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Department Of MedicineFinance 101November 17, 2015Maureen OSullivan

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Agenda

• Department of Medicine Overview• Revenue Breakdown• Financial Statements

Objective of Financial Statements Income Statement

Revenue Clinical Research Teaching

ExpenseOperating Income/(Loss)

Balance Sheet

Used portions of John Lindstedt’s (VP Finance FPF)

presentation

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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

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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

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AY15 Revenue Break-down— $102MIn Millions $$’s

$56.22

$43.42

$5.26

$12.34

AY15 DOM Revenue DistributionIn Millions $$'s

Clinical Research BU/BMC Teaching Other

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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 operationsDOM is an outlierCreates reporting differences and constraints

“Square peg in a round hole”

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Financial Statements

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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

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Income Statement

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Income Statement

• Reports the “profitability” of operations

• Net income = “bottom line”

• Specific period of time Monthly Quarterly Annual (fiscal year)

• Compare to Budget or Prior Year

Net Operating Income = Revenue - Expenses

DOM produces Financial

Statements on a monthly basis.

Review with Chair monthly and

Sections quarterly.

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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

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l 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

Income Statement– AY15 DOM Revenue

AY15: July 1 2014 – June 30, 2015Favorable/(Unfavorable)

Actual Budget Budget6/30/15 6/30/15 Variance

Gross Charges $102.16 $109.40 ($7.23)

NPSR $38.35 $37.15 $1.19Net BMC Purchases $14.83 $16.40 ($1.57)Free care $3.04 $3.01 $0.03

Sub-total Clinical $56.22 $56.56 ($0.35)

Gross UP $35.35 $32.49 $2.87Indirects/REFs $1.87 $1.80 $0.07Endowment $6.20 $5.65 $0.54

Sub-total Research $43.42 $39.94 $3.48

BU Medical School Support $1.47 $1.31 $0.16BMC Teaching Support $3.79 $3.79 $0.00

Sub-total Teaching $5.26 $5.10 $0.16

Sub-total Other Revenue $12.34 $8.88 $3.45

Total Revenues $117.23 $110.49 $6.74

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Clinical Revenue Components

Gross Charg

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• Charge amount at 100%• No deductions taken

Contractuals

• Example: MassHealth only pays $150 for Level 3 Office Visit • Actual cost for professional service is $450• Contractual Obligation Write-off: $300

Bad Debt

• Examples: Copay/Co-insurance from member not collected• Medical note not submitted/signed in time timely filing

BMC Purchased

Service

• BMC receives ‘Technical’ or Facility fee for Office Visit• Most hospitals, with physician based practices, pass portion of fee

to professional side

NPSR – Bad Debt

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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

BU/BMC Teaching Support, $5.2M• VC Education• Chair Support• Fellowship Directors

Income Statement– AY15 DOM Revenue

AY15: July 1 2014 – June 30, 2015($ Millions)

Actual Budget Budget6/30/15 6/30/15 Variance

Gross Charges $102.16 $109.40 ($7.23)

NPSR $38.35 $37.15 $1.19Net BMC Purchases $14.83 $16.40 ($1.57)Free care $3.04 $3.01 $0.03

Sub-total Clinical $56.22 $56.56 ($0.35)

Gross UP $35.35 $32.49 $2.87Indirects/REFs $1.87 $1.80 $0.07Endowment $6.20 $5.65 $0.54

Sub-total Research $43.42 $39.94 $3.48

BU Medical School Support $1.47 $1.31 $0.16BMC Teaching Support $3.79 $3.79 $0.00

Sub-total Teaching $5.26 $5.10 $0.16

Sub-total Other Revenue $12.34 $8.88 $3.45

Total Revenues $117.23 $110.49 $6.74

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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)

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Gross Up Method

• If a Researcher’s salary/fringe is covered by grant, then there is no impact to the bottom line

• 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.

Researcher Salary/Fringe $129,000Amount charged to Grant in SAP ($129,000)

Financial Impact $0

Salary/Fringe Expense charged to DOM $0

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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 %

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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

Income Statement– AY15 DOM Expenses

AY15: July 1 2014 – June 30, 2015($ Millions)

Actual Budget Budget6/30/15 6/30/15 Variance

Salary & Fringe $64.66 $66.59 $1.93

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)

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Income Statement– AY15 Total

Actual Budget Budget6/30/15 6/30/15 Variance

Gross Charges $102.16 $109.40 ($7.23)

NPSR $38.35 $37.15 $1.19Net BMC Purchases $14.83 $16.40 ($1.57)Free care $3.04 $3.01 $0.03

Sub-total Clinical $56.22 $56.56 ($0.35)

Gross UP $35.35 $32.49 $2.87Indirects/REFs $1.87 $1.80 $0.07Endowment $6.20 $5.65 $0.54

Sub-total Research $43.42 $39.94 $3.48

BU Medical School Support $1.47 $1.31 $0.16BMC Teaching Support $3.79 $3.79 $0.00

Sub-total Teaching $5.26 $5.10 $0.16

Sub-total Other Revenue $12.34 $8.88 $3.45

Total Revenues $117.23 $110.49 $6.74

Actual Budget Budget6/30/15 6/30/15 Variance

Salary & Fringe $64.66 $66.59 $1.93

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)

Net Income from Operations $1.03 ($2.22) $3.25

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Balance Sheet

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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 + EquityAssets – Liabilities = Equity (Net Worth)

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DOM– Balance Sheet: June 30, 2015

Assets (What we own or control)

• Cash & Equivalents; $31.5M High due to profitable years

• Patient A/R• Affiliated A/R

Liabilities (What we owe)• Accounts Payable

Catering, FedEx bills, etc.• Intercompany– BU and BMC Payroll

Equity (What we are worth)• Net Assets, $28.4M• If we sold business today, this what we are

worth

2015 JUNE

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

Net Fixed Assets $2,697,983

Other Long Term Assets $64,040

Total Assets $41,065,522

Accounts Payable $3,803,394

Intercompany Payables $8,765,022

Total Liabilities $12,568,416

Unrestricted Net Assets $28,497,106Total Equity $28,497,106

Total Liabilities & Equity $41,065,522

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DOM

• Additional Questions??