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cliftonlarsonallen.com

Northfield Hospital & Clinics2016 Audit Presentation to Board of Directors

(An excerpt from the full Board Reporting Packet)

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LLPNorthfield Hospital & Clinics

Presentation Overview

• Audit Overview & Outcomes

• Financial Ratio Analysis

• GASB 68 Update

• Industry Trends

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cliftonlarsonallen.com

Audit Overview & Outcomes

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Audit Overview

CLA Responsibility

• Express Opinion on financial statements

• Reasonable, not absolute assurance no material misstatements

Risk Based Approach

• Evaluation of internal controls

• Focus on areas of greatest risk of error

• Data Analytics

Adjustments

• No audit adjustments

• No passed adjustments

• Worked with Mgt. to update GASB 68

Difficulties Encountered

• Audit went as planned

• No difficulties

• No disagreements

• No issues

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cliftonlarsonallen.com

Financial Ratios

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Northfield Hospital & Clinics (NHC) PPS Hospital ($102M Net Revenues)

Standard & Poors BBB+ to BBB-

13 PPS Facilities with $50 million to $100 Million of Net Patient Revenue

Industry Benchmark Data

2013-2016

2013-2015

2013-2015

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Days Cash on Hand (All Sources))

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Net Days in Accounts Receivable

8

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Debt to Capitalization

9

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Percentage Growth in Net Patient Revenues

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Operating Margin

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Pre-GASB 684.6%

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EBIDA

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Pre-GASB 6811.5%

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cliftonlarsonallen.com

GASB 68 Update

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GASB 68 Accounting & Reporting for Pensions

MN PERA Information• MN PERA Net Pension

Liability:– 6/30/15: $5,182,519,000

– 6/30/16: $8,119,504,000

• Total MN PERA employer contributions:– FYE Ended 6/30/15:

$435,115,000

– FYE Ended 6/30/16: $465,978,000

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NH&C PERA Information

• NH&C Employer Contributions:– FYE 6/30/15: $2.6M or .5948%

– FYE 6/30/16: $3.0M or .6470%

– Increased proportion of .0522%

• Based on Formula NH&C’s NPL Equals:– 12/31/15: $30.8M

– 12/31/16: $52.5M

– Increase of $21.7M

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GASB 68 Accounting & Reporting for Pensions

• Resulting Financial Statement Impact

– Net Pension Liability increase of $21.7M to $52.5M

– Increase in Deferred Outflows of $17.4M to $21.2M

– Increase in Deferred Inflows of $4.3M to $4.3M

– Increase in PERA Pension Expense of $4.3M to $7.6M

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cliftonlarsonallen.com

Industry Update

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LLPTwo Options for Changes to ACA Provisions

Door A = Full Repeal

• Not “filibuster proof” in Senate

• Resistance from State Governors

• Industry & general public resentment

• Republicans not unified

Door B = Piecemeal Change

• Use of “Budget Reconciliation”

• Legislation that impacts spending, revenues or federal debt limit, only

• No filibuster in Senate allowed

• Simple majority necessary to pass in Senate

Budget Reconciliation is a numbers game, with limited options in a constrained process that does not always result in the best outcomes

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Republicans• Limited Government

• Promote Individual Rights and Justice

• Fiscal and social conservatism

• Carry views favorable to business

• Promoters of free trade and limited Government intervention

• Generally pro-life

• Favors free market competition & deregulation

• Favor private health care

Democrats• Robust Government

• Promote community and social responsibility

• Modern and progressive liberalism

• More center-left on economic policy, with greater emphasis on social agenda

• Believe in greater Government intervention

• Generally pro-choice

• Favor progressive taxation

• Support federally funded health care programs

Inherent Philosophical Difference Exist

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LLPAn Unsustainable Trend Line

• CBO’s projects outlays as a percent of GDP through 2027 to grow to 23.4% vs. historical average of 20.3%.

• Major Health Care Programs are projected to continue to escalate, and grow to 6.9% of GDP; the fastest and largest of any spending category.

• The corresponding impact of this deficit would be to escalate federal debt held by the public from $15 trillion to $25 trillion, or growing from 77% to 89% of GDP.

• This level of debt would be the highest since WWII in 1947 and more than double the average over the past 5 decades.

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LLPFour Principles to Monitor

Reductions in federal health care spending

Greater state management & control with less federal intervention

Increased market competition and incentives to drive consumerism

Continue to drive policies that promote increasing the value of health care

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Questions/Comments

Rob Schile, CPA, Managing Principal of Industry

Rob.Schile@claconnect.com

21

Eric Guth, CPA Senior Incharge

Eric.Guth@claconnect.com

THANK YOU!