Department of Medicine Finance and Operations

Department Of Medicine Finance 101 November 17, 2015 Maureen OSullivan http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 1

Agenda Department of Medicine Overview Revenue Breakdown Financial Statements Objective of Financial Statements Income Statement Revenue Clinical Research Teaching Expense Operating Income/(Loss) Balance Sheet Used portions of John Lindstedt s (VP Finance FPF) presentation http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 2

Department of Medicine (DOM) Overview DOM History Boston University Hospital 1855 Boston City Hospital 1864 Merged 1996 Boston Medical Center 1910, Evans Memorial Department of Clinical Research established Maria Antoinette Evans Endowment = Donation, gift Current value $120M Annual Endowment Spending, $5-6M Department of Medicine Clinical Research Teaching http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 3

Department of Medicine (DOM) Overview DOM continued Comprised of 10 Clinical/Research sections, 5 Research sections, and 6 DOM offices Clinical/Research Sections: Cardiology, Endocrine, Gastro, General Internal Medicine, Geriatrics, Hem/Onc, Infectious Disease, Pulmonary, Renal, and Rheumatology Research Sections: Clinical Epidemiology, Computational Biomedicine, Genetics, Preventative Medicine, and Vascular Biology DOM Offices: Faculty & Diversity Development, Residency, VC Clinical Affairs, Evans Center for Interdisciplinary Biomedicine Research, VC Finance & Administration, and VC Research Consolidated DOM Financial Statements roll up Faculty Practice Foundation (FPF) and then to Boston Medical Center (BMC) DOM represents one of the 18 Faculty Practice Plans (FPPs) Nonprofit Organization Fiscal Year July 1st June 30th Academic Year Board of Directors Department of Medicine Chair on FPF Board Evans Board of Directors http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 4

AY15 Revenue Break-down $102M AY15 DOM Revenue Distribution In Millions $$'s $12.34 $5.26 $56.22 $43.42 Clinical Research BU/BMC Teaching Other http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 5

DOM Reporting Constraints Research is a significant portion of DOM s business This is not true of the other 18 FPPs, where primary focus is Clinical operations DOM is an outlier Creates reporting differences and constraints Square peg in a round hole http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 6

Financial Statements http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 7

Financial Statements Financial Statements Income Statement Balance Sheet Statement of Cash Flows Objectives: Provide information useful for the entity s stakeholders Owners, Management, Directors Creditors Regulatory agencies Investors Support business and economic decisions Transparency understand the health of a business and how well resources are being manage Management principle If you can t measure it, you can t manage it Used to formulate budgets Use historical data to create plans Compare actuals to planned targets http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 8

Income Statement http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 9

Income Statement Reports the profitability of operations Net income = bottom line DOM produces Financial Statements on a monthly basis. Review with Chair monthly and Sections quarterly. Specific period of time Monthly Quarterly Annual (fiscal year) Compare to Budget or Prior Year Net Operating Income = Revenue - Expenses http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 10

DOM AY15 Income Statement AY15: July 1 2014 June 30, 2015 Brackets: Favorable/(Unfavorable) In Millions $$ s Actual Budget Budget 6/30/15 6/30/15 Variance Total Revenues $117.23 $110.49 $6.74 Total Expenses $116.20 $112.72 ($3.48) Net Income/(Loss) from Operations $1.03 ($2.22) $3.25 http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 11

Income Statement AY15 DOM Revenue l AY15: July 1 2014 June 30, 2015 Favorable/(Unfavorable) Clinical, $56.2M NPSR= Net Payment Service Revenue Reflects Gross Charges less Contractuals Currently paid ~33% of charges after Bad Debt BMC brings payment level up through C+ portion of CARE+ NPSR less Bad Debt Bad Debt is an uncollectible account that was once collectible Bad Debt is reported in Expense Section AY15: NPSR-BD: $34.2M vs. budget of $35.0M-- Unfavorable Free Care Population with no insurance Other Revenue, $12.3M Health Center Revenue Capitation Recruitment Actual 6/30/15 $102.16 Budget 6/30/15 $109.40 Budget Variance ($7.23) Gross Charges NPSR Net BMC Purchases Free care $38.35 $14.83 $3.04 $56.22 $37.15 $16.40 $3.01 $56.56 $1.19 ($1.57) $0.03 ($0.35) Sub-total Clinical Gross UP Indirects/REFs Endowment $35.35 $1.87 $6.20 $43.42 $32.49 $1.80 $5.65 $39.94 $2.87 $0.07 $0.54 $3.48 Sub-total Research BU Medical School Support BMC Teaching Support Sub-total Teaching $1.47 $3.79 $5.26 $1.31 $3.79 $5.10 $0.16 $0.00 $0.16 Sub-total Other Revenue $12.34 $8.88 $3.45 Total Revenues $117.23 $110.49 $6.74 http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 12

Clinical Revenue Components Charge amount at 100% No deductions taken Gross Charges Example: MassHealth only pays $150 for Level 3 Office Visit Actual cost for professional service is $450 Contractual Obligation Write-off: $300 NPSR Bad Debt Contractuals Examples: Copay/Co-insurance from member not collected Medical note not submitted/signed in time timely filing Bad Debt BMC receives Technical or Facility fee for Office Visit Most hospitals, with physician based practices, pass portion of fee to professional side BMC Purchased Service http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 13

Income Statement AY15 DOM Revenue l Research, $43.4M Gross Up Represents Salary & Fringe expense portion of BU/BMC Grants Expense Offset Indirects/REFs Represents the 10% of the Facility & Administrative Expense portion of BMC/BU Grants BU: Paid once per year BMC: Paid through CARE+ Endowment EMF Endowment-- $5-6M per year Comes in as revenue from BMC AY15: July 1 2014 June 30, 2015 ($ Millions) Actual 6/30/15 $102.16 Budget 6/30/15 $109.40 Budget Variance ($7.23) Gross Charges NPSR Net BMC Purchases Free care $38.35 $14.83 $3.04 $56.22 $37.15 $16.40 $3.01 $56.56 $1.19 ($1.57) $0.03 ($0.35) Sub-total Clinical Gross UP Indirects/REFs Endowment $35.35 $1.87 $6.20 $43.42 $32.49 $1.80 $5.65 $39.94 $2.87 $0.07 $0.54 $3.48 Sub-total Research BU Medical School Support BMC Teaching Support Sub-total Teaching $1.47 $3.79 $5.26 $1.31 $3.79 $5.10 $0.16 $0.00 $0.16 BU/BMC Teaching Support, $5.2M VC Education Chair Support Fellowship Directors Sub-total Other Revenue $12.34 $8.88 $3.45 Total Revenues $117.23 $110.49 $6.74 http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 14

Grant/Contract Expenses Researchers, Lab Workers, etc. Lab Supplies Facility & Overhead Direct Costs= Researchers (Salary/Fringe) + Lab Supplies, ~ 70% Indirect Costs= Facilities + Overhead, ~ 30% (BU/BMC) http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 15

Gross Up Method If a Researcher s salary/fringe is covered by grant, then there is no impact to the bottom line Researcher Salary/Fringe Amount charged to Grant in SAP $129,000 ($129,000) Financial Impact $0 Salary/Fringe Expense charged to DOM $0 Should we just not book anything in Financial Statements? But, DOM is financially liable for salary/fringe if grant ends May have professional liability as well And, we need to ensure transparent reporting and that economic decisions can be made, etc. http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 16

Gross Up Method Record Salary/Fringe Expense and book offsetting Grant Revenue Gather all payroll reports and add up salary and fringe charged to grants Book to Gross Up Salary/Fringe Expense Offset by booking corresponding Gross Up Revenue Why? Allows the financial statement reader to know portion of Salary/Fringe on Grants/Contracts Aids in planning what would happen if NIH funding was cut by X % http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 17

Income Statement AY15 DOM Expenses l AY15: July 1 2014 June 30, 2015 ($ Millions) Salary & Fringe, $64.6M Physician, NP, and Administrative staff, etc. Gross Up, $35.3M Represents offset to Gross Up Revenue for Grants/Contracts Salary/Fringe Bad Debt Accounts written off that were once collectible Professional Outside Expense Billing/PBO/Payroll fees Other Meals/Dues/FPP Support/Fellow Ex Actual 6/30/15 $64.66 Budget 6/30/15 $66.59 Budget Variance $1.93 Salary & Fringe Gross Up $35.35 $32.49 ($2.87) Bad Debt $4.14 $2.10 ($2.04) Professional Outside Exps $3.18 $2.88 ($0.30) Insurance $1.41 $1.44 $0.03 Supplies $0.26 $0.24 ($0.02) Depreciation $0.94 $1.00 $0.06 Facilities $0.65 $0.74 $0.10 Other $5.62 $5.24 ($0.37) Total Expenses $116.20 $112.72 ($3.48) http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 18

Income Statement AY15 Total Actual 6/30/15 $102.16 Budget 6/30/15 $109.40 Budget Variance ($7.23) Actual 6/30/15 $64.66 Budget 6/30/15 $66.59 Budget Variance $1.93 Gross Charges Salary & Fringe NPSR Net BMC Purchases Free care $38.35 $14.83 $3.04 $56.22 $37.15 $16.40 $3.01 $56.56 $1.19 ($1.57) $0.03 ($0.35) Gross Up $35.35 $32.49 ($2.87) Bad Debt $4.14 $2.10 ($2.04) Sub-total Clinical Professional Outside Exps $3.18 $2.88 ($0.30) Insurance $1.41 $1.44 $0.03 Gross UP Indirects/REFs Endowment $35.35 $1.87 $6.20 $43.42 $32.49 $1.80 $5.65 $39.94 $2.87 $0.07 $0.54 $3.48 Supplies $0.26 $0.24 ($0.02) Sub-total Research Depreciation $0.94 $1.00 $0.06 Facilities $0.65 $0.74 $0.10 BU Medical School Support BMC Teaching Support Sub-total Teaching $1.47 $3.79 $5.26 $1.31 $3.79 $5.10 $0.16 $0.00 $0.16 Other $5.62 $5.24 ($0.37) Total Expenses $116.20 $112.72 ($3.48) Sub-total Other Revenue $12.34 $8.88 $3.45 Net Income from Operations $1.03 ($2.22) $3.25 Total Revenues $117.23 $110.49 $6.74 http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 19

Balance Sheet http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 20

Balance Sheet Presents financial position as of a specific date Lists a company s assets Things of value an entity owns or controls Were acquired at a measurable cost Lists a company s sources of funds to acquire assets Liabilities Equity Assets = Liabilities + Equity Assets Liabilities = Equity (Net Worth) http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 21

DOM Balance Sheet: June 30, 2015 2015 JUNE Assets (What we own or control) Cash & Equivalents; $31.5M High due to profitable years Patient A/R Affiliated A/R Cash & Cash Equivalents $31,589,449 Patient Accounts Receivable $3,540,851 Affiliated Receivables $2,483,631 Other Receivables $607,914 Prepaid Expenses $81,653 Liabilities (What we owe) Accounts Payable Catering, FedEx bills, etc. Intercompany BU and BMC Payroll Net Fixed Assets $2,697,983 Other Long Term Assets $64,040 Total Assets $41,065,522 Accounts Payable $3,803,394 Equity (What we are worth) Net Assets, $28.4M If we sold business today, this what we are worth Intercompany Payables $8,765,022 Total Liabilities $12,568,416 Unrestricted Net Assets Total Equity $28,497,106 $28,497,106 Total Liabilities & Equity $41,065,522 http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 22

DOM Additional Questions?? http://t2.gstatic.com/images?q=tbn:ANd9GcTVpcK5ZnZJd5KGSDvyfCgQy1l_aGY9ZNkUTJoNasM3vIIbhufhsUwHyVk 23