PREPARING FOR THE FUTURE OF HEALTH CARE The University of North Carolina Health Care System 2017 ANNUAL REPORT 1 2017 ANNUAL REPORT System Health Care of North Carolina The University Table of Contents introduction A New Vision for Health Care Excellence 2 System Update 4 Research Review 10 Community Benefit Report 15 financials and statistics Letter of Transmittal 20 UNC Health Care System Reporting Structure 23 UNC Health Care System Board of Directors 24 Management’s Discussion and Analysis 25 Pro Forma Statement of Net Position 28 Pro Forma Statement of Revenues, Expenses and Changes in Net Position 29 Pro Forma Statement of Cash Flows 30 UNC Faculty Physicians Statement of Net Assets (Unaudited) 31 UNC Faculty Physicians Statement of Revenues, Expenses and Changes in Net Position (Unaudited) 32 UNC Faculty Physicians Statement of Cash Flows (Unaudited) 33 Pro Forma Selected Statistics and Ratios 34 Notes to Financials 35 2 A NEW VISION FOR HEALTH CARE EXCELLENCE This past year was a remarkable period in the history and progress of UNC Health Care. We experienced strong performance and exceeded goals, as we embarked on exciting new initiatives and partnerships. All of these efforts were directly tied to our overarching goal of becoming the nation’s leading public academic health system. Our 31,500 co-workers, more than 3,200 employed* physicians and approximately 5,100 volunteers across UNC Health Care allowed us to care for nearly 1.4 million North Carolinians during FY2017. These efforts and our plans for the future align well with UNC Health Care’s “New Vision for Health Care Excellence.” FISCAL STRENGTH TO SUPPORT OUR MISSION The amazing care UNC Health Care is able to provide would not be possible without a strong financial foundation. UNC Health Care again posted record revenue in FY17, bringing in $3.9 billion in net operating revenue, up from $3.6 billion in FY16. This comes at a time when health care systems nationwide are being challenged by reductions in Medicare and Medicaid payments, taking on more risk for outcome measures, and uncertainty regarding patient coverage from the Affordable Care Act. Our fiscal stability is a significant achievement from both the growth in revenues and the efficiencies we have realized from the Carolina Value system-wide initiative. In its first three years of existence, Carolina Value realized approximately $300 million in measured, recurring savings. ENSURING ACCESS, DOING THE RIGHT THING FOR NORTH CAROLINA In support of our ongoing mission and service to the state, UNC Health Care continues its work on behalf of the many communities we serve across North Carolina. A prime example of this was our adding Morehead Memorial Hospital in Eden, N.C., to the UNC Health Care family. Morehead was a struggling rural, community hospital in Rockingham County that fell into bankruptcy in 2017. UNC Health Care believed by partnering with Morehead (now UNC Rockingham Health Care) we could work with the local team and community to stabilize the hospital to sustain it well into the future. 3 2017 ANNUAL REPORT System Health Care of North Carolina The University ASSESSING NORTH CAROLINA’S BEHAVIORAL HEALTH SERVICES A NEW VISION FOR UNC Health Care is an institution rooted in serving the state of North Carolina, and we maintain a strong connection to state government. As such, we set a high priority to do things that are both strategically and pragmatically helpful to our state. DHHS Secretary HEALTH CARE EXCELLENCE Mandy Cohen sought insight from us in the form of an assessment of the current delivery of behavioral health care services in North Carolina. The assessment reviewed services provided at DHHS’ three regional psychiatric hospitals and its Alcohol and Drug Abuse Treatment Centers (ADATCs). This was a significant undertaking for UNC Health Care, incorporating work from more than 180 subject matter experts within our organization, providing a review of clinical and facility operations for a comprehensive report of key findings and recommendations. This assessment was provided to DHHS at no cost with one exception of minimal cost reimbursements to clinicians. This effort is part of our pledge to the State of North Carolina to improve the health of our citizens and to help address what has become a health crisis in our state and nation. NATIONAL RECOGNITION We are proud to report that the UNC Medical Center in Chapel Hill was nationally ranked by US News & World Report in six adult specialties and nine pediatric specialties. Additionally, US News & World Report rated nine treatment areas at UNC REX Healthcare as “high performing.” High Point Regional Hospital was recognized as high performing in three specialty treatment areas, while UNC Nash Health Care, Johnston Health and Pardee Hospital earned “high performing” ratings in a single specialty area each. We also had four hospitals earn “A” grades for patient safety as recognized by the Leapfrog Group. UNC REX Healthcare and Pardee Hospital both earned 5-Star ratings from the Centers for Medicare & Medicaid Services. PROUD TO BE PUBLIC WITH ACADEMIC FOCUS As an academically based health care organization, we enjoy the special relationship between the UNC School of Medicine and UNC Health Care, for the mutual benefit of the hospitals and practices we own or manage. Working with the University of North Carolina, we are able to help grow the educational activities of the School of Medicine through our medical offerings and other graduate programs for students. At a time when some public institutions are trying hard to distance themselves from being identified as “public,” UNC Health Care and the UNC School of Medicine embrace it. We are proudly a public institution with a mission to serve the people of our great state. On behalf of UNC Health Care, we thank you for your support. You make it possible for us to provide the people of North Carolina with access to the high-quality care and experience they deserve. Sincerely, A. Dale Jenkins William L. Roper, MD, MPH Chair, Board of Directors (November 2015–Present) Chief Executive Officer The University of North Carolina The University of North Carolina Health Care System Health Care System *Includes MDs employed by hospitals, physician practices and UNC School of Medicine 4 System Update The people of UNC Health Care have worked tirelessly to optimize the care they provide to North Carolinians. In 2017, leaders brought this work into new focus, with an ambitious, wide-ranging effort to place the system at the top of national rankings for quality, safety and cost-effectiveness. The organization’s vision is a concept designed to make UNC Health Care nothing less than the nation’s leading public academic health system. Specifically, UNC Health Care leaders envision the system reaching the nation’s top 10 percent in all of the following areas: Provider Health and Patient- Timeliness Cost- Safety and staff well-being centeredness and efficiency effectiveness engagement 5 2017 ANNUAL REPORT System Health Care of North Carolina The University That vision begins with the doctors, nurses and other outstanding customers by engaging providers and staff in quality improvement team members who care for North Carolinians every day. It also and care delivery transformation activities. incorporates a broad matrix of project managers, IT professionals, business and finance experts, and others who collaborate to find An example of one key initiative supported by PQI/PHS is the and operationalize efficiencies, large and small. Primary Care Improvement Collaborative. In 2017, this included more than 50 practices and 300 providers across the system. The “Our system is trying to coordinate and reduce the costs of care,” Collaborative is a hub within the system focusing on practice said Amy Higgins, UNC Health Care system vice president for transformation, better outcomes and an enhanced patient strategic planning and network development. “By coordinating experience in the primary care setting. The collaborative’s purpose across the system, you have better communication and better care. is to deliver on the promise to reach the decile performance With a large system, you have the capabilities to better coordinate nationally in high-value care. things by weaving them together.” “Engaging providers and staff is a critical driver of our success UNC Health Care has grown substantially in the past six years. to date. Committees that include individual physician practices The total number of employees expanded from 14,000 in 2011 to are developing strategies for population health and quality approximately 31,500 in 2017. During the same time frame, the improvement,” said Robb Malone, PharmD, PQI/PHS vice number of licensed beds rose from 1,530 to about 3,400, surgeries president. “Everything is examined, from the measures we choose doubled from 60,000 to about 120,000 and net patient revenues to monitor and manage to our patients’ access to care to standard grew from $2 billion to $4.9 billion. work and workflows to case management.” Along with increasing size comes greater opportunity to find and A unique culture and effective organizational structure successfully disseminate improved protocols and workflows. Engines of change promote quality patient care and service delivery efficiencies like UNC Health Alliance and UNC Senior Alliance are making throughout UNC Health Care. As an example, to date, 41 of UNC inroads in several key clinical areas. The system’s Practice Quality Health Care’s primary care practices have received the National and Innovation and Population Health Services divisions work Committee for Quality Assurance (NCQA) highest recognition for across the system to improve access to care and closely manage patient-centered primary care, which means that all patients have a patient cases, among other endeavors. personal care provider; the practice is physician-directed; care takes a whole-person approach; all care is coordinated and/or integrated; No stone is left unturned in seeking better care, lowering costs or and there is a focus on quality, safety and enhanced access.