Attached files
file | filename |
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8-K/A - FORM 8-K/A - VANGUARD HEALTH SYSTEMS INC | g24731e8vkza.htm |
EX-99.3 - EX-99.3 - VANGUARD HEALTH SYSTEMS INC | g24731exv99w3.htm |
EX-99.5 - EX-99.5 - VANGUARD HEALTH SYSTEMS INC | g24731exv99w5.htm |
Exhibit 99.4
WEST
SUBURBAN MEDICAL CENTER AND WESTLAKE HOSPITAL
UNAUDITED CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
March 31, 2010
(In thousands)
UNAUDITED CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
March 31, 2010
(In thousands)
2010 | ||||
Assets |
||||
Current assets: |
||||
Cash and cash
equivalents |
$ | 10,594 | ||
Patient accounts receivable, net of allowance
for uncollectible accounts of $25,240 |
27,686 | |||
Other receivables |
6,877 | |||
Inventory of supplies |
2,406 | |||
Prepaid expenses and other current assets |
2,626 | |||
Total current assets |
50,189 | |||
Land, buildings, and equipment, net |
113,631 | |||
Other assets |
3,413 | |||
$ | 167,233 | |||
2010 | ||||
Liabilities and Divisional Net Deficit |
||||
Current liabilities: |
||||
Accounts payable and accrued
expenses |
$ | 5,852 | ||
Estimated payables under third-party reimbursement programs |
14,735 | |||
Due to related parties |
243,050 | |||
Total current liabilities |
263,637 | |||
Estimated self-insured professional and general liability claims |
74,440 | |||
Asset retirement obligation |
2,805 | |||
Total liabilities |
340,882 | |||
Divisional net deficit |
(173,649 | ) | ||
$ | 167,233 | |||
See accompanying notes to unaudited condensed combined financial statements.
WEST
SUBURBAN MEDICAL CENTER AND WESTLAKE HOSPITAL
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended March 31, 2010 and 2009
(In thousands)
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended March 31, 2010 and 2009
(In thousands)
Nine months ended March 31, | ||||||||
2010 | 2009 | |||||||
Revenues |
$ | 214,750 | $ | 218,220 | ||||
Expenses: |
||||||||
Salaries and wages |
72,294 | 75,570 | ||||||
Payroll taxes and fringe benefits |
22,727 | 20,753 | ||||||
Physicians fees |
16,419 | 15,603 | ||||||
Supplies |
28,708 | 29,238 | ||||||
Other |
12,421 | 15,907 | ||||||
Management fees |
20,860 | 20,861 | ||||||
Purchased services |
12,354 | 10,534 | ||||||
Insurance |
10,731 | 8,409 | ||||||
Depreciation and amortization |
11,185 | 11,600 | ||||||
Provision for uncollectible accounts receivable |
22,747 | 25,915 | ||||||
Interest
expense |
2,888 | 2,509 | ||||||
Medicaid assessments |
7,578 | 7,578 | ||||||
Total expenses |
240,912 | 244,477 | ||||||
Loss from operations |
(26,162 | ) | (26,257 | ) | ||||
Investment income (loss) and other, net |
(50 | ) | 285 | |||||
Revenue and
gains deficient of expenses and losses |
$ | (26,212 | ) | $ | (25,972 | ) | ||
See accompanying notes to unaudited condensed combined financial statements.
WEST
SUBURBAN MEDICAL CENTER AND WESTLAKE HOSPITAL
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2010 and 2009
(In thousands)
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2010 and 2009
(In thousands)
Nine months ended March 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Change in divisional net deficit |
$ | (26,212 | ) | $ | (25,972 | ) | ||
Adjustments to reconcile change in divisional net deficit
to net cash used in operating activities: |
||||||||
Depreciation and amortization |
11,185 | 11,600 | ||||||
Provision for uncollectible accounts receivable |
22,747 | 25,915 | ||||||
Changes in assets and liabilities: |
||||||||
Patient accounts receivable |
(27,061 | ) | (38,958 | ) | ||||
Inventories |
58 | 56 | ||||||
Prepaid expenses and other current liabilities |
1,812 | (599 | ) | |||||
Accounts payable and accrued expenses |
(10,603 | ) | 1,749 | |||||
Estimated payables under third-party reimbursement
programs, net |
1,643 | 7,244 | ||||||
Estimated self-insured professional and general
liability claims |
(5,230 | ) | 1,144 | |||||
Net cash used in operating activities |
(31,661 | ) | (17,821 | ) | ||||
Cash flows from investing activities: |
||||||||
Acquisition of land, buildings and equipment, net |
(7,816 | ) | (19,248 | ) | ||||
Change in other assets |
389 | (143 | ) | |||||
Net cash used in investing activities |
(7,427 | ) | (19,391 | ) | ||||
Cash flows from financing activities: |
||||||||
Change in due to related parties |
45,928 | 32,747 | ||||||
Net increase (decrease) in cash and cash equivalents |
6,840 | (4,465 | ) | |||||
Cash and cash equivalents at beginning of year |
3,754 | 4,823 | ||||||
Cash and cash equivalents at end of year |
$ | 10,594 | $ | 358 | ||||
See accompanying notes to unaudited condensed combined financial statements.
WEST SUBURBAN MEDICAL CENTER AND WESTLAKE HOSPITAL
UNAUDITED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands)
UNAUDITED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands)
1. Description of Organization and Basis of Presentation
Resurrection Health Care Corporation (Resurrection or Parent) is a not-for-profit tax-exempt
corporation that was incorporated for charitable, educational, and scientific purposes. Prior to
August 1, 2010, Resurrection was the parent of, among others, West Suburban Medical Center (WSMC),
Westlake Hospital (WH), and Resurrection Services (Services). Effective August 1, 2010, certain
affiliates of Vanguard Health Systems, Inc. (Vanguard) acquired substantially all of the assets and
certain liabilities of and associated with the following (collectively referred to herein as the
Entities):
| WSMC, a not-for-profit acute care hospital providing various inpatient and outpatient services and programs | |
| WH, a not-for-profit acute care hospital providing various inpatient and outpatient services and programs | |
| Certain physician practices, properties, and retail pharmacies which are incidental to the operations of WSMC and WL, specifically the following assets: |
| Retail pharmacies located at the WSMC and WH campuses but owned or operated by Services | ||
| Real estate parcels consisting of residential housing or vacant lots located adjacent to WSMC and WL and owned by either WSMC, WL, or Services | ||
| An ambulatory care campus consisting of three buildings, including a medical office building owned and operated by a Resurrection affiliate | ||
| Three primary care physician practices owned by Services | ||
| Membership interests in two joint ventures. |
WH, WSMC, and Services are not-for-profit tax-exempt corporations as described in Section
501(c)(3) of the Internal Revenue Code (Code) and are exempt from federal income taxes on related
income pursuant to Section 501(a) of the Code. They were incorporated for charitable, educational,
and scientific purposes to support health and human services.
The accompanying unaudited condensed combined financial statements include the accounts of the
Entities. Included in the accounts of WSMC are the activities of the West Suburban School of
Nursing which will continue to be sponsored and operated by Resurrection subsequent to July 31,
2010. Revenues attributable to the West Suburban School of Nursing approximate $4,500 annually.
Prior to August 1, 2010, the Entities were controlled by Resurrection. The accompanying unaudited
condensed combined financial statements are not the primary consolidated financial statements of
Resurrection.
The unaudited condensed combined financial statements as of March 31, 2010 and for
the nine months ended March 31, 2010 and 2009 have been prepared in conformity with accounting
principles generally accepted in the United States. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, the unaudited condensed combined
financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the financial position and the results of operations for the periods
presented.
2. Fair Value Measurements
Fair Value of Financial Instruments
The following methods and assumptions were used by the Entities in estimating the fair value
of its financial instruments:
| The carrying amount reported in the unaudited condensed combined statement of financial position for the following approximates fair value because of the short maturities of these instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and estimated receivables and payables under third-party reimbursement programs. | |
| The fair values of note payable to Parent and due to related parties are not determinable as these balances represent transactions with related parties. |
The Entities adopted the Fair Value Measurements standard on July 1, 2008 for fair value
measurements of financial assets and financial liabilities and for fair value measurements of
nonfinancial items that are recognized or disclosed at fair value in the unaudited condensed
combined financial statements on a recurring basis. The Fair Value Measurements standard
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
measurements involving significant unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy are as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entities have the ability to access at the measurement date. | |
| Level 2 are observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| Level 3 inputs are unobservable inputs for the asset or liability. |
The level in the fair value hierarchy within which a fair value measurement in its entirety
falls is based on the lowest level input that is significant to the fair value measurement in its
entirety.
3. Self-Insurance
Professional and General Liability
The Entities participate in the Resurrection self-insurance programs for professional and
general liability claims up to specified limits arising from incidents occurring after dates of
entry into the program, which vary by corporation. Excess insurance coverage was occurrence-based
through various dates, at which time all corporations changed to claims made-based coverage. There
are no assurances that the Entities will be able to renew existing policies or procure coverage on
similar terms in the future.
The Entities are involved in litigation arising in the ordinary course of business. Claims
alleging malpractice have been asserted against the Entities and are currently in various stages of
litigation. Provisions for professional and general liability claims include the ultimate cost of
known claims and claims incurred but not reported as of the respective unaudited condensed combined
statement of financial position dates. It is the opinion of management that the estimated
professional and general claims liabilities accrued at March 31, 2010 and 2009 are adequate to
provide for the ultimate cost of potential losses resulting from pending or threatened litigation;
however, such estimates may be more or less than the amounts ultimately paid when claims are
resolved.
Estimated
claims have been discounted at a rate of 3.5% at March 31, 2010.
Estimated professional and general liabilities are tracked separately for WL, WSMC,
and Services. As only a portion of Services is included within the Entities, the Services
liability has been allocated to individual Services component activities based on revenues. The
Entities accrued liability estimate for self-insured professional and general liability claims
amounted to $74,440 at March 31, 2010, and is reported as
long-term liabilities as the portion expected to be paid within one year is not readily
determinable. The Entities related expense amounted to $9,026
and $6,964 for the nine months
ending March 31, 2010 and 2009, respectively.
Workers Compensation
The Entities also participate in the Resurrection self-insurance programs for workers
compensation coverage. These programs limit the self-insured retention to specific amounts on a per
occurrence basis. Coverage from commercial insurance carriers is maintained for claims in excess of
the self-insured retention. The Entities accrued workers compensation liability amounted to
$1,017 at March 31, 2010, as estimated based on the Entities
percentage of full- time equivalents at the respective fiscal year end. The liability is included
within accounts payable and accrued expenses. The related expense is also allocated to the Entities
based on the number of full-time equivalents. Workers
compensation expense amounted to $573 and
$801 for the nine months ending March 31, 2010 and 2009, respectively, and is included in payroll
taxes and fringe benefits expense in the accompanying unaudited condensed combined statements of
operations.
Management believes the estimated self-insured workers compensation claims liability at March
31, 2010 is adequate to cover the ultimate liability; however, such estimates may be more
or less than the amounts ultimately paid when claims are resolved.
Health Care
The Entities also participate in Resurrections program of self-insurance for employee health
coverage. Stop-loss reinsurance coverage is maintained for claims in excess of stop-loss limits.
Resurrection records the liability for employee health coverage and allocates the related expense
through an intercompany transaction based on the number of historical full-time equivalents of
participating affiliates. The Entities self-insured health care
expense totaled $10,518 and
$9,998 for the nine months ended March 31, 2010 and 2009, respectively, and is included in payroll
taxes and fringe benefits expense in the accompanying unaudited condensed combined statements of
operations. It is the opinion of management that the estimated health care costs accrued at March
31, 2010 are adequate to provide for the ultimate liability; however, final payouts as
claims are paid may vary significantly from estimated claim liabilities.
4. Related Party Transactions
Certain expenses associated with management services and liabilities for general and
professional insurance, workers compensation insurance, and health insurance have been charged by
Resurrection to the Entities through intercompany transactions based on methodologies that are
believed to be a reasonable approximation of cost. Were the Entities to obtain the related items on
a stand-alone basis, the terms may be more or less favorable than those reflected in the unaudited
condensed combined financial statements.
Human resources cost, which includes general human resources, employee health services, and
training expenses, are allocated to affiliates based on full-time equivalents. Human
resources departments that are specifically dedicated to an entity are directly charged.
Patient financial services cost, related to system support, cash applications, and customer
service, are allocated to affiliates based on claims billed. Information services cost
allocations are structured to approximate patient volumes. Of the information services and
administration costs, 85% of the total cost is allocated to Resurrection hospitals with the
remaining 15% allocated to non-hospital entities. Information services expense is allocated
to hospital entities based on operating expenses. Corporate administration is allocated to
hospital entities based on full-time equivalents. General administration, which includes
accounting, finance, marketing, legal, claims management, business development, clinical
improvements, decision support, property management, and system support, is allocated to
affiliates based on cash operating expenses. Depreciation of information
services equipment and software is allocated to affiliates based on operating expenses.
Materials management, including group purchasing and central distribution, is allocated to
affiliates based on supplies expense. Certain costs related to materials management,
including hospital based receiving and
stores, which are specifically attributable to an
entity, are directly charged. Allocations are believed to be a reasonable approximation of
cost, but the expense could vary were the Entities to obtain the related services on a
stand-alone basis.
Resurrection maintains a centralized cash processing function and makes payments on behalf of
its affiliates. Amounts reported as due to related parties primarily represent non-reimbursed
disbursements made by Resurrection to fund capital acquisitions and operating expenses of the
Entities. Amounts due to related parties are non-interest bearing and have no specified
repayment terms. This amount was forgiven in connection with the Vanguard transaction.
5. Contingencies
Medicare Reimbursement
For the nine months ended March 31, 2010 and 2009, the Entities recognized approximately
$69,655 and $69,407, respectively, of net patient service revenue from services provided to
Medicare beneficiaries. Changes in Medicare and other third-party payor reimbursement as a result
of current Federal and State health care reform initiatives may have an adverse effect on the
Entities net patient service revenues.
Litigation
The Entities are involved in litigation and regulatory investigations arising in the normal
course of business. In consultation with legal counsel, management estimates that these matters
will be resolved without material adverse effect on the Entities unaudited condensed combined
financial position or results from operations.
Regulatory Investigations
The U.S. Department of Justice and other federal agencies routinely conduct regulatory
investigations and compliance audits of health care providers. The Entities are subject to these
regulatory efforts. Management is currently unaware of any regulatory matters, which may have a
material adverse effect on the Entities unaudited condensed combined financial position or results
of operations.
Asset Retirement Obligations
The Entities recognize liabilities when a legal obligation exists to perform an asset
retirement obligation (ARO) in which the timing or method of settlement are conditional on a future
event that may or may not be under the control of the entity. An ARO liability is recorded at its
net present value with recognition of a related long-lived asset in a corresponding amount. The ARO
liability is accreted through periodic charges to depreciation expense. The Entities are legally
liable to remove asbestos from existing buildings prior to future remodeling or demolishing of the
existing buildings. The estimated asbestos removal cost at
March 31, 2010 was $2,805.