Department Of Medicine Finance 101 November 17, 2015 Maureen OSullivan 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 2 Used portions of John Lindstedt’s (VP Finance FPF) presentation

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 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 4

AY15 Revenue Break-down— $102M 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” 6

Financial Statements 7

 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 8

Income Statement 9

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 10 DOM produces Financial Statements on a monthly basis. Review with Chair monthly and Sections quarterly.

DOM AY15 Income Statement AY15: July – June 30, 2015 Brackets: Favorable/(Unfavorable) In Millions $$’s 11 ActualBudget 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

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 12 Income Statement– AY15 DOM Revenue AY15: July – June 30, 2015 Favorable/(Unfavorable)

Clinical Revenue Components 13 Gross Charges 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

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, $5.2M VC Education Chair Support Fellowship Directors 14 Income Statement– AY15 DOM Revenue AY15: July – June 30, 2015 ($ Millions)

Grant/Contract Expenses Researchers, Lab Workers, etc. Lab Supplies Facility & Overhead 15 Direct Costs= Researchers (Salary/Fringe) + Lab Supplies, ~ 70% Indirect Costs= Facilities + Overhead, ~ 30% (BU/BMC)

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. 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 % 17

l Salary & Fringe, $64.6M Physician, NP, and Administrative staff, etc. Gross Up, $35.3M Represents offset to Gross Up Revenue for Grants/Contracts Salary/Fringe Bad Debt Accounts written off that were once collectible Professional Outside Expense Billing/PBO/Payroll fees Other Meals/Dues/FPP Support/Fellow Ex 18 Income Statement– AY15 DOM Expenses AY15: July – June 30, 2015 ($ Millions)

Income Statement– AY15 Total 19

Balance Sheet 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 21 Assets = Liabilities + Equity Assets – Liabilities = Equity (Net Worth)

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 22

DOM Additional Questions?? 23