioned Cost: Indeterminable related to the individual time survey documentation and cost pool composition.
Recommendation: We recommend management continue reviewing policies and procedures over the time study forms and the quarterly invoicing to the County, including instituting a policy to have the program supervisor review the time study forms monthly and the County invoices quarterly. Furthermore, we recommend management consider ways to automate the process to improve efficiency and mitigate the risk of inaccurate reporting due to the manual process of data entry to capture necessary information.
Views of Responsible Officials and Planned Corrective Action: Management agrees to continue reviewing policies and procedures over the time study process including joint reviews of time study forms with program supervisors. Management will investigate improving the workflow through automation and complete actions by June 30, 2020.
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77 Alameda Health System a Public Hospital Authority Summary Schedule of Prior Audit Findings Year Ended June 30, 2018
Finding Number 2018-001: Allowable Costs/Cost Principles (Significant Deficiency over Internal Control over Major Federal Program)
CFDA Federal Agency/Pass-through Entity – Questioned Number Program Name Award Number Award Year Costs
93.778 U.S Department of Health and Human MAA MOU 2017 -2018 2017-2018 $0 Services – Alameda County Health Care Services Agency – Medical Assistance Program
Criteria: The California Department of Health Services requires time study forms to be completed in accordance with the CMAA/TCM Implementation Plan (Plan) approved May 3, 2013. California counties and their subrecipients that receive funding for Medi-Cal Administrative Activities and Targeted Case Management Programs are required to have participating employees complete a monthly Work Log Time Survey. Section 7. The Components of a Worker Log Time Survey Document, of the Plan states the following:
Participants are required to complete, sign, and date the document on the last working day of the time survey period and give the document to their supervisor. o Any deviation to the signature requirement must be accompanied by a documented justification. By signing the completed Worker Log Time Survey documents, the participant is certifying that they have read and understand requirements of the program in which they participate (CMAA and/or TCM), they understand their role in the program in which they participate (CMAA and/or TCM), and that all of the information contained in the Worker Log Time Survey is true, accurate, and correct.
Condition: During our audit of allowable costs for the Medi-Cal Administrative Activities Grant (MAA), we selected 40 Work Log Time Survey forms for review for the fiscal year 2018 grant period, and noted the following:
Time was billed for an employee in a month in which the employee did not complete a time study. Time was overbilled on the time study compared to payroll records.
Status of Finding: Partially corrected in the current fiscal year. However, we acknowledge and concur that this finding repeated in the current fiscal year due to not finding a replacement for the position that reviews the time study cards in a timely manner. See Finding 2019-001 for repeat finding. During FY 2019 the employee who was previously responsible for reviewing the payroll records and time study cards was replaced. Previously the employee responsible for this would wait until year end to complete the quarterly invoicing and agree the time study cards agreed to the payroll register. However; the new hire reviews the time study cards and payroll registers on a biweekly basis. After review, there are green checkmarks as evidences of review and the time study card locks,FINAL so no other adjustments can be made to it. DRAFT
78 Alameda Health System a Public Hospital Authority Supplementary Schedule of State of California Emergency Management Agency Grant Expenditures Year Ended June 30, 2018
The following schedule represents expenditures for U.S. Department of Justice grants passed through the State of California, Emergency Management Agency (CalEMA), as well as CalEMA-funded grant expenditures for the year ended June 30, 2019. This information is included in the Health System’s single audit report at the request of CalEMA.
Actual 7/1/2018-6/30/2019 Cumulative Cumulative Program Title and Grant No. / Grant through Actual through Expenditure Category Period Budget June 30, 2018 Nonmatch1 Match June 30, 2019 Variance
Rape Crisis Program Personnel services RC17331146 / $ 643,444 $ 697,190 $ 29,847 $ 7,456 $ 734,493 $ (91,049) Operating expenses 10/01/17 to 6,700 13,036 - 123 13,159 (6,459) Equipment 9/30/2018 ------
Total $ 650,144 $ 710,226 $ 29,847 $ 7,579 $ 747,652 $ (97,508)
Rape Crisis Program Personnel services RC18341146 / $ 710,364 $ - $ 266,588 $ 45,144 $ 311,732 $ 398,632 Operating expenses 10/01/18 to 6,700 - 49,580 19,379 68,959 (62,259) Equipment 9/30/2019 ------
Total $ 717,064 $ - $ 316,168 $ 64,523 $ 380,691 $ 336,373
1Non-match amounts include federal expenditures in the Schedule under CFDA number 16.575 Crime Victim Assistance for $29,847 in grant number RC17331146 and $316,168 in grant number RC18341146.
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79 Final Draft 11/7/2019
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Communications with Those Charged with Governance
Alameda Health System, a Public Hospital Authority (a Component Unit of the County of Alameda, California) FINALJune 30, 2019
Communications 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, 2019, and have issued our report thereon dated November __, 2019. Professional standards require that we provide you with the following information related to our audit.
Our Responsibility under Auditing Standards Generally Accepted in the United States of America
As stated in our engagement letter dated April 19, 2016, 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, 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.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing previously communicated to you in the FINALAudit Committee meeting on July 11, 2019.
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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. There were no changes in the application of existing policies during fiscal year 2019. 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 estimated net realizable amounts. We found management’s basis to be reasonable in relation toDRAFT 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, 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.FINAL
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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
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 PerformingDRAFT 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. 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.
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 FINALbe 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 November __, 2019.
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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.
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. DRAFT
San Francisco, California November __, 2019
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