Fighting the COVID-19 Pandemic, Keeping North Carolinians ...

2020 Annual Report

Fighting the COVID-19 Pandemic,Keeping North Carolinians Healthy

Cover: Photo courtesy of Scott Sharpe, News & ObserverPictured: Registered nurse Emily Howarth in the Medical Intensive Care Unit at UNC Medical Center

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Table of Contents 2 Leading in the Moment … Envisioning a Better Future

4 UNC Health System Update 2020

8 Our Values

9 School of Medicine Continues Medical Education Excellence Despite the Pandemic

11 U.S. News Rankings

13 This Year in Research

21 UNC Health Alliance

22 UNC Senior Alliance

23 Community Relations

26 Volunteer Highlights

Financials & Statistics

28 Letter of Transmittal

31 UNC Health Reporting Structure

32 UNC Health Board of Directors

33 Management’s Discussion and Analysis

38 Pro Forma Statement of Net Position

39 Statement of Revenues, Expenses, and Changes in Net Position

40 Pro Forma Statement of Cash Flows

41 UNC Faculty Physicians Statement of Net Position

42 UNC Faculty Physicians Statement of Revenues, Expenses, and Changes in Net Position

43 UNC Faculty Physicians Statement of Cash Flows

44 Pro Forma Selected Statistics

45 Notes to the Pro Forma Financial Statements

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2 The University of North Carolina Health System

Leading in the Moment … Envisioning a Better Future

As UNC Health issued its annual report for Fiscal Year 2019 (printed in March 2020), the world was beginning to focus on a new or “novel” virus, the SARS-CoV-2.

North Carolina confirmed its first case of COVID-19 on March 3, 2020.

Shortly thereafter, our state went into a “shelter in place” lockdown that began months of personal isolation, wearing masks, social distancing, working from home, online classes, etc. Graduation ceremonies moved from auditoriums and football stadiums to our computer screens. We did all of this and much more in an attempt to “flatten the curve” and slow the spread of the disease. Even still, as of March 2021, COVID-19 has taken more than 500,000 American lives.

Between the many professional and personal challenges of the last year, for all of us, including the pandemic, social and political unrest and violence through the election and in the first weeks of 2021, kids at home in school, a winter holiday where many of our co-workers were caring for patients and others of us unable to gather with our families, and many more unique issues for each of us, it won’t surprise you to read that this has been and continues to be a very tough time.

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Unexpected, but prepared.

In many ways, everything all of us have done in our training and throughout our careers in medicine has prepared us for this time and the work we are doing, but until you are in the midst of a crisis, there is no way to predict how you will respond. We can say unequivocally that our One Great Team was up to the challenge. There has been a sense of urgency and intensity for all of us. At times, there were decisions that were unclear or had to be corrected. There have certainly been missteps along the way. We believe, though, there were many, many more steps in a positive direction. We have never seen so many people work so hard for such a lengthy time in our lives.

While our colleagues in the health system worked to care for patients, our colleagues in the School of Medicine were at the forefront of key research around virus identification, the development of faster and more accurate testing, development and testing of treatments such as remdesivir and monoclonal antibodies and leading clinical trial sites for the vaccines.

The pace with which we set up vaccination clinics across the state, and in fact, led in vaccinating both our workforce and the public, was nothing short of amazing.

UNC Health / School of Medicine Bring Hope

It is important for us to acknowledge the difficulties of the moment, but what defines us is the ability to see a way through a difficult situation, envisioning a future when we are beyond the current problem and motivating others to work together toward that future.

In the depths of World War II, when it looked as though Great Britain might be conquered, Prime Minister Winston Churchill delivered an address that is applicable to our situation today. Churchill said of his beloved country, “If the British Empire and its Commonwealth last for a thousand years, men will still say, ‘This was their finest hour.’”

This year has been difficult, both personally and professionally for us. But, we were motivated by our mission and the knowledge that the people and the state we serve were counting on us.

Although we continue to face difficulties now, it will not last forever, and when we finally find ourselves on the other side of this crisis, we are certain that the strong bonds forged over the last year will help us work better together and better serve our state for years to come.

We are proud to be North Carolina’s health system.

Sincerely,

Wesley Burks, M.D. Charles D. Owen, IIICEO, UNC Health Chair, UNC Health Board of DirectorsDean, UNC School of Medicine


UNC Health System Update 2020While 2020 has posed unprecedented challenges, UNC Health has remained focused on our mission: improving the health and well-being of the people of North Carolina. This year, thanks to the dedication of all 35,000 members of our One Great Team, UNC Health excelled across all aspects of that mission.

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We all owe incredible thanks and gratitude to the thousands of compassionate coworkers and providers who have cared for patients this year, under stressful and ever-changing circumstances. Their dedication has truly been heroic.

Even through preparations and response to the pandemic, UNC Health also moved forward its strategy to grow and serve more communities across the state, promote greater equity in care, advance research, and lead in education.

COVID-19 Testing: From the Lab to the Parking Lot

On March 16, only two weeks after North Carolina’s first reported case of COVID-19, UNC Medical Center launched in-house testing for the virus. Led by Dr. Melissa Miller, UNC became one of the first academic labs in the nation with this in house capability. Early in the pandemic, our testing capacity was a vital asset, helping to track and understand the spread of the virus in our state.

Also in the spring, UNC Health launched drive-through COVID-19 testing at Respiratory Diagnostic Centers (RDCs) across the state. The multi-point drive-through process was developed for maximum efficiency — UNC Health even consulted with Chick-fil-A on their design and processes. As patients move through, they are guided by UNC Health staff to fill out necessary paperwork and ultimately receive their test. Once they drive away, however, the process is really just beginning. In most cases, test results are available within 24 hours. Regardless of test results, all patients tested through the RDCs receive daily follow-up messages either by phone or text to check on how they are feeling and if there are new or worsening symptoms. This has provided reassurance for patients and also allowed for quick triage in the case of patients who are feeling worse and may require advanced care or hospital admission. Since the start of the pandemic, more than 140,000 patients have been seen at RDCs across North Carolina.

The pandemic has shined a bright light on health disparities and UNC Health recognized early on that there was a need to

bring testing services to those who needed them the most, communities hardest hit by the virus, and lacking access to high-quality care. UNC Health’s Mobile COVID-19 Testing effort has been an important partnership with many groups across our community: local governments, faith leaders, and advocacy groups.

This unit tested around 2,000 patients while also working to meet other health and emotional needs, connecting people to resources for food and financial assistance, providing coloring books for children, and distributing masks to anyone who needs one. This mobile testing service was featured in the New England Journal of Medicine and was cited over the summer as a key component of UNC Health being awarded the 2020 Latino Diamante Health and Science Community Award in recognition of extensive service and outreach to our state’s Latino/Hispanic communities.

Increasing Knowledge of COVID-19

As the pandemic caused a ramp down of labs across the nation in March, UNC School of Medicine faculty came together and stepped up with new collaborative projects studying the biology and transmission of SARS-CoV-2, as well as the safety and efficacy of treatments and vaccines for the virus.

In acknowledgement of this work, UNC Health was recognized as the leading American university in the study of coronaviruses. The work being done across our institution is happening on a foundation laid over the course of many years of basic science research and experience in creating the infrastructure needed for large clinical trials.

UNC labs led key research into remdesivir, the first FDA-approved treatment for COVID-19, and researchers are now developing and studying other experimental antiviral compounds and the use of monoclonal antibodies to treat COVID-19.

UNC researchers are utilizing next-generation sequencing assays to characterize viral genetics and COVID-19 strains circulating in the population, enhancing our knowledge of the virus and helping to maintain accurate, sensitive tests.

Finally, UNC was a site for the Phase 3 clinical trial of the COVID-19 vaccine developed by Moderna.


In addition to work on COVID-19 research, this year, the UNC School of Medicine celebrated another significant increase in research funding, reaching just over $535 million. We have sustained our growth over the last few years and have seen funding spread across more departments and investigators, resulting in each of our basic science departments ranking in the Top 10 nationally for funding.

Leading in Education, Despite Challenges:

Early in the pandemic, the UNC School of Medicine made the very difficult decision to suspend clinical rotations. This was a significant disruption and disappointment to students, who never expected to be in medical school during a pandemic, and to our teachers who place such high value on personal relationships and mentoring.

Thanks to the innovative spirit of UNC School of Medicine faculty, however, adjusting to virtual teaching, creating courses and materials to teach about COVID-19 and the response to the pandemic, outstanding medical education has continued.

Promoting Diversity, Equity, and Inclusion

A diverse, equitable and inclusive work environment is the only way we can truly fulfill our mission of caring for the people of North Carolina. It is essential to delivering compassionate, culturally appropriate care, conducting innovative research, and providing outstanding education.

Over the last several years, we have made progress in this area, offering extensive training and seminars, forming employee resource groups, supporting the Equity of Care Pledge, as well as developing programs to support workforce and career development.

However, as our community and our nation faced the reality of racial injustice and violence, we made a commitment to transform our culture internally and to work to promote true health equity in the communities we serve.

In June, UNC Health’s System Executive Diversity, Equity, and Inclusion Council was established. Led by Aleyah Pryor-Pankey, System Executive Director for Diversity, Equity, and Inclusion, and Dr. Cristy Page, Executive Dean of the UNC School of Medicine, this group is working to ensure our Diversity, Equity, and Inclusion efforts continue to be integrated within our organizational strategy.

Immediate actions from this group included expanded forums and opportunities for co-workers to share, listen, and learn, an organizational emphasis on training in Inclusive Leadership and Unconscious Bias, and changes to recruitment and hiring practices meant to promote more diversity within system leadership.

As we work to promote a culture of diversity, equity, and inclusion within our organization, UNC Health is also focused on promoting health equity in the communities we serve. In the Summer of 2020, UNC Health named Dr. Crystal Wiley Cené to the position of System Executive Director for Health Equity. A renowned clinician and epidemiologist, Dr. Cené has focused her research on reducing disparities in health and healthcare access, and studying ways to address the social determinants of health. Over the last several months, she has been a leading voice locally and nationally, shining a light on the ways that COVID-19 has amplified these disparities. She will continue in her new role to build upon UNC Health’s work in this area, and lead a multidisciplinary and collaborative effort to plan, implement, and evaluate science-based strategies and interventions to help address the structures, policies, and practices that perpetuate health disparities and impede health equity in our state.

As we strive for improvement, it’s also important to celebrate our accomplishments. Chatham Hospital was honored by the American Hospital Association with the 2020 Carolyn Boone Lewis Equity of Care (EOC) Award. In honoring Chatham, the AHA praised the extensive training available to employees, mentorship programs for local students, and partnerships with local non-profits including developing a food pantry and working in collaboration with local law enforcement to curb misuse of prescribed opioids.

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As we strive for improvement, it’s also important to celebrate our accomplishments. Chatham Hospital was honored by the American Hospital Association with the 2020 Carolyn Boone Lewis Equity of Care (EOC) Award.

• We care holistically about patients and each other.

• It is our privilege to serve the people of North Carolina.

• We demonstrate kindness and compassion in every interaction.

• We are better together than we are apart.

• Our effective collaboration is key to providing quality care.

• We are building an inclusive and equitable culture that encourages and supports the diverse voices of our patients and each other.

• We make a difference by improving lives every day and training the next generation of healthcare leaders.

• Our research is changing the world.

• We provide innovative care.

• Each of us takes ownership of, and accountability for, doing the right thing.

• We empower and trust each other to step up.

• We support each other and hold each other accountable in our work.

CarolinaCare

OneGreat Team

Leadingthe Way

It Starts With Me


Our Values

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School of Medicine Continues Medical Education Excellence Despite the PandemicThrough the pandemic, the School has continued to be flexible with some students using a combination of in-person and virtual learning and more senior students resuming their clinical rotations.

In August, the UNC School of Medicine welcomed the MD Class of 2024. Dr. Lisa Rahangdale, Associate Dean for Admissions, and the entire team involved with admissions, have once again put together an outstanding class of future Tar Heel Doctors.

These are, of course, highly accomplished students, but the class also features a high degree of racial and ethnic diversity, as well as diversity of backgrounds and experiences including an increase over the last few years in students from rural areas and first-generation college students. Also, the Biological and Biomedical Sciences program received a record number of applicants this year, accepting 117 outstanding students, with nearly 1 in 4 coming from groups traditionally underrepresented in the sciences.


Highly Ranked Programs

Important to note, for the third year in a row, the UNC SOM was ranked first in the nation for Primary Care Education as part of U.S. News & World Report’s 2021 edition of “America’s Best Graduate Schools.” In The SOM specialty of Family Medicine, UNC was ranked #3 in the US and was also nationally ranked for research at #23.

Novant Partnership & Medical School Expansion

Also in 2020, Novant Health, UNC Health and UNC School of Medicine formed a partnership to enhance medical education and clinical services at New Hanover Regional Medical Center (NHRMC) in Wilmington after Novant agreed to purchase NHRMC from the county.

This partnership will enhance UNC SOM’s educational presence and allow it to train the next generation of physicians and promote economic development for the entire Wilmington region.

Serving More North Carolinians

The organizations are committed to expanding the medical education program at NHRMC, including enhancing the long-standing pediatric program and other service lines as appropriate.

Late in 2020, Novant Health, UNC Health and UNC School of Medicine announced an agreement to further expand medical education, research and clinical services to Novant Health facilities and other locations across North Carolina. The partnership will locate a UNC School of Medicine branch campus at Novant Health Presbyterian Medical Center in Charlotte and will serve as an important training site for learners.

It also gives more students access to learn at the best medical school for primary care in the country while expanding the pipeline for high-quality physicians available to serve North Carolinians. Expansion of UNC SOM’s

Kenan Primary Care Medical Scholars Program will train more students to work in rural and under-resourced communities with enhanced training for care in those communities across North Carolina.

Additionally, clinical trials and studies from UNC School of Medicine’s world-renowned researchers will provide new treatment options for patients in Novant Health facilities.

Collaboration on population health has the potential to make a tremendous impact on the health of North Carolina. Together, through advanced analytics and proven population health strategies, more data will allow these partners to address community health challenges, such as COVID-19, opioid addiction, social determinants of health and health equity, to name a few.

…for the third year in a row, the UNC SOM was ranked first in the nation for Primary Care Education as part of U.S. News & World Report’s 2021 edition of “America’s Best Graduate Schools.”

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U.S. News Rankings

U.S. News & World Report’s “Best Hospitals”

Nationally Ranked Adult Specialties

2020–2021

U.S. News & World Report’s “Best Children’s Hospitals”

Nationally Ranked Children’s Specialties

2020-2021

UNC Medical Center (Chapel Hill, NC)

Nationally Ranked Adult Specialties:• Gynecology #18• Ear, Nose & Throat #36• Nephrology #39

High Performing Adult Specialties:• Cancer• Diabetes & Endocrinology• Gastroenterology & GI Surgery• Psychiatry and Urology

UNC Children’s (Chapel Hill, NC)

Nationally Ranked Children’s Specialties:• Diabetes & Endocrinology #13• Pulmonology #22• Nephrology #31• Orthopedics #32• Urology #35• Gastroenterology & GI Surgery #45• Cancer #46


U.S. News & World Report’s “Best Hospitals”

High Performing Procedures & Conditions

2020-2021

UNC REX Healthcare

Noted for Group of Surgical Procedures

& Chronic Conditions

UNC Medical Center (Chapel Hill, NC)• Aortic valve surgery• Chronic obstructive pulmonary disease (COPD) • Colon cancer surgery • Heart bypass surgery• Heart failure • Lung cancer surgery

UNC REX Healthcare (Raleigh, NC) • Abdominal aortic aneurysm repair• Aortic valve surgery• Chronic obstructive pulmonary disease (COPD) • Colon cancer surgery• Heart bypass surgery• Heart failure• Hip replacement• Knee replacement• Lung cancer surgery• Transcatheter aortic valve replacement (TAVR)

Nash UNC Health Care (Rocky Mount, NC)• Chronic obstructive pulmonary disease (COPD) • Heart Failure

Wayne UNC Health Care (Goldsboro, NC)• Chronic obstructive pulmonary disease (COPD)• Heart failure

Johnston UNC Health Care (Smithfield, NC)• Chronic obstructive pulmonary disease (COPD) • Heart failure

Caldwell UNC (Lenoir, NC)• Chronic obstructive pulmonary disease (COPD)

UNC REX Special Recognition

As part of the “Best Hospitals” rankings and ratings, U.S. News evaluated more than 4,000 hospitals for their handling of two chronic conditions — chronic obstructive pulmonary disease and heart failure — and up to eight medical procedures: colon cancer surgery, lung cancer surgery, heart bypass surgery, aortic valve surgery, transcatheter aortic valve replacement (TAVR), abdominal aortic aneurysm repair, knee replacement and hip replacement.

In each procedure and condition in which a hospital had treated enough patients to be evaluated, the hospital received a rating of high performing, average or below average. The ratings are designed to help patients and healthcare consumers make informed decisions about where to receive care for specific medical needs.

Only 37 standout hospitals nationwide (less than 1% of the hospitals evaluated), got the top rating in all 10 procedures and conditions. UNC REX was among that one percent.


The Year in Research

UNC Health is inextricably linked to the UNC School of Medicine. That had never been more evident than in 2020 through the innovation of our physicians and researchers in every department of the school and every aspect of our hospitals, clinics, and medical campuses.

In federal FY20, the UNC School of Medicine received a total of $571,739,769 in external research funding, which included $363,305,228 in NIH funding – a total that includes research and development contracts. This represents an increase of more than $48 million from the prior year. In February of 2021, the Blue Ridge Institute for Medical Research published its annual list of top NIH funded research universities for the academic fiscal year of 2021. The UNC School of Medicine ranked 17th overall and 5th among peer public institutions. All basic science departments were ranked in the top 6 in NIH funding. All were in the top five among public universities, with genetics ranked #1 among public universities. Twelve clinical departments were ranked in the top 30 in NIH funding, with obstetrics & gynecology ranking highest, 3rd overall and 1st among public universities. Of note, 21 school of medicine faculty were named by Thomas Reuters as Highly Cited

Researchers, an annual list that recognizes the most influential researchers of the past year, demonstrated by the production of multiple highly cited, peer-reviewed published papers than rank in the top 1% by citations for field and year in Web of Science. In 2020, fewer than 6,300, or .1% of the world’s researchers, across 21 research fields, earned this exclusive distinction. Beyond the grants and rankings, what 2020 showed us about the research teams at the UNC School of Medicine is that they are deep, nimble, and dedicated to do whatever it took to lend their expertise during the coronavirus pandemic. Many researchers revamped their workloads, labs, grants, and entire research portfolios to put research on COVID-19 first and foremost. For this annual report, we will focus on the COVID-19 research, while we of course recognize that so much crucial research in many fields continued to make important headway to improve human health.

When German scientists created a laboratory assay to test people for the SARS-CoV-2, the virus that causes COVID-19, Dr. Melissa Miller sprang into action well before the virus captured the attention of the world.



In the Beginning, a New Test

In 2002, Melissa Miller, PhD, was a postdoctoral fellow at the UNC School of Medicine with a fascinating research interest: how to quickly create and validate a diagnostic test for SARS in case the outbreak in Asia turned into a pandemic affecting North Carolina. She was successful, but thankfully

we didn’t need that test. She did the same for MERS and swine flu, too, but North Carolina again was spared.

In 2019, as a professor in the UNC Department of Pathology and Laboratory Medicine, Miller saw news of a new coronavirus appear in China. When German scientists created a laboratory assay to test people for the SARS-CoV-2, the virus that causes COVID-19, Miller sprang into action well before the virus captured the attention of the world. For weeks before North Carolina had its first COVID-19 case — as director of the Clinical Microbiology and Molecular Microbiology Labs at the UNC Medical Center — Miller led a team of technicians to develop and validate a COVID-19 test for UNC Health.

She focused on identifying unique genetic sequences of this new virus. And when she succeeded, she worked hard to ramp up UNC’s capacity to test many samples in one day.

On March 16, the U.S. Food and Drug Administration allowed UNC Health to use Miller’s test at the new Respiratory Diagnostic Center on campus, in accordance with FDA guidance for individuals who meet criteria set by the Centers for Disease Control (CDC). The FDA allowance at first limited the use of Miller’s test for patients at UNC Medical Center, UNC REX Hospital and UNC Health affiliate hospitals across North Carolina, as well as a select number of UNC Health clinic locations. Use of this test by UNC Health entities allowed for more testing capacity at the state health department and LabCorp in North Carolina.

“ Quickly creating and validating tests for emerging pathogens has always been part of my research passion and commitment, ever since I was a fellow at UNC during the first SARS,” Miller said. “I am so proud of our lab for developing a high-quality test and for UNC Health to help us create the infrastructure to run hundreds of samples a day to help the people of our state.”

From the beginning of the pandemic through early March 2021, more than 250,000 COVID-19 tests have been conducted at the UNC Medical Center alone. This has been on top of the lab’s usual operations.


The World Expert Across the Street

In the second month of the pandemic, much of the world turned its attention to Ralph Baric, PhD, the William Kenan Distinguished Professor of Epidemiology at the UNC Gillings School of Global Public Health and professor

in the UNC Department of Microbiology and Immunology at the UNC School of Medicine. He’s a SARS and coronavirus expert, one of the few in the country at the start of the pandemic.

Prior to SARS-CoV-2, Baric’s lab had been trying to create broad spectrum antivirals that would help people battle different types of respiratory viruses. One compound was

remdesivir, developed through an academic-corporate partnership between Gilead Sciences and the Baric Lab.

On April 29, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID), reported that data from an international clinical trial for remdesivir showed it shortened hospital stays for COVID-19 patients.

“By shortening recovery times, remdesivir could potentially help prevent the overloading of our healthcare system,” Baric said. “We have been working with Gilead for more than seven years to create broad-spectrum antiviral drugs that could be effective against multiple coronavirus strains and, hopefully, give us tools in the face of a pandemic. We were seeking ‘one drug for many bugs.’ When this pandemic arrived, we immediately had two drugs — remdesivir and EIDD-2801—positioned for use in human clinical trials.”

The FDA eventually authorized remdesivir for emergency use, and the drug is now part of the standard of care arsenal for hospitalized COVID-19 patients. And clinical trials for EIDD-2801 continued through 2020.

Baric’s large, experienced lab also was a hub for many basic science projects and collaborations on COVID-19, including a study published in Science confirming that SARS-CoV-2 had mutated in a way that enabled the virus to spread quickly around the world, but also that the mutation to the virus’s notorious spike protein may have made the virus more susceptible to a vaccine.

Speaking of Vaccines . . .

When it became clear the pandemic was going to hit the United States hard, the National Institutes of Health leaned on the leadership experience of Myron Cohen, MD, director of the UNC Institute for Global Health and Infectious Diseases, the Yeargan-Bate Distinguished Professor of Medicine, Microbiology and Immunology, and Epidemiology, and the Associate Vice Chancellor for Global Health and Medical Affairs at UNC-Chapel Hill. His career has been focused on HIV care and prevention, including the creation of a worldwide network of large, expert-led clinical trial infrastructure to test HIV medications and prevention protocols. His work proved how effective HIV medications are at preventing transmission, earning him and his large team the 2011 Science Magazine Breakthrough of the Year.

In 2020, Cohen helped the NIH harness the power of the HIV clinical trial network to ramp up the needed infrastructure


to efficiently complete three phases of COVID-19 clinical trials as part of Operation Warp Speed.

Cindy Gay, MD, is the principal investigator of two COVID-19 vaccine trials at UNC for the Moderna and Novavax vaccines. Along with colleagues Joe Eron, MD, and David Wohl, MD, Dr. Gay led the implementation of these massive clinical trials, which were crucial in making it possible for the FDA and other agencies to efficiently review data and authorize the Moderna vaccine in December 2020.

Operation Warp Speed also helped establish clinical trials for treatments. At UNC, Dr. Wohl with colleagues Billy Fischer, MD, Jessica Lin, MD, and Dr. Eron, led “treatment as prevention” studies to determine the efficacy of therapies like mass manufactured monoclonal antibodies, which are now in use at UNC.

In the summer, UNC Institute for Global Health and Infectious Diseases researchers began phase 2 and phase 3 evaluations of promising treatments for COVID-19. The UNC School of Medicine joined more than 25 initial sites participating in the clinical trials through ACTIV-2, a public-private partnership sponsored by the NIH’s National Institute of Allergy and Infectious Diseases to coordinate COVID-19 research and speed development of the most promising treatments and vaccines. This two-phase trial is being conducted by the AIDS Clinical Trials Group to evaluate the safety and efficacy of treatments for adults who have COVID-19 but do not require hospitalization.


Infectious diseases assistant professor Luther Bartelt, MD, teamed with the Mayo Clinic and UNC Blood Transfusion Services to use convalescent plasma from recovered COVID-19 patients to help current patients struggling with the disease. Bartelt, along with UNC infectious diseases colleague David Margolis, MD, and UNC transfusion medicine services colleagues Susan Weiss, MD, and Yara Park, MD, also led an independent study of the best ways to use convalescent plasma to treat patients.

Speaking of Masks . . .

Early in the pandemic, scientists showed that when two people wearing masks interacted, the chance of COVID-19 transmission was drastically reduced. This is why public health officials have pleaded for all people to wear masks: they not only prevent the wearers from expelling particles that might carry SARS-CoV-2, but masks also provide some protection to the wearers themselves.

But are all masks created equal? To find out, UNC School of Medicine scientists researched the protectiveness of various kinds

of consumer-grade and modified masks, assuming the mask wearer was exposed to the virus after an interaction with an unmasked infected person.

Published in the journal JAMA Internal Medicine, the research showed that some masks were as much as 79 percent effective at blocking particles that could carry the virus. These were masks made of two layers of woven nylon and fit snug against the wearer’s face. Unmodified medical procedure masks with ear loops — also known as surgical masks — offered 38.5 percent filtration efficacy, but when the ear loops were tied in a specific way to tighten the fit, the efficacy improved to 60.3 percent. And when a layer of nylon was added, these masks offered 80 percent effectiveness.

Co-first author Emily Sickbert-Bennett, PhD, director of infection prevention at the UNC Medical Center, added, “Limiting the amount of virus is important because the more viral particles we’re exposed to, the more likely it is we will get sick and potentially severely ill.”

What SARS-CoV-2 Looks Like

The UNC School of Medicine laboratory of Camille Ehre, PhD, assistant professor of pediatrics, was the first lab to produce striking, high-resolution images of highly infective SARS-CoV-2 virus produced by respiratory epithelial cells. The New England Journal of Medicine featured this work in its “Images in Medicine” section.

Ehre, a member of the UNC Marsico Lung Institute and the UNC Children’s Research Institute, conducted this research in collaboration with the Baric lab and Richard Boucher, MD, the James C. Moeser Eminent Distinguished Professor of Medicine and Marsico Director.

The images, re-colorized by UNC medical student Cameron Morrison, show infected ciliated cells with strands of mucus (yellow) attached to cilia tips (blue). Cilia are the hair-like structures on the surface of airway epithelial cells that transport mucus (and trapped viruses) from the lung. A higher power magnification image shows the structure and density of SARS-CoV-2 virions (red) produced by human airway epithelia. Virions are the complete, infectious form of the virus released onto respiratory surfaces by infected host cells.

This imaging research helped illustrate the incredibly high number of virions produced and released per cell inside the human respiratory system. The large viral burden is a source for spread of infection to multiple organs of an infected individual and likely plays a big role in the high frequency of COVID-19 transmission to others. These images make a strong case for the use of masks by infected and uninfected individuals to limit SARS-CoV-2 transmission.

Marsico researchers also co-led with the Baric lab an important study published in the journal Cell to show the specific ways in which SARS-CoV-2 infects the nasal cavity to a great degree — infecting and replicating progressively less well in cells lower down the respiratory tract, including in the lungs. The findings suggested the virus tends to become firmly established first in the nasal cavity, but in some cases the virus is aspirated into the lungs, where it may cause more serious disease, including potentially fatal pneumonia.

“If the nose is the dominant initial site from which lung infections are seeded, then the widespread use of masks to protect the nasal passages, as well as any therapeutic strategies that reduce virus in the nose, such as nasal irrigation or antiviral nasal sprays, could be beneficial,” said Boucher, MD, the co-senior author of the Cell study.



A Collaboration of COVID Experts

The aforementioned projects were just a few of the dozens of studies that hundreds of faculty, staff, and students led at the UNC School of Medicine during the pandemic, and nearly all of them involved the kind of collaboration UNC-Chapel Hill has become renowned for across the research world. Their expertise has been instrumental in our nation’s battle against COVID-19.

J. Victor Garcia, PhD, Angela Wahl, PhD, Ron Swanstrom, PhD, and Mark Heise, PhD, conducted crucial work to develop unique animal models to test therapies, such as EIDD-2801 and vaccine candidates.

The labs of Dirk Dittmer, PhD, and Blossom Damania, PhD, with McLendon Labs, used next-generation sequencing to study viral genetics and strains of SARS-CoV-2 circulating in the population. And Dittmer, Damania, and David Peden, MD, led COVID-19 seroprevalence studies across the UNC Health system with Amir Barzin, DO, and John Schmitz, PhD, and colleagues from Gillings. Their goal was to find the prevalence of COVID-19 among asymptomatic individuals who came to a UNC Health clinic for a different reason. The rate was low, but showed how important it was to recognize that asymptomatic individuals were carrying SARS-CoV-2.

Craig Cameron, PhD, and Jamie Arnold, PhD, partnered with a company called Riboscience to screen compounds that might stop COVID-19 from replicating. And Aravinda de Silva, PhD,

Prem Lakshmanane, PhD, and Alena Markmann, PhD, created an antibody test that the Baric lab uses to characterize vaccine responses in lab experiments.

These projects and more could not have been undertaken without the hundreds of clinical fellows, postdoctoral researchers, graduate students, and staff members at the UNC School of Medicine

and the UNC Medical Center. And they accomplished all this while the university dictated special protocols to limit research staff on campus.

All of us at UNC Health thank these researchers for their tireless efforts during this unprecedented year and for work yet to be accomplished in the year ahead.

“ While modifications to surgical masks can enhance the filtering capabilities and reduce inhalation of airborne particles by improving the fit of the mask, we demonstrated that the fitted filtration efficiencies of many consumer-grade masks were nearly equivalent to or better than surgical masks,” said co-first author Phillip Clapp, PhD, an inhalation toxicologist and assistant professor of pediatrics at the UNC School of Medicine.

Drs. Clapp and Sickbert-Bennett also conducted research early in the pandemic to show that reused, sterilized N95 masks and very out-of-date N95 masks retain their effectiveness at protecting healthcare workers from COVID-19 infection. To accomplish that, Sickbert-Bennett turned to someone she knew she could trust: her dad, William Bennett, PhD, professor of medicine, who leads the Mucociliary Clearance and Aerosol Research Laboratory at the UNC Center for Environmental Medicine, Asthma, and Lung Biology (CEMALB).

“I told him we had two types of masks at the UNC Medical Center — used but sterilized N95 masks and expired N95 masks — and we needed to know whether they would offer safe and effective protection, in case we needed our healthcare co-workers to use them.” Sickbert-Bennett said.

The researchers found that expired masks retained their effectiveness many years beyond the masks’ expiration dates. In addition, N95 masks can be subjected to sterilization with hydrogen peroxide or ethylene oxide without compromising their efficiency. And they were safe to use.


UNC Health Alliance is UNC Health’s statewide, physician-led clinically integrated network, and is transforming healthcare delivery and payment models on behalf of over 6,000 physicians, including community-based, independent physicians along with those affiliated with UNC Health. With a focus on population health management, UNC Health Alliance works closely with physicians, employers, and payers to manage quality, cost, and access to care.

UNC Health Alliance

6,000 providers, with more than 1,800 from independent practices

1,800 primary care physicians and APPs

4,100 specialty providers, covering

130 specialties & subspecialties

650 locations in 48 counties

Skilled Nursing Facility preferred network; home health preferred network

Community-based palliative care and hospice programs

UNC Health Alliance Network

UNC Senior Alliance is UNC Health’s statewide, physician-led accountable care organization, and is transforming healthcare delivery and payment models on behalf of over 3,400 physicians, including community-based, independent physicians along with those affiliated with UNC Health. Our physician network is committed to the mission to make care more accessible to patients and shift to value-based payments, achieving high quality patient outcomes at affordable costs. UNC Senior Alliance participates in the Centers for Medicare and Medicaid Services’ Next Generation ACO (NGACO) Model.

UNC Senior Alliance

2,785NGACO BeneficiariesActively Engaged in Intensive Case Management (ICM)

~2,800NGACO Beneficiaries ReceivingHome Health Services

2,257 Medical Visit Rides Providedto NGACO Beneficiaries

1,474NGACOParamedicine Home Visits

37NGACO Beneficiaries UsingSkilled Nursing Facility (SNF) Waiver

UNC Senior Alliance NGACO Medicare Beneficiary Services in FY 2020



In 2020, our community partners were challenged like never before due to COVID-19. Despite challenges, UNC Health kept its commitments to community partners and North Carolinians.

We came together virtually to support non-profit partners such as the Ronald McDonald House, Community Home Trust, Leukemia and Lymphoma Society and Susan G. Komen Race for the Cure, to name a few. Their events may have been online, but they still offered an opportunity to celebrate and support the extraordinary efforts and courage of ordinary people.

We partnered with The Blood Connection to host a series of collection drives throughout the year. The largest blood drive registered more than 1,000 people for a single day at the PNC Arena in March. By the end of 2020, UNC Health hosted ten drives, collecting 3,251 units of blood.

Throughout 2020, our community demonstrated its appreciation for frontline healthcare workers in a variety of ways. Parades of first responders, motorcycle clubs as well as the NC Air National Guard and the Bandit Flight Team passed by and flew over our hospitals. The U.S. Army Black Daggers parachute stunt team jumped into Kenan Memorial Stadium and dozens of musicians who call North Carolina home sang songs of hope online and shared words of encouragement.

The outpouring of support from the local residents and the business community was awe-inspiring. Comfort items such as health & beauty products, homemade greeting cards and plants for everyone who took up gardening in the spring were donated. More than 70,000 meals, bottles of water and cups of coffee were purchased from local restaurants and brought to our hospitals in an effort to lift up co-workers and let them know they were not alone. Creativity and positive messages of courage and hope were shared via banners, sidewalk chalk art and murals.

Community Relations


UNC Health supported co-workers experiencing difficulty finding basic household items by standing up in-house grocery stores at the Medical Center and UNC REX. Co-workers were able to purchase one of four deeply discounted pre-packed grocery box options containing hard to find items such as meat, milk, vegetables, cleaning supplies and toilet paper. A childcare subsidy and financial assistance was made available for any co-worker experiencing hardship due to the pandemic.

One of the many public health issues brought to the forefront during the COVID-19 crisis has been food insecurity across our communities. UNC Health’s support of partners such as the Inter-Faith Food Shuttle and Meals on Wheels has helped ensure our community had access to meals. The UNC Rural Health and UNC Health Foundation-funded collaborative effort between UNC Health, the UNC Center for Health Promotion and Disease Prevention and dozens of Chatham County community partners called the Chatham Food Hub helped mitigate COVID-19’s economic impact and increase food access. From August to October, the Food Hub acted as a one-stop shop for consumers to buy food and fresh produce from local restaurants and farms, and helped support businesses as well. The Food Hub offered a variety of food options for customers of all income levels, including free emergency food boxes provided by the CORA Food Pantry. And, allowed customers to make “pay-it-forward” donations to support Chatham County residents in need. Another was to expand UNC Health’s annual support of the Food Bank of Eastern and Central North Carolina’s Summer Hunger Program. This enabled the program to begin the Kids Summer Meals program two months early and provide more than 10,000 meals a week to children who were out of school.

In December, UNC Health partnered with NC Med Assist and the SE Raleigh YMCA to host a Mobile Free Pharmacy event. This event provided residents in need with free over-the-counter (OTC) medication. Such items included cough and cold medicine, vitamins, allergy medication and first aid supplies. This partnership came at a crucial time, when remaining healthy and stopping the spread of germs is more essential than ever. More than 900 local residents were served, 26% of whom were uninsured.

In November, UNC Health entered into a new military-civilian partnership with the U.S. Army where UNC Medical Center and UNC School of Medicine providers will train the U.S. Army’s Forward Resuscitation Surgical Teams and other medical personnel from U.S. Army Forces Command. As a busy, nationally recognized Level I Trauma Center and Burn Center, UNC Medical Center will help military personnel learn from real-world experience, with trauma surgeons and other providers educating on best practices, through experience in UNC Medical Center’s emergency department, operating rooms and ICUs. The goal is to help military surgeons and other care providers better prepare to treat traumatic injuries, such as gunshot wounds, burns and more, to ultimately save more lives.


Building a healthier community, also means standing up for equality. UNC Health sponsored walks for health equity in support of Black Lives Matter at multiple locations, including UNC Medical Center, Hillsborough, UNC REX, UNC Wakebrook and across the UNC Physicians Network. Hundreds of co-workers and leaders came together to demonstrate their stand against racism and in support of health equity.

A common definition of “Health Equity” is that everyone has a fair and just opportunity to be as healthy as possible. This definition is embraced by Dr. Crystal Wiley Cené, MD, MPH, FAHA who was appointed System Executive Director for Health Equity at UNC Health in July 2020. Achieving health equity requires removing obstacles to health such as poverty, discrimination, and their consequences, including powerlessness and lack of access to good jobs with fair pay, quality education and housing, safe environments, and healthcare. For UNC Health, health equity goes back to our mission: Improving the health of North Carolinians. We can’t provide high quality of care when outcomes are disparate for certain groups. We have to improve health for everyone. At UNC Health, we will identify where we are not providing the highest quality care so we can then target strategies to improve quality, safety, and an overall improved healthcare experience.

UNC Health is working toward a coordinated, intentional strategy for health equity, developing strategies for achieving health equity which focus on patients and improving outcomes among our most vulnerable populations. There will be an emphasis on the social determinants of health, some of which are beyond the purview of the healthcare delivery system. This will call for a broad strategy to improve the health of our communities, where we serve patients, beyond the healthcare system. It will take better investments and making UNC Health a better steward at the community level. We will look at ways of meeting unmet social needs, closing disparity gaps and partnering with communities. We can make intentional community investments by supporting minority, and women-owned businesses through a transparent process so people understand how UNC Health operates. We want to be known as a healthcare system that is at the forefront of promoting health equity, building our reputation in communities across all UNC Health entities. To make that leap, we’ll need to remove structural inequities (policies / practices / norms) which impede equity. Health equity isn’t a destination; it’s a journey of becoming, not being.

Health Equity

Crystal Wiley Cené, MD, MPH, FAHASystem Executive Director for Health Equity

Advanced Analytics & COVID-19 Modeling


UNC Health data scientists played a lead role in developing a highly predictive COVID-19 forecast system or “model” that has been monumental throughout the pandemic in providing the critical headlights our senior leaders have needed to make key operational and policy decisions for staffing, bed capacity, and PPE stewardship. This custom predictive model has served as an instrumental component of UNC Health’s response to the pandemic.

In the early days of the COVID-19 pandemic, there was a proliferation of forecasting models, but they did not meet the needs of UNC Health. Many predicted cases or deaths but not hospitalizations, few had state-level projections, and none of them were tailored to UNC Health specifically.

UNC Health's COVID-19 forecasting model uses well-tested epidemiological principles, but our statistical methodology differs from most of the others, and with several advantages.

The UNC Health model emphasizes bed (acute and ICU) and ventilator needs, since these are more important for operational planning than cases or deaths. Our model is focused on predictions for North Carolina as a whole, making it specific enough to maximize relevance to UNC, but broad enough to avoid sample size issues. Based on the model’s state forecast, we are able to produce entity-specific predictions for all UNC Health entities.

We used a powerful statistical approach that allowed us to produce a robust model early in the pandemic when data were scarce. Our data model was also designed from the start to incorporate additional analyses, including a separate suite of models that UNC has used to forecast supply and demand of critical supplies.


Financials & StatisticsChapel Hill, North CarolinaFor the years ending June 30, 2020, and June 30, 2019


To the Governor, the State Auditor, members of the General Assembly, members of the UNC Board of Governors, UNC Chapel Hill Board of Trustees, members of the UNC Health Care System Board of Directors, supporters of the University of North Carolina Health Care System, and Dr. Wesley Burks, CEO.

Introduction

This Annual Report includes a compilation of the operating results and financial position of the University of North Carolina Health Care System (UNC Health) as established by N.C.G.S 116-37. The financial reports as presented represent a summary of data generated by the various entities under the control of the Board of Directors of UNC Health.

The University of North Carolina Hospitals at Chapel Hill (UNC Hospitals), Rex Healthcare, Inc. (Rex), Chatham Hospital, Inc. (Chatham), Caldwell Memorial Hospital (Caldwell), UNC Rockingham Health Care, Inc. (Rockingham), UNC Physicians Network, LLC (UNCPN), and UNC Physicians Network Group Practice (UNCPNGP) prepare and publish their own separate audit reports on an annual basis. University of North Carolina Faculty Physicians (UNCFP), the clinical patient care programs of the University of North Carolina School of Medicine, is included in the audit report for The University of North Carolina at Chapel Hill (UNC-CH). Additional information regarding the organization structure can be found in the Notes to Financials section of the Annual Report.

The Annual Report is compiled to provide useful information about the entity’s operations and programs and to ensure its accountability to the citizens of North Carolina. While UNC Health’s management believes this information to be accurate, it should be noted that these documents are unaudited and not intended to be used for any financial decisions.

The Financials and Statistics section of the Annual Report presents Management’s Discussion and Analysis and pro-forma financial statements for UNC Health and UNCFP. This section includes selected statistical and financial ratio information. Management’s Discussion and Analysis provides a review of the financial operations and the Notes to Financials section provides additional explanation for the reader.

Financial Information

Internal Control StructureUNC Health’s management establishes and maintains an internal control structure to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. Management applies the internal control standards to meet each of the internal control objectives and to assess internal control effectiveness. When evaluating the effectiveness of internal control over financial reporting and compliance with financial-related laws and regulations, management

Letter of TransmittalFebruary 1, 2021


follows the assessment process to assure to the state of North Carolina and the public that UNC Health is committed to safeguarding its assets and is providing reliable financial information.

One objective of an internal control structure is to provide management with reasonable, although not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition. Another objective is to ensure that transactions are executed in accordance with appropriate authorization and recorded properly in the financial records to permit the preparation of financial statements in accordance with generally accepted accounting principles. Annually, management provides assurances on internal control in its Performance and Accountability Report, including a separate assurance on internal control over financial reporting along with a report on identified material weaknesses and corrective actions.

As a recipient of federal and state funds, UNC Health is responsible for ensuring compliance with all applicable laws and regulations. A combination of state and UNC Health policies and procedures, integrated with a system of internal controls, provides for this compliance. The accounts and operations of UNC Hospitals and UNCFP (as a part of UNC-CH) are subject to an annual examination by the Office of the State Auditor. Rex, Chatham, Caldwell, Rockingham and UNCPN are audited annually by an independent third-party CPA firm. All of these entities were an integral part of the state’s reporting entity represented in the state’s Comprehensive Annual Financial Report and the state’s Single Audit Report. The audit procedures are conducted in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States.

Budgetary ControlsOn an annual basis, UNC Health’s Board of Directors approves budgets for UNC Hospitals, UNCFP, Rex, Chatham, Caldwell, Rockingham and UNCPN. The budget for UNCFP is also subject to approval by UNC-CH. Each entity of UNC Health produces monthly reports that compare budget and actual operating results. Department heads are expected to review the reports and identify significant variances from their budget. If necessary, action plans are implemented that will improve negative variances.

UNC Health is subject to the provisions of the Executive Budget Act, except for trust funds identified in N.C.G.S. 116-36.1 and 116-37.2. These two statutes primarily apply to the receipts generated by patient billings and other revenues from the operations of UNC Hospitals and UNCFP. UNC Hospitals submits monthly reports to the Office of the State Controller that reflect its overall operations. UNC Health receives no appropriation from the state. In the past, appropriated funds from the General Fund covered a portion of operating expenses, including the portion of expenses attributable to the cost of providing (i) care to indigent patients and (ii) graduate medical education.

Cash and Investment ManagementUNC Health continues to work with the Office of the State Treasurer and the University of North Carolina Management Company (UNCMC) to maximize the investment earnings for UNC Hospitals based on changes in the General Statutes that were made during the 2005, 2008 and 2011 sessions of the General Assembly. In addition, UNC-CH has allowed UNCFP to invest a portion of their funds in an intermediate fund beginning in fiscal year 2008. Investment earnings subsidize operating income and enable UNC


Health to provide more services to the citizens of the state of North Carolina. The cash management policy includes all areas of receipts and disbursements so that investment earnings are maximized and vendor relations are maintained.

Risk ManagementExposures to loss are handled by a combination of methods, including participation in state-administered insurance programs, purchase of commercial insurance and self-retention of certain risks. The key to managing risk is to ensure that programs are in place that educate and guide employees to the best practices for our industry. We have a responsibility to safeguard our patients so that no additional harm comes to them while under our care. We are similarly committed to ensure a safe workplace for our employees.

In addition to the typical litigation risks with which we are faced, we have to recognize the risk and rewards associated with the healthcare industry. Continual evaluation of existing programs and new service development is the only way to maintain or increase our competitive advantage.

Acknowledgments

Preparation for this Annual Report would not have been possible without the coordinated efforts of the various financial staffs within UNC Health, with special assistance from the CEO’s office and Communications & Marketing.

Mark F. MillerChief Financial Officer & TreasurerThe University of North Carolina Health Care System


Dr. Cristy PageExecutive Dean,

School of Medicine

Amy HigginsChief Transformation & Experience Officer

(CTEO)

Jeri WilliamsChief Audit &

Compliance Officer (CACO)

John LewisChief Business

Integration Officer (CBIO)

Glenn GeorgeChief Legal Officer

(CLO)

Andy WillisChief External Affairs Officer

(CEAO)

Katie EimersChief System

Initiatives Officer (CSIO)

Steve BurrissChief Operating

Officer (COO)

Scott DoakChief Human

Resources Officer (CHRO)

Dr. Matt EwendChief Clinical Officer (CCO)

Board of Directors

Dr. Wesley BurksCEO of UNC Health / Dean of UNC School

of Medicine

UNC HealthReporting Structure


UNC HealthBoard of Directors

Charles D. Owen, III (Charlie)Chair, UNC Health System Board of DirectorsPresident, Fletcher Development Group, Inc.Fletcher, NC

Gregory J. Wessling (Greg)Vice Chair, UNC Health System Board of DirectorsBusiness Advisor, A&G Associates and Partners, LLCDavidson, NC

John E. Bailey (Jack)Strategic Advisor and Recent President, GSK U.S.Raleigh, NC

Samuel B. Bowles (Sam)Managing Director, New Republic CapitalCharlotte, NC

A. Wesley Burks, MDDean, UNC School of MedicineVice Chancellor for Medical Affairs, UNC-Chapel HillCEO, UNC HealthChapel Hill, NC

G. Hadley Callaway, MDPhysician, Raleigh Orthopaedic ClinicRaleigh, NC

Rebecca T. Cobey (Becky)Retired – Community VolunteerChapel Hill, NC

Michael A. Crabb, III (Trey)Executive Director, Morgan Stanley, Not-For-Profit Strategic ServicesNashville, TN Matthew G. Ewend, MD, FACS (Matt)Chief Clinical Officer, UNC HealthPresident, UNC PhysiciansChapel Hill, NC

Anne B. FairclothOwner and Manager, Faircloth FarmsClinton, NC Kevin M. Guskiewicz, PhDChancellor, The University of North Carolina at Chapel HillChapel Hill, NC

Bernadette Gray-Little, PhDChancellor Emerita, University of KansasChapel Hill, NC

Janet T. HadarPresident, UNC HospitalsChapel Hill, NC

Peter HansPresident, University of North Carolina SystemChapel Hill, NC

Timothy L. Humphrey (Tim)VP, Chief Data Officer, IBMResearch Triangle Park, NC

Tracy A. LeinbachRetired, CFO, Ryder, Inc.Pinehurst, NC

Charles F. MarshallVice Chancellor and General Counsel, The University of North Carolina at Chapel HillChapel Hill, NC

Matthew A. Mauro, MD (Matt)President, UNC Faculty PhysiciansUNC School of MedicineChapel Hill, NC

John G. McNeil, MD, MPH, PHDPresident and CEO, Verum Clinical ResearchFayetteville, NC

Deborah MurrayExecutive Director, Caldwell County Economic Development CommissionLenoir, NC

C. Howard Nye (Ward)Chairman of the Board, President and Chief Executive Officer, Martin MariettaRaleigh, NC

Cristen P. Page, MD, MPH (Cristy)Executive Dean, UNC School of MedicineChapel Hill, NC

J. Troy Smith, Jr.Attorney, Ward and Smith, P.A.New Bern, NC

(As of March 1, 2021)


IntroductionManagement’s discussion and analysis provides an overview of the financial position and activities of the University of North Carolina Health Care System (UNC Health) for the fiscal years ending June 30, 2020, and June 30, 2019. The financial statements included for UNC Health — The Statement of Net Position; The Statement of Revenues, Expenses, and Changes in Net Position; and The Statement of Cash Flows — are labeled “pro forma” to demonstrate that they are an aggregation of assets and liabilities and the results of financial activities and not the result of an overall audit of UNC Health by an independent auditor and as a result should not be relied on as such.

UNC Health was established November 1, 1998, by N.C.G.S. 116-37. The original legislation included only the University of North Carolina Hospitals at Chapel Hill (UNC Hospitals) and the clinical patient care programs of the University of North Carolina at Chapel Hill (UNC-CH). UNC Health is governed by a Board of Directors and is administered as an affiliated enterprise of the University of North Carolina. UNC Faculty Physicians (UNCFP) represents the clinical patient care programs of the UNC School of Medicine (UNC SOM). REX Healthcare, Inc. (REX), Chatham Hospital, Inc. (Chatham), Caldwell Memorial Hospital (Caldwell), UNC Rockingham Health Care (Rockingham), UNC Physicians Network (UNCPN) and UNC Physicians Network Group Practice (UNCPNGP) have been added to the organization since its inception.

The Liability Insurance Trust Fund (LITF) is also included in the annual report. LITF is an unincorporated entity created by North Carolina General Statutes Chapter 116, Article 26 and the University of North Carolina Board of Governors Resolution of June 9, 1978. LITF is a self-insurance program established to provide professional medical malpractice liability coverage for UNC Hospitals and UNCFP, (collectively, the program participants) and is discussed in more detail within the Notes to the Financial Statements.

Effective February 1, 2014 UNC Health and Johnston Memorial Hospital Authority (JMHA) entered into a Master Agreement to form Johnston Health Services Corporation (JHSC), a joint venture to provide health care services to the residents of

Johnston County. Oversight and governance of the joint venture is controlled by a Board of Directors consisting of appointees from both JMHA and UNC Health. UNC Health manages the day-to-day operations of JHSC.

On November 4, 2020, the boards of REX and JHSC executed a Joint Operating Agreement to form a stronger partnership to expand the organizations’ long history of collaboration to enhance care, improve outcomes, and increase access for patients in Johnston and Wake counties. The agreement calls for a long-term commitment to opening new medical facilities in Johnston County and expanding clinical services offered across the region.

UNC Health owns and/or controls the net assets and financial operations of UNC Hospitals, REX, Chatham, Caldwell, Rockingham, UNCPN and UNCPNGP. In contrast, UNC-CH owns and controls the net assets and financial operations of UNCFP. The UNC Health Board of Directors governs and oversees physician credentialing, quality and patient safety, and resident training and acts to advise and review the financial activities of UNCFP. Final direct control of the monetary operations of UNCFP remains within UNC-CH. The physicians who provide patient care at UNC Hospitals and in the UNC-CH clinics are employees of UNC-CH. Most non-physician employees who assist in providing patient care and the associated administrative, billing and collection services are employees of UNC Health.

For purposes of these financial statements, UNCFP serves as a financial proxy for the “clinical patient care programs of the School of Medicine.” The financial statements for the entities directly controlled by UNC Health (UNC Hospitals, REX, Chatham, Caldwell, Rockingham, UNCPN and UNCPNGP) are separately audited on an annual basis and have received unqualified opinions for their prior year reports. The financial activities of UNCFP are included in the financial statements and audit report of UNC-CH. LITF is also audited separately on an annual basis. Since an audit on the aggregation of financial information for these entities cannot be efficiently obtained, we have used the term “pro forma” to describe the financial statements presented.

Management’s Discussion and Analysis


Pro forma consolidated financial statements for UNC Health are presented, which include UNC Hospitals, REX, Chatham, Caldwell, Rockingham, UNCPN, UNCPNGP, LITF and UNCFP. UNCFP’s Statement of Net Position, and Statement of Revenues, Expenses and Changes in Net Position and Statement of Cash Flows for the fiscal years ending June 30, 2020 and 2019 are also included since these financial activities are not separately disclosed elsewhere.

COVID-19 PandemicOn March 13, 2020, the President of the United States declared the ongoing Coronavirus Disease 2019 (COVID-19) pandemic to be of a severity and magnitude to warrant a full federal government response and recovery effort. Health systems across the nation rose to the frontlines of containing the outbreak and providing medical services related to the COVID-19 pandemic and took the necessary measures to protect public health and safety.

On March 10, 2020, Governor Roy Cooper of North Carolina issued an executive order declaring a state of emergency, which directed that all healthcare facilities be fully prepared to care for a surge of COVID-19 patients. These unprecedented circumstances triggered a magnitude of challenges for all hospitals and healthcare providers.

UNC Health, an organization that serves the entire state of North Carolina and acts as the state’s safety net, took immediate actions following the Emergency Declaration across our owned and managed hospital facilities and providers. One of the first actions was to establish a multi-disciplinary coordinated response by establishing a COVID-19 Action Council (CAC) to manage the collective response to the pandemic across all facilities in our Health System.

The UNC Health CAC was structured to include broad representation from clinical and non-clinical stakeholders with accountability to protect public health and safety. Our committee included Executive Leadership, Project Managers, Owned and Managed-entity stakeholders including: Communications, Human Resources, Emergency Services, Infection Prevention, Ambulatory Services, Patient Care & Staffing, System Pharmacy, Information Services, Infectious Disease, Finance, and Affiliate Leaders.

Since its enactment the committee has taken immediate steps to plan, synchronize, prioritize, and collectively advance actions and activities in all areas required to respond to the pandemic, including human capital & staff redeployment, staff education & training, risk reduction and infectious disease prevention, and emergency medical care. The CAC also addressed tactical elements such as facility preparedness, personal protective equipment (PPE) and other critical supply procurement,

logistics coordination, information systems and telemedicine, communications and public health awareness.

Recently UNC Health worked with Samaritan’s Purse to build a 30 bed field hospital in the Caldwell parking lot to address the surge of COVID-19 patients in Caldwell, Catawba, Burke, Watauga, & Alexander counties.

UNC Health has also opened several vaccination clinics and is coordinating the administration across our service area.

Using This Financial Report UNC Health’s financial statements provide information regarding its financial position and results of operations as of June 30, 2020 and 2019 and the years then ended. The Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows comprise the basic financial statements required by the Governmental Accounting Standards Board (GASB).

In accordance with GASB, the pro forma financial statements are presented and follow reporting concepts similar to those used by private-sector health organizations. These statements offer short and long-term financial activities about its operations. The financial statement balances reported are presented in a classified format to aid the reader in understanding the nature of the operations. The Notes to the Financial Statements provide information relative to the significant accounting principles applied in the financial statements and further details concerning the organization and its operations. These disclosures provide information to better understand details, risk and uncertainty associated with the amounts reported and are considered an integral part of these pro forma financial statements.

Pro Forma Statement of Net PositionThe pro forma Statement of Net Position provides information relative to the assets (resources), deferred outflows of resources, liabilities (claims to resources), deferred inflows of resources, and net position (equity). Assets and liabilities on this Statement are categorized as either current or noncurrent. Current assets are those that are available to pay for expenses in the next fiscal year, and it is anticipated that they will be used to pay for current liabilities. Current liabilities are those payable in the next fiscal year. Management estimates are necessary in some instances to determine current or noncurrent categorization. The pro forma Statement of Net Position provides the basis for evaluating the capital structure, liquidity and its ability to meet current and long-term obligations.


Pro Forma Statement of Revenues, Expenses, and Changes in Net PositionThe pro forma Statement of Revenues, Expenses and Changes in Net Position provides information relative to the results of the organization’s operations, nonoperating activities and other activities affecting net assets. Nonoperating activities include noncapital gifts and grants, investment income (net of investment expenses), unrealized gains and losses on investments, and loss realized on the disposition of capital assets. Under GASB, bond interest expense is considered a nonoperating activity; but for these pro forma statements it is presented as operating. The pro forma Statement of Revenues, Expenses and Changes in Net Position measures the success of UNC Health’s operations and can be used to determine whether UNC Health successfully recovered all of its costs through its revenue, profitability and credit worthiness.

Pro Forma Statement of Cash FlowsThe pro forma Statement of Cash Flows provides information relative to the cash receipts, cash disbursements, and net changes in cash resulting from operating activities, noncapital financing activities, capital and related financing activities, and investing activities. It also provides answers to such questions as where cash comes from, what cash was used for, and what the change in the cash balance was during the reporting period.

Notes to the Financial StatementsNotes to the pro forma financial statements are designed to give the reader additional information concerning UNC Health and further supports the statements noted above. These disclosures provide information to better understand details, risk, and uncertainty associated with the amounts reported and are considered an integral part of the financial statements.

Comparison of Two-Year Data for 2020 to 2019Data for 2020 and 2019 are presented in this report and discussed in the following sections. Discussion in the following sections is pertinent to fiscal year 2020 results and changes relative to ending balances in fiscal year 2019.

Financial AnalysisStatement of Net PositionTotal assets increased by $915 million or 18.9 percent during fiscal year 2020. Current assets increased $574.6 million due in large part to the increase in cash that resulted from the receipt of the CARES Act stimulus payments, Medicare Advance Payments, bond issuances and to a lesser extent from the increase in inventories and prepaids that also resulted from COVID-19 purchases. Patient Accounts Receivable decreased, as expected, due to reduced volumes. Noncurrent assets increased $340.9 million as a result of property plant and equipment acquisitions and investment returns.

Deferred outflows of resources increased $141 million from adjustments related to Governmental Accounting Standards Board (GASB) No. 68 and Statement No. 75 as it relates to the State of North Carolina Teacher’s’ and State Employee’s Retirement System Plan and other postemployment benefits.

Total liabilities increased $1.1 billion from June 30, 2019. Current liabilities increased $373.3 million due primarily to recognizing deferred revenue upon receipt of the Medicare Advance Payments. In contrast, accounts and other payables decreased due to process improvements. Noncurrent Liabilities increased by $694.3 million due to the bond issuances described in more detail in the long term debt section. Also contributing to this increase was the combined change in the net pension liability and net other postemployment benefits liability recorded in accordance with GASB Statements No. 68 and No. 75, respectively.

Deferred inflows of resources decreased $106.3 million from the recognition of differences between actual and expected pension plan experience, including investment performance, related to the pension plan and other postretirement benefits in accordance with GASB No. 68 and Statement No. 75.

Net position increased $95.1 million year over year as described in the statement of revenues, expenses, and changes in net position.

Statement of Revenues, Expenses, and Changes in Net PositionUNC Health generated operating income of just $5.7 million (0.1% operating margin) in fiscal year 2020 which resulted largely from a sharp decline in volume while expenses increased in response to the COVID-19 pandemic. Ordinarily, UNC Health’s ongoing goal is to average an annual operating margin of nearly 4 percent in order to remain financially strong, to reinvest in new facilities, and to retain the most highly trained workforce. Breaking even this fiscal year 2020 was considered a significant achievement considering the impact of the pandemic and was possible because of the collaborative, system wide approach to managing expenses.

Nonoperating gains of $128 million resulted from CARES Act Stimulus funds received to address the pandemic and positive investment returns.

Transfers are negative compared to fiscal year 2019 but are more reflective of a typical year. The positive transfer amount seen in 2019 resulted from the sale of High Point.


Discussion of Capital Asset and Long-Term Debt ActivityCapital AssetsCapital investment remained strong in fiscal year 2020 with some of the most notable transactions being the ongoing expenditures related to the construction of a new surgical tower at UNC Hospitals which began in the Fall of 2018 and is expected to be completed in early 2024. The surgical tower will modernize a significant number of operating rooms located on UNC Hospitals’ campus. A new UNC Health medical office building is being constructed at Eastowne located in Chapel Hill and will house 150,000 square feet office space, including multi-specialty, imaging, infusion, pharmacy, lab, medical offices, and a parking structure. This project will establish a flagship ambulatory medical campus with increased collaboration among clinical services and provide convenient, patient centered care. The medical office building project is expected to be completed within the first quarter of 2021. Work is also underway to renovate the ground floor to accommodate new patient behavioral health and medical rooms. Also noteworthy, a new generator plant project will provide a facility to house the standard and emergency power equipment to UNC Hospitals.

REX began construction on a 50-bed community hospital at its campus in Holly Springs. The hospital will serve the medical needs of the fast growing region of southwest Wake County and beyond with emergency care, labor and delivery, surgery and more. The facility is expected to open in 2021. REX also began construction on a new cancer center on Blue Ridge Road in Raleigh, directly across the street from the main hospital campus. The four story, 145,000 square foot facility will provide the latest cancer treatment and services for an expanding population of patients from across Eastern North Carolina.

Caldwell began construction on a new 27 inpatient bed psychiatric facility and clinic in the spring of 2019, named the Jonas Hill Hospital and Clinic. The construction of this facility was substantially completed during the fiscal year and opened in July 2020. This facility serves people in the community living with mental health conditions and their families by providing hope and healing through a holistic program of evidence-based psychiatric treatment, team based medical care, and education. Working collaboratively with local mental health partners, their goal is to make mental healthcare as routine, accessible, and understandable as physical healthcare.

Other notable investments include the construction of a new Maternity Care Center that opened in September and the purchase of a new CT scanner at Chatham.

Investment in facility improvements, routine capital equipment and technology were also made throughout UNC Health during the fiscal year.

Long-Term Debt ActivityUNC Health has no borrowing authority. UNC Hospitals, REX, and Chatham have issued revenue bonds in the past and may issue additional debt in the future should the need arise to finance construction projects and if the market rates are favorable.

On December 1, 2019, UNC Hospitals issued Series 2019 Revenue Bonds with a face amount of $150 million with premium payments of $49.9 million. These bonds will be used to finance the final phase of construction of the new surgical pavilion to replace operating suites and support facilities on the Chapel Hill, NC campus.

On February 1, 2020, REX issued Series 2020A Health Care Facilities Revenue Bonds through the North Carolina Medical Care Commission to finance (a) the construction of the new hospital and associated support facilities in Holly Springs, North Carolina, (b) the new outpatient cancer center located on the main campus in Raleigh, North Carolina and (c) the costs of issuance and interest accruing during the construction period. These Bonds had a face amount of $199.7 million with premium payments of $27.8 million.

S&P Global Ratings (S&P) and Moody’s Investors Service (Moody’s) rate UNC Hospitals’ bonds as AA and Aa3, respectively. S&P and Moody’s, rate REX’s bonds as AA- and A1, respectively. All of these ratings have stable outlooks.

Discussion of Conditions that May Have a Significant Effect on Net Position or Revenues, Expenses and Changes in Net PositionUNC Health derives the vast majority of its operating revenues from patient care services. Strong operating performance in the past and earning a positive operating margin during fiscal year 2020 has enabled UNC Health to make investments in support of the clinical, education, and research programs of UNCFP, UNC SOM, and other network entities. These investments have yielded positive results as measured by growth in needed services, expansion of the medical school class and increased research funding.

UNC Health has adapted to the challenges presented by the COVID-19 pandemic and continues to evolve in order to remain a leader in providing the continuum of services required in health care. Providing these services relies on a variety of options for program and service development as well as significant capital investment. UNC Health utilizes acquisitions, partnerships, network development, contracts, and other means to expand its provision of care as opportunities are


developed. Guided by a philosophy of collaboration and partnership with other providers, UNC Health continues to evaluate options of strategic importance to its development. Acquisitions and affiliations include hospitals, home health, hospice, physician practices and infusion services. We are making significant infrastructure investments to modernize and expand our patient care as noted in the Capital Assets section. We are also working to optimize square footage utilization of existing space. As an example, UNC Hospitals, in a joint effort with UNCFP, began a multi-year effort to optimize square footage utilization on the Medical Center campus and off-campus locations. These particular enhancements will provide patients access to services in the most appropriate care setting and allow UNC Health to more effectively care for a growing number of behavioral health patients.

Third-party payors, including governmental sponsored programs, continue to migrate from fee-for-service to fee-for-value. Significant investments have been made in population health care to prepare for a value-based reimbursement regulatory environment. UNC Health Alliance, LLC, a subsidiary of UNCPN, is a clinically integrated network designed to enable private practice community physicians to enter into value contracts jointly with UNC Health and third party payors, with the goal of increasing quality and better managing the cost of care. UNC Senior Alliance, LLC, is also a subsidiary of UNCPN and has entered into an agreement with the Centers for Medicare and Medicaid Services (CMS’s) to participate in the Next Generation Accountable Care Organization (ACO) for Medicare recipients effective January 1, 2017. The Next Generation ACO Model is a value-based payment model that encourages providers to assume greater accountability in coordinating the health care of Medicare fee-for-service beneficiaries. Learning from these programs will allow UNC Health to more rapidly scale and ramp-up our initiatives when appropriate.

Continued reductions to payment levels for Medicaid patients, added legislative burdens, market consolidation, and cuts to the UNC School of Medicine place added pressures on the organization.

Management is committed to proper expense management while maintaining high quality patient care, innovation, and very satisfied patients. Successfully managing in the future requires tighter integration of administrative functions across the entities of UNC Health, caring for patients in lower cost delivery settings, and developing sufficient scale to spread the cost of major investments across a broad base. UNC Health continues to implement these changes through a health system-wide planning and implementation process.

The COVID-19 pandemic significantly impacted UNC Health during the 2020 fiscal year resulting in lower than expected patient volumes and higher overall expenses. The full impact of the COVID-19 outbreak continues to evolve and as we look forward, we are uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations for fiscal year 2021.


2020restated

2019Current Assets

Cash and Investments $1,462,113,000 $854,915,000

Patient Accounts Receivable Net 394,354,000 438,607,000

Estimated Third Party Settlements 43,632,000 47,608,000

Other Assets Whose Use is Limited or Restricted 129,030,000 187,700,000

Inventories 132,942,000 79,747,000

Prepaid Expenses and Other Current Assets 70,087,000 48,998,000

Total Current Assets 2,232,158,000 1,657,575,000

Noncurrent Assets

Investments and Assets Whose Use is Limited or Restricted 1,057,668,000 1,005,171,000

Other Noncurrent Assets 724,986,000 640,634,000

Property Plant and Equipment, Net 1,755,934,000 1,551,896,000

Total Noncurrent Assets 3,538,588,000 3,197,701,000

Total Assets 5,770,746,000 4,855,276,000

Deferred Outflows of Resources 435,956,000 294,978,000

Total Assets and Deferred Outflows of Resources $6,206,702,000 $5,150,254,000

Current Liabilities

Accounts and Other Payables $266,201,000 $307,939,000

Accrued Salaries and Benefits 262,576,000 241,330,000

Current Portion of Long Term Debt 43,669,000 32,781,000

Estimated Third Party Settlements - Current 94,463,000 113,301,000

Other Current Liabilities 503,260,000 101,498,000

Total Current Liabilities 1,170,169,000 796,849,000

Noncurrent Liabilities

Noncurrent Portion of Long Term Debt 2,394,914,000 2,122,578,000

Estimated Third Party Settlements - Noncurrent 59,553,000 72,206,000

Other Noncurrent Liabilities 534,116,000 99,464,000

Total Noncurrent Liabilities 2,988,583,000 2,294,248,000

Total Liabilities 4,158,752,000 3,091,097,000

Deferred Inflows of Resources 487,923,000 594,245,000

Net Position 1,560,027,000 1,464,912,000

Total Liabilities, Deferred Inflows of Resources and Net Position $6,206,702,000 $5,150,254,000

The University of North Carolina Health Care System

Pro Forma Statement of Net PositionJune 30, 2020 and June 30, 2019


2020restated

2019Operating Revenues

Net patient service revenue $4,027,810,000 $3,992,753,000

Other operating revenues 355,893,000 322,497,000

Total Operating Revenues 4,383,703,000 4,315,250,000

Operating Expenses

Salaries and benefits 2,530,604,000 2,330,341,000

Medical and surgical supplies 932,392,000 870,112,000

Contracted services 493,272,000 468,643,000

Other supplies and services 242,509,000 208,656,000

Depreciation and amortization 150,618,000 145,738,000

Interest expense 28,598,000 21,147,000

Total Operating Expenses 4,377,993,000 4,044,637,000

Operating Income 5,710,000 270,613,000

Nonoperating Income (Loss)

Investment income, net 54,727,000 114,538,000

CARES Act Stimulus 74,070,000 -

Other, net (748,000) (15,260,000)

Nonoperating Income, Net 128,049,000 99,278,000

Income Before Health Care System Transfers 133,759,000 369,891,000

Health Care System Transfers (Out) In (38,644,000) 174,361,000

Change in Net Position $95,115,000 $544,252,000


Pro Forma Statement of Revenues, Expenses, and Changes in Net PositionFor the Years Ended June 30, 2020 and June 30, 2019


2020restated

2019Operating Activities

Receipts from patients and third-party payors $4,518,306,000 $4,023,311,000

Payments to and on behalf of employees (2,823,477,000) (2,230,829,000)

Payments to suppliers (1,792,054,000) (1,382,689,000)

Other receipts 331,058,000 224,789,000

Net Cash Used by Operating Activities 233,833,000 634,582,000

Noncapital Financing Activities

Health Care System transfers (38,644,000) (192,120,000)

CARES Act stimulus 71,224,000

Other payments (3,645,000)

Net Cash Provided by Noncapital Financing Activities 28,935,000 (192,120,000)

Capital and Related Financing Activities

Proceeds from issuance of long-term debt, net of premium 427,467,000

Interest paid on capital debt (24,835,000) (21,147,000)

Principal paid on revenue bond maturity (1,746,000) (18,940,000)

Principal paid on capital lease and notes payable 367,441,000 (26,676,000)

Acquisition and construction of capital assets (303,869,000) (215,640,000)

Transfer to construction fund (165,213,000) -

Net Cash Used by Capital and Related Financing Activities 299,245,000 (282,403,000)

Investing Activities

Interest income 17,411,000 25,364,000

Investment income, net 4,879,000 (9,117,000)

Net Affiliated Activity 22,710,000 148,383,000

Other receipts 185,000

Net Cash Provided by Investing Activities 45,185,000 164,630,000

Net Increase in Cash and Cash Equivalents 607,198,000 324,689,000

Cash and Cash Equivalents - Beginning of Year 854,915,000 530,226,000

Cash and Cash Equivalents - End of Year $1,462,113,000 $854,915,000


Pro Forma Statement of Cash FlowsFor the Years Ended June 30, 2020 and June 30, 2019


2020restated

2019Current Assets

Cash and Investments $169,856,000 $177,512,000

Patient Accounts Receivable Net 29,793,000 39,753,000

Estimated Third Party Settlements 33,441,000 37,825,000

Other Receivables 94,861,000 77,801,000

Prepaid Expenses and Other Current Assets 19,854,000 19,366,000

Total Current Assets 347,805,000 352,257,000

Noncurrent Assets

Investments and Assets Whose Use is Limited or Restricted 6,551,000 10,702,000

Total Noncurrent Assets 6,551,000 10,702,000

Total Assets $354,356,000 $362,959,000

Current Liabilities

Accounts and Other Payables $53,199,000 $55,358,000

Accrued Salaries and Benefits 34,178,000 40,605,000

Estimated Third Party Settlements - Current 508,000 502,000

Total Current Liabilities 87,885,000 96,465,000

Noncurrent Liabilities

Other Noncurrent Liabilities 55,453,000 51,095,000

Total Noncurrent Liabilities 55,453,000 51,095,000

Total Liabilities 143,338,000 147,560,000

Net Position 211,018,000 215,399,000

Total Liabilities and Net Position $354,356,000 $362,959,000

The University of North Carolina Health Care System // UNC Faculty Physicians

Statement of Net PositionJune 30, 2020 and June 30, 2019


2020restated

2019Operating Revenues

Net patient service revenue $473,598,000 $484,831,000

Other operating revenues 133,834,000 127,969,000

Total Operating Revenues 607,432,000 612,800,000

Operating Expenses

Salaries and benefits 522,474,000 500,415,000

Medical and surgical supplies 33,881,000 31,986,000

Contracted services 78,694,000 75,954,000

Other supplies and services 28,365,000 18,632,000

Total Operating Expenses 663,414,000 626,987,000

Operating (Loss) (55,982,000) (14,187,000)

Nonoperating Income (Loss)


Other, net (8,283,000) (11,814,000)

Nonoperating Income, Net (7,068,000) (8,045,000)

Loss Before Health Care System Transfers (63,050,000) (22,232,000)

Health Care System Transfers In 58,669,000 56,681,000

Change in Net Position $(4,381,000) $34,449,000


Statement of Revenues, Expenses, and Changes in Net PositionFor the Years Ended June 30, 2020 and June 30, 2019


2020restated

2019Operating Activities

Receipts from patients and third-party payors $487,948,000 $549,257,000

Payments to and on behalf of employees (524,543,000) (477,348,000)

Payments to suppliers (143,587,000) (128,555,000)

Other receipts 116,774,000 76,897,000

Net Cash (Used) Provided by Operating Activities (63,408,000) 20,251,000

Noncapital Financing Activities

Health Care System transfers 58,669,000 52,833,000

Other payments (8,283,000) -

Net Cash Provided by Noncapital Financing Activities 50,386,000 52,833,000

Investing Activities


Net Cash Provided by Investing Activities 5,366,000 3,744,000

Net Increase in Cash and Cash Equivalents (7,656,000) 76,828,000

Cash and Cash Equivalents - Beginning of Year 177,512,000 100,684,000

Cash and Cash Equivalents - End of Year $169,856,000 $177,512,000


Statement of Cash FlowsFor the Years Ended June 30, 2020 and June 30, 2019


2020restated

2019Patient Service Statistics

Discharges 81,324 86,883

Patient Days 554,420 574,489

Observation Day Equivalents 30,045 31,035

Deliveries 9,383 9,586

Adjusted Discharges 185,036 191,133

Adjusted Patient Days 1,023,445 1,036,861

CMI Adjusted Discharges 330,302 338,120

CMI Adjusted Patient Days 1,949,002 1,932,493

ED Visits 210,301 229,709

wRVUs 8,340,649 8,505,689

Surgical Cases 57,950 63,693

Cath Lab 15,774 16,384

EP Lab 17,840 16,305

Structural Heart 584 540

Chemotherapy 92,035 88,672

Radiation Therapy 66,403 66,494

Imaging 650,188 744,601

Endoscopy 26,910 29,146

Transplants 380 400


Pro Forma Selected StatisticsFor the Years Ended June 30, 2020 and June 30, 2019


Note 1 // Significant Accounting Policies

A. Organization — The University of North Carolina Health Care System (UNC Health) was established November 1, 1998, by N.C.G.S. 116-37. It is governed and administered as an affiliated enterprise of The University of North Carolina system with its stated purpose to provide patient care, facilitate the education of physicians and other health care providers, conduct research collaboratively with the health sciences schools of the University of North Carolina at Chapel Hill (UNC-CH) and render other services designed to promote the health and well-being of the citizens of North Carolina.

The original legislation included the University of North Carolina Hospitals at Chapel Hill (UNC Hospitals) and the clinical patient care programs established or maintained by the School of Medicine of the University of North Carolina at Chapel Hill (UNC SOM) including University of North Carolina Physicians and Associates (UNC P&A). As of January 1, 2013, UNC Physicians & Associates changed its name to UNC Faculty Physicians (UNCFP) to better identify the relationship with the UNC School of Medicine. UNC Health is under the governance of the Board of Directors of UNC Health. REX Healthcare, Inc. (REX), Chatham Hospital, Inc. (Chatham), Caldwell Memorial Hospital (Caldwell), UNC Rockingham Health Care (Rockingham), UNC Physicians Network (UNCPN), UNC Physicians Network and Group Practice (UNCPNGP) have been added to the organization since its inception.

The University of North Carolina Hospitals — The University of North Carolina Hospitals at Chapel Hill (UNC Hospitals) is the only state-owned teaching hospital in North Carolina. With a licensed base of 951 beds, this facility serves as an acute care teaching hospital for The University of North Carolina at Chapel Hill. UNC Hospitals consists of North Carolina Memorial Hospital, North Carolina Children’s Hospital, North Carolina Neurosciences Hospital, North Carolina Women’s Hospital, North Carolina Cancer Hospital, UNC Hospitals Hillsborough campus and UNC Hospitals WakeBrook campus. As a state agency, UNC Hospitals is required to conform to financial requirements established by various statutory and constitutional provisions.

Blended Component Units — Although legally separate, Health System Properties, LLC (the LLC), a component unit of UNC Hospitals, is reported as if it were part of the Hospitals.

The LLC was established to purchase, develop and/or lease real property. Because UNC Health is the sole member manager of the LLC, the elected directors of the LLC are the same members of the UNC Health Board of Directors that directs UNC Hospitals’ operations, and as the LLC’s primary purpose is to benefit UNC Hospitals, its financial statements have been blended with those of UNC Hospitals.

The University of North Carolina Faculty Physicians — Formerly known as UNC Physicians & Associates, University of North Carolina Faculty Physicians (UNCFP) is the clinical service component of the UNC School of Medicine. At the heart of UNCFP are the approximately 1,224 physicians who provide a full range of specialty and primary care services for patients of UNC Health. While the great majority of services are rendered at the inpatient units of UNC Hospitals and the outpatient clinics on the UNC campus, there is a growing range of services provided at clinics in the community. There are 22 clinical departments and -four administrative units that collectively form UNCFP.

Clinical Departments:

Administrative Units:Administrative Office (Billing & Collections, Managed Care)Ambulatory AdministrationFunds Flow AdminShared Services (Home Office)

While UNCFP is affiliated with UNC Health, the net assets of UNCFP are held in a UNC-CH trust fund. The operating income and expenses for UNCFP are managed via the UNC-CH’s accounting infrastructure, and its operational results are included in the annual audit for the UNC-CH.

Liability Insurance Trust Fund (LITF) – LITF is an unincorporated entity created by North Carolina General Statutes Chapter 116, Article 26 and the University of North Carolina Board of Governors Resolution of June 9, 1978. LITF is a self-insurance program established to provide professional medical malpractice liability coverage for UNC Hospitals and UNCFP, (collectively, the program participants). LITF services professional liability claims and defense costs for each case and manages separate accounts for each participant from which losses are paid. LITF provides coverage for program participants and individual health care practitioners working as employees, agents, or officers of the program participants. LITF is exempt from federal and state income taxes and is not subject to regulation by the North Carolina Department of Insurance.

Notes to the Pro Forma Financial Statements

Allied Health SciencesAnesthesiology Dermatology Emergency MedicineFamily Medicine Medicine Neurology Neurosurgery Obstetrics & Gynecology OphthalmologyOrthopaedics Otolaryngology Pathology & Laboratory MedicinePediatrics

Physical Medicine & RehabilitationPsychiatry Radiation OncologyRadiologySurgeryUrology

Center for Development and LearningTreatment and Education of Autistic and Orthopedics Related Communication Handicapped Children


REX Healthcare, Inc. (REX) – REX is a North Carolina not-for-profit corporation organized to provide support for a wide range of services offered through UNC Health and its affiliates to the residents of the Triangle area of North Carolina.

UNC Health is the sole member of REX. REX is the sole member and parent corporation of Rex Hospital, Inc. (Rex Hospital). Both REX and Rex Hospital are separate, non-profit 501(c)(3) corporations, organized under the laws of North Carolina and each is governed by a separate board of directors. As of May 30, 2019 REX no longer has a 13-member Board of Trustees. As of that date, REX has a Board of Directors consisting of three members in order to better serve the interests of REX and provide greater flexibility and convenience in terms of administration. UNC Health appoints all three seats on REX’s Board of Directors. Rex Hospital is governed by a Board of Directors consisting of not less than nine or more than fifteen members. The president of Rex Hospital serves as an ex-officio voting member of the Rex Hospital Board of Directors. All of the other members of the Rex Hospital Board of Directors are elected by UNC Health. UNC Health reviews and approves REX’s, including Rex Hospital’s, annual operating and capital budgets.

Health care operations are managed by Rex Hospital. REX, the parent corporation, acts as a supporting organization for UNC Health and certain affiliates. REX may perform management and administrative functions and overall planning and coordination, as well as provide shared services, for the benefit of UNC Health. REX is a component unit of UNC Health and its financial data is incorporated into the comprehensive annual financial report of UNC Health.

Chatham Hospital, Inc. (Chatham) – Chatham is a private, nonprofit corporation that owns and operates a critical access facility located in Siler City, North Carolina. UNC Health is the sole member of Chatham. The Chatham Board consists of 7 to 15 members including the Chatham President and Chief of Staff serving as ex-officio trustees while residents of Chatham’s service area are required to hold one third of the trustee positions. UNC Health’s Board reviews and approves all board nominations as well as Chatham’s annual operating and capital budgets.

UNC Physicians Network, LLC (UNCPN) – UNCPN is a North Carolina limited liability corporation organized to meet the needs of community practice physicians and offer a partnership for both physicians and UNC Health to face the challenging health care environment. Acting through its network of 111 practices, UNCPN provides health care to patients from several locations throughout the Triangle area (Raleigh, Durham and Chapel Hill) and surrounding counties in North Carolina.

UNC Physicians Network Group Practices, LLC (UNCPN-GP) – UNCPN-GP is also a North Carolina limited liability corporation organized to meet the needs of community practice physicians and offer a partnership for both physicians and UNC Health to face the challenging health care environment. UNCPN-GP is wholly owned by UNC Health, but is a private employer.

Caldwell Memorial Hospital (Caldwell) – Caldwell is a private, not-for-profit community hospital in Lenoir, North Carolina and is an acute care hospital with a provider network of approximately 60 primary and specialty care physicians and advanced practice professionals. UNC Health became the sole corporate member of Caldwell on May 1, 2013.

UNC Rockingham Health Care (Rockingham) – Rockingham is a not-for-profit acute care hospital located in Eden, North Carolina, formally known as Morehead Memorial Hospital. It was acquired via an asset purchase agreement and became a part of the UNC Health as of December 2017.

WakeBrook Mental Health Campus (WakeBrook) – UNC Health agreed to provide, enhance and expand all services offered in the past at Wake County’s WakeBrook facility. Pursuant to agreements with Wake County

and Alliance Behavioral Health, UNC Health began with the operation of WakeBrook Crisis and Assessment services on February 1, 2013. WakeBrook provides behavioral health and medical services in the areas of Crisis and Assessment, Residential Facility Based Crisis, Detoxification Beds, Onsite Medical Care, Primary Care Clinic, Inpatient Care, and Assertive Community Treatment Team.

B. Basis of Presentation – The accompanying financial statements present all activities under the direction of the UNC Health Board of Directors. The financial statements for UNC Health are presented as a pro forma compilation of the various statements generated by its separate entities. UNC Hospitals, REX, Chatham, UNCPN, Rockingham and Caldwell issue their own audited financial statements while UNCFP is included as a part of the audited statements for the UNC-CH.

In compiling the financial statements for UNC Health, significant intercompany transactions and balances between the related parties have been eliminated. In addition, while the general statutes refer to only the clinical operations of the School of Medicine, which are reported through UNCFP, this annual report includes the assets, liabilities and net assets of UNCFP, which are included in the audited financial statements for the UNC-CH.

C. Basis of Accounting – The financial statements of the various entities have been prepared using the accrual basis of accounting for UNC Hospitals, UNCFP, REX, Chatham, UNCPN, UNCPN-GP, Rockingham, Caldwell and LITF. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. When preparing the financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

D. Current and Noncurrent Designation – Assets are classified as current when they are expected to be collected within the next 12 months or consumed for a current expense in the case of cash or prepaid items. Liabilities are classified as current if they are due and payable within the next 12 months.

E. Operating and Nonoperating Activities – Revenues and expenses are classified as operating or nonoperating in the accompanying Statements of Revenues, Expenses and Changes in Net Position. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the principal ongoing operations. Operating revenues include activities that have characteristics of exchange transactions, such as charges for inpatient and outpatient services as well as for external customers who purchase medical services or supplies. Operating expenses are all expense transactions incurred other than those related to capital and noncapital financing or investing activities.

Nonoperating revenues include activities that have the characteristics of nonexchange transactions. Revenues from nonexchange transactions “and donations” that represent subsidies or gifts, as well as investment income “and gain (loss) on disposal of capital assets,” are considered nonoperating since these are investing, capital or noncapital financing activities.

F. Cash and Cash Equivalents – This classification includes all highly liquid investments with an original maturity of three months or less when purchased including deposits held by the State Treasurer in the short-term investment fund (STIF). The STIF account has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty.

UNC-CH manages the funds of UNCFP as authorized by the University of North Carolina Board of Governors pursuant to N.C.G.S. 116-36.2 and


Section 600.2.4 of the Policy Manual of the University of North Carolina. Special funds and funds received for services rendered by health care professionals pursuant to N.C.G.S 116-36.1(h) are invested in the same manner as the State Treasurer is required to invest. Investments of various funds may be pooled unless prohibited by statute or by terms of the gift or contract. UNC-CH utilizes investment pools to manage investments and distribute investment income. Shares in the temporary pool trade at a fixed value of $1 per share.

G. Investments – This classification includes marketable debt and equity securities with readily determinable fair values, including assets whose use is limited and is measured at fair value. Investment income or loss (including realized and unrealized gains and losses on investments, interest and dividends) is included in nonoperating income (loss). The calculation of realized gains and losses is independent of a calculation of the net change in the fair value of investments.

H. Patient Accounts Receivable, Net – Net patient accounts receivable consist of unbilled (in-house patients, inpatients discharged but not final billed and outpatients not final billed) and billed amounts. Payment of these charges comes primarily from managed care payors, Medicare, Medicaid and, to a lesser extent, the patient. The amounts recorded in the financial statements are net of charity care, contractual allowances, avoidable and other losses, and allowances for bad debt to determine the net realizable value of accounts receivable.

Reserves for these deductions are recorded based on the historical collection percentage realized for each payor and projections for future collection rates. Flexible payment arrangements have been established to optimize collection of past-due accounts, and any amounts payable beyond one year are classified as noncurrent assets.

I. Inventories – Inventories consist of medical and surgical supplies, pharmaceuticals, prosthetics and other supplies that are used to provide patient care or used by service departments. Inventories are stated at the lower of cost using the first-in, first-out method or market.

J. Other Assets and Receivables – Other assets and receivables relate to items such as sales tax refunds due from the North Carolina Department of Revenue, amounts due from State agencies, and billings to outside companies for ancillary testing.

K. Assets Whose Use Is Limited or Restricted – Current assets whose use is limited or restricted include the debt service funds established with the trustee in accordance with the bond indenture agreements and donor restrictions. The debt service funds are used to pay bond interest and principal as it becomes due.

Noncurrent assets whose use is limited or restricted include the bond proceeds for construction projects, the funds required by the bond indenture agreements, funds in the maintenance reserve fund that will be used to acquire or construct future property, plant or equipment and the money on deposit with LITF.

L. Property Plant and Equipment – Property, plant and equipment are recorded at cost or acquisition value at date of donation in the case of gifts. The value of assets constructed includes all material direct and indirect construction costs.

Expenditures for repairs and maintenance are charged to expense as incurred. The costs for major renewals and betterments are capitalized and depreciated over the estimated useful lives of the assets. Upon disposition, the asset and related accumulated depreciation accounts are relieved and any gain or loss is credited or charged to nonoperating revenues and expenses.

Depreciation and amortization are generally computed using the straight-line method over the estimated useful lives of the assets which range from 3 to 20 years for software and movable equipment, 10 to 40 years for fixed equipment and buildings and 5 to 25 years for general infrastructure and building improvements. Assets under capital leases and leasehold improvements are depreciated over the estimated useful life or the related lease term, whichever is shorter; generally periods ranging from 5 to 7 years. Depreciation of assets under capital leases and leasehold improvements is included in depreciation and amortization expense in the accompanying statements of revenues, expenses and changes in net position.

M. Other Noncurrent Assets – Other noncurrent assets include amounts for long-term payment arrangements for patient accounts receivable, bond issuance costs-net of amortization and investments in affiliates.

N. Current And Noncurrent Portions Of Long Term Debt – These categories represent debt issued for the construction of buildings and the acquisition of equipment. The current amount is the portion of debt due within one year, and the balance is reflected as noncurrent.

The debt instruments have fixed, variable or synthetically fixed rates with final maturity in fiscal year 2050. The interest rates in effect on June 30, 2020 ranged from 0.43% to 6.33%. When applicable, debt is reported net of unamortized discount, premium and deferred loss on refundings. Amortization of these amounts is done using either the effective interest method or the straight-line method.

O. Other Current Liabilities – Other current liabilities represent funds held for others and amounts due to patients or third parties for credit balances.

P. Compensated Absences – Compensated absences represent the liability for employees with accumulated leave balances earned through various leave programs. These amounts would be payable if an employee terminated employment. Employees earn leave at varying rates depending upon their years of service and the leave plan in which they participate.

Q. Net Position – Net Position represents the difference between assets and liabilities. Due to the complexities of consolidating these entities, only a combined number is shown for Net Position.

Normally, under generally accepted accounting principles, the Net Position category would be further categorized as the amounts (1) Net Investment in Capital Assets, (2) Restricted and (3) Unrestricted.

R. Net Patient Service Revenue – Patient service revenue is recorded at established rates when services are provided with contractual adjustments, estimated bad debt expenses and services qualifying as charity care deducted to arrive at net patient service revenue. Contractual adjustments arise under reimbursement agreements with Medicare, Medicaid, certain insurance carriers, health maintenance organizations and preferred provider organizations, which provide for payments that are generally less than established billing rates. The difference between established rates and the estimated amount collectible is recognized as revenue deductions on an accrual basis.

Charity care represents health care services that were provided free of charge or at amounts that are less than the established rates to individuals who meet the criteria of UNC Health Care’s charity care and uninsured policy. For UNC Hospitals and UNCFP, uninsured patients receive a 40 percent discount for medically necessary treatment. Charity care provided is not considered to be revenue since no effort is made to collect accounts that fall under this policy.


Medicare reimburses for inpatient acute care services under the provisions of the Prospective Payment System (PPS). Under PPS, payment is made at predetermined rates for treating various diagnoses and performing procedures that have been grouped into defined diagnostic-related groups (DRGs) applicable to each patient discharge rather than on the basis of the Hospitals’ allowable charges. Psychiatric and Rehabilitation inpatient services are reimbursed under separate programs.

A prospective payment system for outpatient services was implemented Aug. 1, 2000 and is based on ambulatory payment classifications. It applies to most hospital outpatient services other than ambulance, rehabilitation services, clinical diagnostic laboratory services, dialysis for end-stage renal disease, nonimplantable durable medical equipment, prosthetic devices and orthotics.

Medicaid reimburses inpatient services on an interim basis under a prospective payment system. Medicaid uses the Medicare DRG system with some modifications. Medicaid reimburses outpatient services on an interim basis at an agreed-upon percent of charges approximating 70% of cost, but is settled under an Upper Payment Limit program based on 100% percent of documented cost, less intergovernmental transfers, for all services except hearing aids, durable medical equipment (DME), outpatient pharmacy, laboratory, ambulance services and home health.

Hospital payments for Medicare and Medicaid services are made based on a tentative reimbursement rate with final settlement determined after submission of the appropriate cost reports by the entities within UNC Health. Medicaid reimburses physician services using a fee schedule that approximates ninety-five percent (95 percent) of allowable Medicare rates. Some UNC Health physicians receive supplemental payments under the Upper Payment Limit Program in addition to their Medicaid reimbursement as a replacement to filing a Medicaid Cost report for periods after June 30, 2010.

S. Medical and Surgical Supplies – Medical and surgical supplies represent the items used to provide patient care. These include instruments, special medical devices and pharmaceuticals.

T. Medical Malpractice Costs – Medical malpractice costs represent the actuarially determined contributions required for self-insured funding or commercial premiums for third-party coverage. The coverage is intended to include both reported claims and claims that have been incurred but not yet reported.

U. Medical School Trust Fund – Medical School Trust Fund (MSTF) expenses represent an assessment of 2.5 percent of net patient service revenue. The MSTF funds are at the Dean’s discretion for the support of projects such as program development and recruitment incentives for new department chairs.

V. Donated Services – No amounts have been included for donated services since no objective basis is available to measure the value of such services. However, a substantial number of volunteers donated significant amounts of their time to the operations of UNC Health.

W. Concentrations of Credit Risk – UNC Health provides services to patients without collateral or other proof of ability to pay. Concentration of credit risk with respect to patient accounts receivable are limited due to large numbers of patients served and formalized agreements with third-party payors. Significant accounts receivable are dependent upon the performance of certain governmental programs, primarily Medicare and North Carolina Medicaid for their collectability. Management does not believe there are significant credit risks associated with these governmental programs.

X. Deferred Outflows / Inflows of Resources – In addition to assets, the statement of net position reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then.

In addition to liabilities, the statement of net position reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as revenue until then.

Note 2 // Estimated Third-Party Settlements

Estimated third-party amounts represent settlements with Medicare, Tricare/Champus and Medicaid programs that may result in a receivable or a payable. Reimbursement for cost-based items is paid at a tentative interim rate with final settlement determined after submission of annual cost reports and audits thereof by fiscal intermediaries. Final settlements under the Medicare and Medicaid programs are based on regulations established by the respective programs and as interpreted by fiscal intermediaries. The classification of patients under the Medicare and Medicaid programs as well as the appropriateness of their admission is subject to review. Several years of cost reports are currently under review. Beginning in 2012, UNC Health’s physician and hospital entities receive supplemental reimbursement for Medicaid via the Upper Payment Limit methodology.

Tricare/Champus is a federal insurance program for eligible active duty and retired military personnel and their dependents. Tricare/Champus makes payments on an interim basis. Upon completion of the Medicare Cost Report, Tricare will reimburse certain portions of direct medical and paramedical education and capital costs from the Medicare Cost Report.

Note 3 // Capital Assets

A summary of capital assets as of June 30:

FY2020 FY2019Land and Improvements $134,997,000 $135,222,000

Buildings and Improvements 1,665,921,000 1,578,102,000

Equipment 1,197,793,000 1,154,511,000

Computer Software 255,583,000 241,757,000

Goodwill 25,027,000 11,805,000

Construction in Progress 333,157,000 139,611,000

Gross PP&E $3,612,478,000 $3,261,008,000

Accumulated Depreciation (1,856,544,000) (1,709,112,000)

Net PP&E $1,755,934,000 $1,551,896,000


Note 4 // Long-Term Debt

A summary of outstanding bond debt and related issuance costs as of June 30 was:

Total

FY2020Total

FY2019Rex Series 2010A Bonds $76,995,000 $83,205,000

Rex Series 2015A Bonds 50,000,000 50,000,000

Rex Series 2015B Bonds 100,000,000 100,000,000

Rex Series 2020A Bonds 199,725,000 0

UNCH Series 2001 Bonds 82,400,000 84,400,000




UNCH Series 2016 A Bonds 74,945,000 74,945,000

UNCH Series 2016 B Bonds 25,000,000 25,000,000

UNCH Series 2019 Bonds 149,995,000 0

Face Value of Bonds Outstanding $868,230,00 $538,140,000

Deferred Costs - Premium on Issuance 78,633,019 2,556,509

Arbitrage Rebate Payable 0 0

Net Value Outstanding $946,863,019 $540,696,509

Current Portion of Bonds 20,485,00 19,630,000

Current Portion of Notes 8,219,120 5,923,765

Other Current Debt 431,870 415,618

Total Current Bonds and Notes $29,135,990 $25,969,383

Noncurrent Portion of Bonds 926,378,019 521,066,509

Noncurrent Portion of Notes 38,931,402 33,826,261

Other Noncurrent Debt 601,912 986,107

Total Noncurrent Bonds and Notes $965,911,334 $555,878,876

Deferred Costs - Loss on Refunding (5,713,129) (6,533,250)

Hedging Liability 11,400,990 9,608,481

Deferred Bond Activity $5,687,860 $3,075,231

As currently structured, UNC Health has no authority to issue debt. Only the individual entities within UNC Health have assets and revenue that can be pledged as collateral for the debt.


Annual requirements to pay principal and interest (including swap arrangements) on the bonds outstanding at June 30, 2020 are:

Fiscal Year Principal Interest Total

2021 $20,485,000 $28,032,195 $48,517,195

2022 22,430,000 27,494,864 49,924,864

2023 23,435,000 27,009,663 50,444,663

2024 24,480,000 26,495,598 50,975,598

2025 25,610,000 25,961,644 51,571,644

2026 - 2030 146,140,000 120,299,795 266,439,795

2031 - 2035 96,700,000 103,225,714 199,925,714

2036 - 2040 92,415,000 89,737,643 182,152,643

2041 - 2045 192,430,000 69,321,644 261,751,644

2046 - 2050 224,105,000 25,514,608 249,619,608

Total $868,230,000 $543,093,369 $1,411,323,369

Annual requirements to pay principal and interest on the outstanding notes and capital leases payable at June 30, 2020 are:

Fiscal Year Principal Interest Total

2021 $8,650,990 $1,010,044 $9,661,033

2022 7,310,676 913,215 8,223,891

2023 5,077,188 824,952 5,902,140

2024 17,178,442 383,877 17,562,318

2025 1,309,252 221,211 1,530,463

2026 - 2030 7,113,925 522,582 7,636,507

2031 - 2035 1,543,832 0 1,543,832

Total $48,184,304 $3,875,880 $52,060,184

Note 5 // Pension Plans

UNC Health has a variety of retirement plans available to its permanent full-time employees. The majority of employees of UNC Hospitals and UNCFP are members of the Teachers’ and State Employees’ Retirement System (TSERS) as a condition of employment. TSERS is a cost-sharing, multiple-employer, defined-benefit pension plan established by the State to provide pension benefits for employees of the State, its component units and local boards of education. The plan is administered by the North Carolina State Treasurer. Graduate medical residents, temporary employees and permanent part-time employees with appointments of less than 30 hours per week are not covered by the plan.

The Optional Retirement Program (the Program) is a defined contribution retirement plan that provides retirement benefits with options for payments to beneficiaries in the event of the participant’s death. Eligible employees of UNC Hospitals and eligible faculty of UNC CH may join the Program instead of TSERS. The Board of Governors of The University of North Carolina is responsible for the administration of the Program. Participants in the Program are immediately vested in the value of employee contributions. The value of employer contributions is vested after five years of participation in the Program. Participants become eligible to receive distributions when they terminate employment or retire.

REX sponsors a single-employer, defined-benefit retirement plan available to eligible employees. The benefit formula is based on the highest five consecutive years of an employee’s compensation during the 10 plan years preceding retirement. There are no employee contributions to the plan. During the year ended June 30, 2015, the plan was amended to freeze the accrued benefits for all plan participants.

Funding amounts for all of the plans are based upon actuarial calculations.

In addition to the employer plans, UNC Health employees may elect to participate in any number of deferred compensation and Supplemental Retirement Income Plans. These include 401(k) plans, 403(b) plans and 457 plans. All costs of administering and funding the plans are the responsibility of the participants. REX employees may contribute to a tax-deferred annuity plan through which REX matches one half of each participant’s voluntary contributions on a graduated scale based on length of service, not to exceed 5 percent of the participant’s annual salary.

REX offers a full menu of employment benefits to its employees through various third-party carriers. These include medical insurance, dental coverage, short-term and long-term disability benefits and life insurance coverage.

More information about these plans can be found in the individual audit reports of the various entities.

Note 6 // Other Employment Benefits

UNC Hospitals and UNCFP participate in State-administered programs that provide health insurance and life insurance to current and eligible former employees. Funding for the health care benefit is financed on a pay-as-you-go basis based upon actuarial reports. UNC Hospitals and UNCFP assume no liability for retiree health care benefits provided by the programs other than their required contributions. Due to the implementation of GASB 75, liability for retiree health care benefits provided by the program is now carried by employers proportionately.

UNC Hospitals and UNCFP participate in the Disability Income Plan of North Carolina (DIPNC). DIPNC provides short-term and long-term disability benefits to eligible members of the Teachers’ and State Employees’ Retirement System. UNC Hospitals and UNCFP assume no liability for long-term disability benefits under the Plan other than their contribution. Due to the implementation of GASB 75, the liability for long-term disability benefits provided by the program is now carried by employers proportionately.

More information about these plans can be found in the individual audit reports of the various entities.

Note 7 // Risk Management

UNC Health is exposed to various risks of loss related to torts; theft of, damage to and the destruction of assets; errors and omissions; employee injuries and illnesses; natural disasters; medical malpractice; and various employee plans for health, dental and accident. These exposures to loss are handled by a combination of methods, including participation in State-administered insurance programs, purchase of commercial insurance and self-retention of certain risks. There have been no significant reductions in insurance coverage from the previous year.

Liability Insurance Trust Fund – UNC Hospitals and UNCFP participate in the Liability Insurance Trust Fund (the Fund), a claims-servicing public entity risk pool for professional liability protection. The Fund acts as a servicer of professional liability claims, managing separate accounts for each participant from which the losses of that participant are paid.


Although participant assessments are determined on an actuarial basis, ultimate liability for claims remains with the participants and, accordingly, the insurance risks are not transferred to the Fund.

Additional disclosures relative to the funding status and obligations of the Fund are set forth in the audited financial statements of the Liability Insurance Trust Fund. Copies of this report may be obtained from The University of North Carolina Liability Insurance Trust Fund, 5221 Paramount Parkway, Suite 230, Morrisville, NC 27560.

Note 8 // Escrow For Certified Public Expenditures (CPES)

With the help of the North Carolina Hospital Association, UNC Health entered into an agreement with other Public Hospitals in North Carolina to receive the benefit of additional Certified Public Expenditures (CPEs) (as defined by Federal Regulation 45 CFR 95.13 and 42 CFR 433.51) from public hospitals (as defined in the North Carolina State Plan for Medicaid payments) which decided to assist UNC Health in meeting its obligations to fund the remaining Disproportionate Share Hospital (DSH) allotment. DSH payments are special payments for hospitals which serve a disproportionate share of low income patients. By making additional CPE’s available, the public hospitals risk possible DSH overpayments that would require repayment to state or federal agencies. In order to mitigate the public hospitals’ risk, UNC Health established a reserve fund to be held in escrow. The fund will reimburse participating public hospitals for any repayments that should result from this program. At June 30, 2020, $86,705,194.74 was held by the Escrow Agent, First Citizens Bank & Trust Company.

Note 9 // Related Party Transactions

The Medical Foundation of North Carolina, Inc. – UNC Hospitals and UNCFP are participants in The Medical Foundation of North Carolina, Inc., a nonprofit foundation for the University of North Carolina at Chapel Hill and UNC Hospitals, which solicits gifts and grants for both entities. The Board of Directors of the Medical Foundation administers the funds of the Foundation. Transactions are recorded only by the Foundation. If the Foundation were to purchase any equipment for UNC Hospitals, then the amount would be recorded at the time of receipt on UNC Hospitals’ financial statements.

UNC Health Care System Enterprise Fund – The Board of Directors of UNC Health authorized and approved the creation of the UNC Health Care System Enterprise Fund (The System Fund) to support UNC Health’s mission and vision to be the nation’s leading public academic health care system. Pursuant to a memorandum of understanding effective July 1, 2005, UNC Hospitals, UNCFP, REX and the UNC-CH School of Medicine agreed to finance the Enterprise Fund. The System Fund enables fund transfers among entities in the health system in support of the Board’s vision to be the nation’s leading public academic health care system.

The System Fund assesses, holds, and allocates funds across the entities of UNC Health. Initially formed as the Enterprise Fund to facilitate investments in support of the clinical, academic and research missions of UNC Health and the UNC School of Medicine, the Enterprise Fund today exists as a subaccount within the System Fund. Since its formation, the System Fund has been used to enable additional types of transfers between entities of UNC Health. As such, the Enterprise Fund, Outreach Fund, Patient Safety Fund, Recruitment Fund, and Shared Administrative Services Fund each function as subaccounts of the System Fund.

Henderson County Hospital Corporation d/b/a Margaret R. Pardee Memorial Hospital (HCHC) – Henderson County is the sole member of HCHC, a North Carolina not-for-profit corporation, which is in turn the

sole member of Henderson County Urgent Care Centers, Inc. and Western Carolina Medical Associates, Inc. HCHC was created by Henderson County to provide for the operation of a community hospital in Henderson County, North Carolina that is dedicated to serving the health care needs of Henderson County citizenry. On June 22, 2011, HCHC signed a management service agreement engaging the Hospitals to conduct and effectively manage the day-to-day operations of Margaret R. Pardee Memorial Hospital and HCHC’s affiliated operations over a term of 10 years. On September 4, 2013, this agreement was extended to a term of 25 years.

Johnston Health Services Corporation – Effective February 1, 2014, Johnston Memorial Hospital Authority (JMHA) and UNC Health entered into a Master Agreement to form Johnston Health Services Corporation (JHSC), a joint venture created to achieve the long-term vision of providing high-quality health care to the residents of Johnston County, North Carolina. Oversight and governance of the joint venture is controlled by a Board of Directors consisting of appointees from both JMHA and UNC Health. UNC Health manages the day-to-day operations of JHSC under the terms of a Management Services Agreement entered into and effective November 1, 2013. UNC Health has a 35.25 percent membership interest in JHSC.

Nash Health Care Systems – Nash Health Care Systems is a nonprofit hospital authority composed of Nash General Hospital, Nash Day Hospital, the Bryant T. Aldridge Rehabilitation Center, Community Hospital and Coastal Plain Hospital. It serves Nash, Edgecombe, Halifax, Wilson and Johnston counties, but draws patients from beyond these areas as well. Nash Health Care Systems signed a management service agreement engaging UNC Health to conduct and manage its operations effective April 1, 2014.

Wayne Health Corporation – Wayne Health Corporation is a private, not-for-profit health corporation located in Goldsboro, North Carolina that operates Wayne Memorial Hospital, Wayne Health Physicians, Wayne MRI, Wayne Health Enterprises, American Management Associates, Wayne Health Properties, and Wayne Health Foundation. It serves patients primarily from Wayne and neighboring counties. Wayne Health Corporation signed a management services agreement with UNC Health on January 1, 2016 to provide certain management services over an initial term of 10 years.

Lenoir Memorial Hospital, Inc. – Lenoir Memorial Hospital, Inc. is a private, not-for-profit hospital located in Kinston, North Carolina that operates Lenoir Memorial Hospital and several physician practices. It serves patients primarily from Lenoir and neighboring counties. Lenoir Memorial Hospital, Inc. signed a management services agreement with UNC Health on May 17, 2016 to provide certain management services over an initial term of 10 years.

The John REX Endowment – The John REX Endowment (Endowment) operates as a 501(c)(3) corporation and is independent of the Board of Directors of UNC Health. Its purpose is to advance the health and well-being of the residents of the greater Triangle area, with specific funds set aside for indigent care and to make grants to support health services, education, prevention and research. In discharging its purposes, priority consideration will be given to any funding requests from REX, UNC Health and their affiliates. The funding source for the Endowment is the $100 million transfer that came from UNC Health in April 2000.

Onslow County Hospital Authority – Onslow County Hospital Authority is the sole member of Onslow Memorial Hospital, Inc., which operates Onslow Memorial Hospital, a not-for-profit hospital located in Jacksonville, North Carolina. The hospital serves patients primarily from Onslow and neighboring counties. Onslow County Hospital Authority entered into a management services agreement with UNC Health, effective January 1, 2019, to provide certain management services for purposes of managing Onslow Memorial Hospital over an initial term of two (2) years.


Note 10 // Community Benefits

In addition to providing care without charge, or at amounts less than established rates to certain patients identified as qualifying for charity care, UNC Health also recognizes its responsibility to provide health care services and programs for the benefit of the community, at no cost or at reduced rates. UNC Health sponsors many community health initiatives, including breast and prostate cancer screenings, cardiovascular and pulmonary awareness and diabetes education programs that ultimately result in the overall improved health of the community. UNC Health also provides contributions, cash and in-kind, to various charitable and community organizations. The costs of these programs are included in operating expenses in the accompanying pro forma statements of revenues, expenses, and changes in net position.

Note 11 // Covid-19 Pandemic

On March 11, 2020, the World Health Organization declared the novel coronavirus (COVID-19) a global pandemic. The COVID-19 pandemic substantially impacted the global economy including significant volatility in financial markets. As a result of the COVID-19 pandemic, patient volumes and associated patient net revenues at Rex’s facilities were significantly reduced in the months of March, April and May, 2020. Rex’s facilities began experiencing gradual and continued improvement in patient volumes in late May as stay-at-home restrictions were eased and hospitals and ambulatory surgery centers were permitted to resume elective surgeries and procedures.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act, among other things, authorized $100 billion in funding to hospitals and other healthcare providers to be distributed through the Provider Relief Fund (PRF). These funds are not required to be repaid provided the recipients attest to, and comply with, certain terms and conditions, including among other things, that the funds are being used for lost operating revenues and COVID-19 related expenses. The U.S. Department of Health and Human Services (HHS) initially distributed $30 billion of this funding based on each provider’s share of total Medicare fee-for-service reimbursement in 2019. Subsequently, HHS distributed an additional $20 billion in CARES Act funding based on an allocation proportional to the providers’ share of 2018 net patient revenue. Distributions of the additional $50 billion were targeted primarily to hospitals in COVID-19 high impact areas, to rural providers, safety net hospitals, skilled nursing facilities and to reimburse providers for COVID-19-related treatment of uninsured patients. As of this writing, UNC Health has received payments of $81,359,555 from the general stimulus distributions of the PRF, an additional $1,743,729 for its skilled nursing facilities, and $27,349,284 in targeted funds for the Rural Health, Safety Net, and High Impact programs. The funds received from HHS are subject to specific terms, conditions and audit by HHS. Noncompliance with any of the terms or conditions is grounds for HHS to recoup some or all of the payments received by UNC Health. Management believes it has complied with the terms and conditions.

The CARES Act also made other forms of financial assistance available to healthcare providers, including through Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advanced Payment Program, which makes available accelerated payments of Medicare funds in order to increase cash flow to providers. UNC Health received $305,006,195 of advance payments, which are recorded in other current liabilities, given that recoupment will not begin until at least 1 year subsequent to receipt of the funding, which will be May, 2021.

UNC Health has also received funding from the Federal Emergency Management Agency, FEMA, to cover COVID-19 related expenses related

to labor, materials, contracts, and equipment. To date UNC Health has submitted to date $76,761,573 of expenses and has received payments for $32,803,438. Under the terms of the funding, periodic audits are required and certain costs may be questioned as not being appropriate expenditures.

Note 12 // Subsequent Events

On July 13, 2020, the Board of Directors of Rex Hospital, Inc. approved a resolution for the issuance of North Carolina Medical Care Commission Health Care Facilities revenue bonds in redemption of the 2010A bonds. The Corporation intends to borrow up to $70,535,000 through the refinancing.

On September 21, 2020, the Board of Directors of UNC Health approved a resolution for the issuance of University of North Carolina Hospitals at Chapel Hill revenue bonds for the purpose of refunding all of the outstanding University of North Carolina Hospitals at Chapel Hill revenue bonds Series 2010B (Build America Bonds). The Hospitals intends to borrow up to $28,280,000 through the financing with a similar term as the existing Series 2010B revenue bonds

In September 2019, the boards of REX and JHSC approved a Letter of Intent to combine operations via a Joint Operating Agreement which was finalized and executed on November 4, 2020. This partnership will expand the organizations’ long history of collaboration to enhance care, improve outcomes and increase access for patients in Johnston and Wake counties. The agreement calls for a long-term commitment to opening new medical facilities in Johnston County, expanding clinical services offered and more.

101 Manning DriveChapel Hill, NC 27514

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