Business Plan Update M edical Center

Business Plan Update

Medical Center

July 10 2012

CEC Presentation

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UCSF Medical Center Vision, Mission and Values

Vision: To be the best provider of health care services, the best place to work, and the best place for teaching and discovering.

Mission: Caring, Healing, Teaching, Discovering

Values: PRIDE: Professionalism, Respect, Integrity, Diversity and Excellence

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Chancellor’s Plan

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UCSF Medical Center: FY 2013 Organizational Goals

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UCSF Medical Center: FY 2013 Operations Workplan

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UCSF Medical CenterBudget 2013 – Strategies and Issues – Strong operating income required to fund capital and strategic expansion plans.– $19M Mitigation Plan incorporated into budget to ensure strong operating income.– Market strategy investment: Opportunity to grow market share via affiliations (i.e., CHRCO).

Budget includes $3M for development costs. Marketing cost increase of $2M budgeted. – Strategic growth: Two percent increase in census budgeted: heart transplant, pediatric

surgery, cancer and Neurosurgical growth. Managed care rate increase of 7% is critical to budget performance, market tightening rate increases.

– Funds flow model: optimize strategic support and purchased service support model to align goals around growth and efficiency. UCSF Medical Center and Medical Group aligned. FY2013 budgeted purchased services of $48M is a $6M (14%) increase from the FY2012 budget.

– New APeX Clinical and Business Technology Operating: Opportunity to optimize patient safety, quality, clinical integration and business functions. Complete APeX project within $165M capital budget. Total IT operating costs increase to $47M.

– Mission Bay construction management: Construction projected to be on-time and on-budget, with a close watch on contingency dollars. Due to timing of collections from our philanthropic sources, approximately $131M in interim financing will be required.

– Campus and System financial challenges: Budget includes an $8M increase (22%) in campus ($3M)and UCOP ($5M) recharges. [Langley Porter losses not budgeted.]

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Operating Budget 2013Dollars in (000’s)

FY 2013Budget

VolumeDischarges 28,607 ADC 503 OP Factor 1.42FTEs 6,234

Operating IncomeRevenue 1,694,988$ Operating Expense 1,465,668 EBIDA 229,320$ Interest 16,684 Depreciation 102,636 Operating Income 110,000$

Operating Margin 6%Capital Budget 93,503$ Debt Service Coverage 3.0 timesDays Cash on Hand 46 days

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Income Roll forward FY 2012 to FY 2013 (000’s)

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Risks and Opportunities

Risks:1. Strategic development costs exceed budgeted amounts

2. Growth targets not met

3. Managed care rate increases not realized

4. Continued sponsor mix deterioration

5. Mitigation Plan not achieved

6. Impact of revised funds flow model

7. Regulatory/Compliance financial impact

8. Resources required for APeX stabilization

9. State Budget impact: further deterioration in Medi-Cal reimbursement

10. State Budget impact: on the enterprise

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Risks and Opportunities

Opportunities:1. Growth exceeds expectations

2. Clinical documentation improvement exceeds expectations

3. Walgreens expansion exceeds budgeted amount

4. Early adoption of FTE productivity improvements

5. SCOPE savings surpasses target

6. Outpatient revenue expansion

7. UC medical centers’ shared services

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Ten Year Plan Guiding Principles

• A viable ten year plan is crucial in order to: – Offset the challenges of Healthcare Reform– Provide strategic investments for delivery system

expansion– Set annual operating and capital budget targets

• Key Targets include:– Maintain a minimum of 3 times debt service coverage– Unrestricted Cash does not fall below 25 days– No net operating losses except in FY 2016

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Key financial components of the 6/30/11 Ten Year Plan: – The economy has had an adverse impact on volumes and sponsor mix– Healthcare Reform has adversely impacted government reimbursement and put

pressure on commercial reimbursement – Significant increase in pension and health benefit expenses– Capital and operating expense increase due to clinical technology systems– Mission Bay contributes to additional clinical enterprise expenses and debt service– Campus support and Office of the President overhead allocation (UCOP tax) increases

planned

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Net Operating Income

($250,000)

($150,000)

($50,000)

$50,000

$150,000

$250,000

$350,000

$450,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Cash, Unrestricted

Financial ForecastLast year… Projection Model, FY 2011

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Financial ForecastUpdated…Budget Base Model, FY 2012

Key changes from 6/30/11 Ten Year Plan: – FY 2013 and remaining years based on lower volume– Continued deterioration of government reimbursement rates with pressure on

commercial reimbursement – Heavier labor structure: growth in FTE, salary rates, pension and other benefits

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Net Operating Income

($250,000)

($150,000)

($50,000)

$50,000

$150,000

$250,000

$350,000

$450,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Cash, Unrestricted

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Optimizes financial performance over the next ten years offsetting the challenges of Healthcare reform, increased debt structure, multi-site operations and an increasing labor cost structure. Key Assumptions:

– Volume increases achieved– Managed care rate increases negotiated– Mission Bay construction – on time, on budget– Successful APeX go-live– FY13 & 14 strong earnings performance

Financial ForecastUpdated with…Mitigation Plan Implemented, FY 2012

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Net Operating Income

($250,000)

($150,000)

($50,000)

$50,000

$150,000

$250,000

$350,000

$450,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Cash, Unrestricted

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Critical Mitigating Strategies are planned

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UCSF Medical CenterMitigation Plan – Progress to Date FYTD December 2012

YTD Financial Impact

Clinical Documentation Integrity – 1,153 Medicare Cases reviewed through 1/7/2013. UHC Mortality Ratio (O/E) dropped from 1.08 in Sep to 0.83 in Nov. Medicare CMI increased to 2.347 in Dec from 2.09 in baseline year. This is a 12.30% increase!

Outpatient Contract Pharmacy Expansion – program now includes 111 Walgreens sites, 10 San Francisco Safeway stores and Avella, a specialty pharmacy.

Revenue Cycle Enhancement - $40M cash flow improvement was realized over the 11 month period through Nov. Discharged, not final billed levels peaked at 16 days in August but are trending downward, having hit a low of 6.6 days in mid-December

SCOPE Non-Labor Cost Reduction - The net income effect of SCOPE initiatives for the first half of FY2013 is $5.0 million.

Labor Productivity Improvement – Medical center management has identified the targeted 300 FTE reductions. Target implementation date is May 1, 2013.

InitiativeYTD FY2013

Impact

Budgeted FY2013 Impact Comments

Clinical Documentation tbd 2.8 working to quantify impactOutpatient Pharmacy 8.9 2.7Revenue Cycle 5.0 2.5SCOPE - Non-Labor 5.0 7.3Labor Productivity 0.0 4.0 Impact budgeted to occur in May/June

18.9 19.3 97% of Annual budgeted savings has been achieved

(#'s in millions)

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Financial Forecast Income with Mitigation Plan implemented

Optimizes financial performance over the next ten years offsetting the challenges of Healthcare reform, increased debt structure, multi-site operations and an increasing labor cost structure.

Key Assumptions: – Volumes achieved– Continued managed care rate increases– Mission Bay construction – on time, on budget– APeX go-live with successful optimization– FY13 & 14 strong earnings performance

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

FY12 FY13 FY14 FY15 FY16 FY17

Net Operating Income

Net Income Base Net Income Base with Mitigation Initiatives

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UCSF Medical CenterMitigation Plan Income Impact and Key Indicators

FY 13 FY 14 FY 15 FY 16 FY 17

Total Income Impact, cumulative $ 19.3 $61.0 $ 70.5 $ 80.7 $ 91.4

Key Operating IndicatorsCash (millions) $ 202 $ 159 $ 194 $ 175 $ 183

Days Cash on Hand 46 38 44 36 36

Debt Service Coverage 3.0 3.5 3.2 3.4 3.8

Net Income Margin % 6% 7% 3% (1%) 0.1%

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APeX ProjectRevised Capital Expenditure Summary (000’s)

Chancellor Approved Budget

Actual Spent to Date

(Dec 2012)Projected Remaining

Total APeX Revised

ProjectionAPEX Expense BudgetLabor ExpensesSalaries 68,840$ 77,222$ 2,467$ 79,689$ Benefits 9,547 10,383 205 10,588 Total Labor Expense 78,386 87,605 2,672 90,277

Non Labor ExpensesProfessional Fees 28,519 34,708 954 35,662 Pharmaceuticals - - - - Blood and Blood Products - - - - Medical Supplies - - - - Non Medical Supplies 15,264 12,193 (211) 11,982 Purchased Services 4,912 2,552 - 2,552 Other 19,915 26,142 200 26,342 Interest - - - - Depreciation - - - - Total Non Labor 68,611 75,595 943 76,538 Total Expenses before contingency funds 146,997$ 163,200$ 3,615$ 166,815$ Contingency 17,960 N/A N/A N/ATotal Expenses with contingency funds 164,957$ 163,200$ 3,615$ 166,815$

Notes:1. Contingency budget included in Actual Spent amounts in each expense category as appropriate.2. In addition, $13.3 million of associated construction expense were absorbed by the Medical Center’s capital construction funds.

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Mission Bay Project Sources and Uses (000’s)

Actual 6/30/2011

Projected FY 2012

Projection FY 2013

Projection FY 2014

Projection FY 2015

Projection FY 2016 - FY

2021

Projection Beyond

FY 2021 (1) Total Project

SourcesDebt 700,000$ -$ -$ -$ -$ -$ 700,000$ Donations 175,210 63,130 78,166 73,775 77,445 124,145 8,129 600,000 CHFFA Funds - - 69,000 - - - 69,000 Medical Center Equity 66,134 9,214 - 75,652 - - 151,000 Interim Financing - - - - 130,839 (122,710) (8,129) - Total Sources 941,344$ 72,344$ 147,166$ 149,427$ 208,284$ 1,435$ -$ 1,520,000$

UsesBuilding 196,777$ 246,692$ 323,673$ 206,611$ 122,446$ 1,435$ -$ 1,097,633$ Equipment - 1,212 45,937 83,943 141,275 - - 272,367 Capitalized Interest 7,278 14,147 35,216 46,934 46,425 - - 150,000 Total Uses 204,055$ 262,051$ 404,825$ 337,488$ 310,146$ 1,435$ -$ 1,520,000$

(1) Note - Donations of $8M are expected to be received after FY 2021 and will be used to repay the interim financing