Jefferson University
Physicians
Financial Statements
June 30, 2013 and 2012
Jefferson University Physicians
Table of Contents
June 30, 2013 and 2012
______________________________________________________
Pages
Report of Independent Auditors
1
Financial Statements:
Balance Sheets
2
Statements of Operations and Changes in Net Assets
3
Statements of Cash Flows
4
Notes to Financial Statements
5-11
Independent Auditor’s Report
To the Board of Trustees
Thomas Jefferson University:
We have audited the accompanying financial statements of Jefferson University Physicians (JUP) which
comprise the balance sheets as of June 30, 2013 and June 30, 2012, and the related statements of activities,
changes in net assets and cash flows and for the years then ended.
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of combined financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We
conducted our audits in the accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the combined financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatements of the combined financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to JUP’s
preparation and fair presentation of the combined financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of JUP’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the combined
financial statements. We believe that the audit evidence we have obtained is significant and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects,
the financial position of JUP at June 30, 2013 and 2012, and the changes in its net assets and its cash
flows for the years then ended in accordance with accounting principles generally accepted in the United
States of America.
September 16, 2013
PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1700, 2001 Market Street, Philadelphia, PA 19103-7042
T: (267) 330-3000, F: (267) 330-3300, www.pwc.com/us
Jefferson University Physicians
Balance Sheets
June 30, 2013 and 2012
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Patient receivables, less allowance for doubtful accounts of
$5,301,529 in 2013 and $4,799,318 in 2012
Due from TJUH System
Inventory
Insurance receivable
Other current assets
2013
Total current assets
Non-current portion of insurance receivable
Non-current portion of receivable from TJUH
Investment in joint venture
Building improvements and equipment, net
Total assets
Liabilities and Net Assets
Current liabilities:
Accounts payable and accrued expenses
Accrued compensation
Due to Thomas Jefferson University
Current portion of accrued professional liability claims
Current portion of capital lease obligation
Accrued vacation
Total current liabilities
Accrued professional liability claims
Capital lease obligation
Total liabilities
Unrestricted net assets
Total liabilities and net assets
$39,446,131
25,577,453
$48,516,857
22,901,362
28,853,148
13,502,666
18,425,686
1,153,996
25,836,705
7,753,097
185,908
13,277,500
696,996
126,959,080
119,168,425
65,786,314
7,566,540
631,878
12,867,998
80,340,500
15,010,000
853,936
16,005,605
$213,811,810
$231,378,466
$13,967,985
19,858,360
650,097
31,483,680
28,824
3,739,717
$11,669,248
18,482,168
4,022,415
23,187,500
54,678
3,325,435
69,728,663
60,741,444
119,354,330
-
142,320,642
28,824
189,082,993
203,090,910
24,728,817
28,287,556
$213,811,810
$231,378,466
The accompanying notes are an integral part of the financial statements.
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2012
Jefferson University Physicians
Statements of Operations and Changes in Net Assets
For the years ended June 30, 2013 and 2012
2013
Operating revenues:
Patient service revenue, net of contractual allowance
Provision for bad debts
Net patient service revenue less provision for bad debts
Related party reimbursement for physician services
and professional support
Grants and contracts
Investment income
Other revenues
$283,602,657
(19,067,850)
264,534,807
2012
$271,408,090
(17,351,306)
254,056,784
105,956,644
2,476,141
83,153
2,079,518
95,049,867
3,735,260
64,346
1,424,396
Total operating revenues
375,130,263
354,330,653
Operating expenses:
Salaries and employee benefits
Supplies
Professional liability
Operations and maintenance
Other expenses
Total operating expenses
258,064,367
19,615,337
28,040,749
11,514,071
28,101,446
345,335,970
237,678,255
14,565,667
46,764,263
10,111,259
23,924,013
333,043,457
Excess of revenues over expenses
29,794,293
21,287,196
474,250
(33,827,282)
(26,983,274)
Decrease in unrestricted net assets
Unrestricted net assets, beginning of year
(3,558,739)
28,287,556
(5,696,078)
33,983,634
Unrestricted net assets, end of year
$24,728,817
$28,287,556
TJUH capital transfers
Transfers to Thomas Jefferson University, net
The accompanying notes are an integral part of the financial statements.
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Jefferson University Physicians
Statements of Cash Flows
For the years ended June 30, 2013 and 2012
2013
Cash flows from operating activities:
Decrease in unrestricted net assets
Adjustments to reconcile changes in net assets to net cash
and cash equivalents provided by operating activities:
Depreciation
Provision for bad debts
Transfers to Thomas Jefferson University, net
TJUH capital transfers
Equity loss on investment in joint venture, net of distribution
Increase (decrease) due to changes in:
Patient receivables
Insurance receivable
Inventory
Due from TJUH System
Due to Thomas Jefferson University
Other current assets
Accounts payable and accrued expenses
2012
$(3,558,739)
$(5,696,078)
5,886,596
19,067,850
33,827,282
(474,250)
222,058
1,736,229
17,351,306
26,983,274
535,178
(22,084,293)
9,406,000
185,908
1,693,891
(3,372,318)
(457,000)
(10,783,584)
(19,425,212)
(93,618,000)
(185,908)
(4,300,991)
4,718,840
38,056
105,419,002
29,559,401
33,555,696
(2,676,091)
(2,546,326)
2,757,423
(697,511)
(5,222,417)
2,059,912
(54,678)
(33,827,282)
474,250
(55,029)
(26,983,274)
-
(33,407,710)
(27,038,303)
(9,070,726)
8,577,305
Cash and cash equivalents at beginning of year
48,516,857
39,939,552
Cash and cash equivalents at end of year
39,446,131
$48,516,857
$76,159
$202,663
$4,169
$8,723
Net cash and cash equivalents provided by operating activities
Cash flows from investing activities:
Short-term investments, net
Purchase of building improvements and equipment
Net cash and cash equivalents (used in) provided by
investing activities
Cash flows from financing activities:
Repayment of capital lease obligation
Transfers to Thomas Jefferson University, net
TJUH capital transfers
Net cash and cash equivalents used in financing activities
Net (decrease) increase in cash and cash equivalents
Supplemental disclosure of cash flow information:
Accounts payable related to building improvements and equipment
Cash paid during the year for interest
The accompanying notes are an integral part of the financial statements.
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Jefferson University Physicians (“JUP”) is a non-profit corporation formed under the laws of the
Commonwealth of Pennsylvania. It consists of 17 departments with approximately 622
physician members. The University does not provide professional physician services. Therefore,
JUP was formed to allow faculty of Thomas Jefferson University (the “University”) to conduct
clinical practices while supporting educational and research activities of the University. JUP
maintains an affiliation with TJUH System, Inc. (“TJUH”), an integrated health care
organization.
JUP has been recognized as a tax-exempt organization pursuant to Section 501 (c)(3) of the
Internal Revenue Code.
Basis of Presentation and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Management considers critical accounting
policies to be those that require more significant judgments and estimates in the preparation of
the financial statements including, but not limited to, recognition of net patient service revenue,
which includes contractual allowances and provisions for bad debt and estimates for healthcare
professional and general liabilities. Management relies on historical experience and other
assumptions believed to be reasonable relative to the circumstances in making judgments and
estimates. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments in highly liquid debt instruments with
an original maturity of three months or less when purchased and are carried at cost which
approximates fair value.
Short Term Investments
Investments are stated at fair value. These securities are available for use, if needed, for current
operations. Investments include cash equivalents and U.S. Treasury obligations. The fair value of
these securities is based on quoted market prices in active markets or dealer or brokered
quotations obtained from national securities exchanges.
Investment in Joint Venture
JUP is a 40% owner in a partnership that provides outpatient imaging services and accounts for
the investment under the equity method.
Building Improvements and Equipment
Building improvements and equipment are carried at cost on the date of acquisition.
Depreciation expense is computed on a straight-line basis over the estimated useful lives of the
assets.
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable amounts from patients,
third-party payors and others for services rendered. Revenue from a single third-party payor
accounted for approximately 23% of the net patient revenue for fiscal years 2013 and
2012. Revenue from the Medicare program accounted for approximately 17% of the net patient
service revenue for the fiscal years 2013 and 2012.
Provision for Bad Debts
The provision for bad debt expense is based upon management’s assessment of expected net
collections considering economic conditions, historical experience, trends in health care
coverage, and other collection indicators. Periodically throughout the year, management assesses
the adequacy of the allowance for uncollectible accounts based upon historical write-off
experience by payer category, including those amounts not covered by insurance and history of
cash collections. The results of this review are then used to make any modifications to the
provision for bad debt expense to establish an appropriate allowance for uncollectible accounts.
After satisfaction of amounts due from insurance and reasonable efforts to collect from the
patient have been exhausted, JUP follows established guidelines for placing certain past-due
patient balances with collection agencies, subject to terms of certain restrictions on collection
efforts as determined by JUP. Accounts receivable are written off after collections efforts have
been followed in accordance with JUP policies.
Grants and Contracts
The American Recovery and Reinvestment Act of 2009 established incentive payments under the
Medicare and Medicaid programs for certain health care providers that meaningfully use
certified electronic health record technology by 2014. JUP is accounting for these incentives
using the Gain Contingency accounting model. Accordingly, when all contingencies have been
met and the funds have been received, JUP recognizes these incentives as revenue. JUP
recognized $2.5 million and $3.7 million in fiscal year 2013 and 2012, respectively as grants and
contract revenue in the statement of operations.
Compensation and Academic Contributions
Compensation is paid to physicians based upon cash receipts and various qualitative factors.
Contributions are made to support the education and research missions of the University.
Contributions are included in the statement of operations and changes in net assets as transfers to
Thomas Jefferson University.
Charity Care
Of JUP’s $345.2 million and $333.0 million of total operating expenses reported for the years
ended June 30, 2013 and 2012, respectively, an estimated $1.1 million and $914,000 arose from
providing services to charity patients for the years ended June 30, 2013 and 2012, respectively.
The estimated costs of providing charity services are based on a calculation which applies a ratio
of costs to charges to the gross uncompensated charges associated with providing care to charity
patients. The ratio of cost to charges is calculated based on JUP’s total operating expenses
divided by gross professional activity revenue.
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
New Accounting Standards
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP- In May 2011 new guidance was issued requiring disclosure of the valuation process,
including valuation techniques and inputs used in the fair value for its Level 2 investments. JUP
adopted this guidance on July 1, 2012.
Health Care Entities: Presentation and Disclosure of Net Revenue, Provision of Bad Debts, and
the Allowance of Doubtful Accounts for Healthcare Entities – In July 2011, new guidance was
issued requiring bad debts relating to patient service revenue to be separately disclosed in the
statement of operations and reported as a component of net patient service revenue. JUP adopted
this guidance on July, 1 2011.
Presentation of Insurance Claims and Related Insurance Recoveries - In August 2010, new
guidance was issued for the presentation of insurance claims and associated insurance recoveries
for healthcare organizations. Under the new guidance, healthcare entities are required to reflect
their "gross" exposure to claims liabilities with a corresponding receivable for insurance
recoveries in order to be consistent with other industries. This guidance became effective for
JUP on July 1, 2011.
Charity Care Disclosure - In August 2010, new guidance was issued regarding the measurement
basis used in the disclosure of charity care. The guidance requires that the disclosures related to
the level of charity care provided should be based on a healthcare organization's estimated direct
and indirect costs of providing the services and that a healthcare organization should separately
disclose the amount of charity care reimbursed by third parties. In addition, disclosure of the
method used to identify or determine such costs is required. This guidance became effective for
the JUP on July 1, 2011.
2. FAIR VALUE MEASUREMENT
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or
liabilities that the University has the ability to access at the measurement date;
Level 2 Inputs other than quoted prices that are observable for the asset or liability either
directly or indirectly, including inputs in markets that are not considered to be
active;
Level 3 Inputs that are unobservable.
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
Inputs are used in applying the various valuations techniques and broadly refer to the assumption
that market participants use to make valuation decisions. An investments level within the fair
value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement. However, the determination of what constitutes “observable” requires significant
judgment. The categorization of an investment within the hierarchy is based upon the pricing
transparency of the instrument and does not necessarily correspond to JUP’s perceived risk of
that instrument.
Investments whose values are based on quoted market prices in active markets, are therefore
classified within Level 1, and include certain money market securities.
Investments that trade in markets that are not considered to be active, but are valued based on
quoted market prices, dealer quotations or alternative pricing sources supported by observable
inputs are classified within Level 2. They included certain U.S. government obligations, most
government agency securities, and investment-grade corporate bonds. Also, included in this
category are commingled fixed income funds. As Level 2 investments, they include positions
that are not traded in active markets and/or subject to transfer restrictions.
JUP has no Level 3 investments at June 30, 2013 or 2012. There were no transfers between
Levels 1 and 2 during 2013 or 2012.
The following table presents the cash and cash equivalents and short-term investments carried on
the balance sheet by level within the valuation hierarchy as of June 30, 2013 (in thousands):
Cash and cash equivalents
Fixed income securities:
U.S Treasuries
Total
Level 1
$39,447
Level 2
$2,541
Level 3
-
Total
$41,988
$39,447
23,036
$25,577
-
23,036
$65,024
The following table presents the cash and cash equivalents and short-term investments carried on
the balance sheet by level within the valuation hierarchy as of June 30, 2012 (in thousands):
Cash and cash equivalents
Fixed income securities:
U.S. Treasuries
Total
Level 1
$48,516
Level 2
$3,765
Level 3
-
Total
$52,281
$48,516
19,137
$22,902
-
19,137
$71,418
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
3. BUILDING IMPROVEMENTS AND EQUIPMENT
Building improvements and equipment at June 30, 2013 and 2012 are as follows:
2013
2012
Building improvements
Equipment
Construction in progress
Less: accumulated depreciation
$7,462,787
34,037,173
422,043
(29,054,005)
$6,033,913
32,217,500
921,600
(23,167,408)
Total building improvements and equipment, net
$12,867,998
$16,005,605
JUP recorded $5.8 million and $1.7 million of depreciation expense for the years ended June 30,
2013 and 2012, respectively. Depreciation expense is reflected in the line item other expenses
on the statements of operations and changes in net assets. Included in depreciation expense for
the fiscal year ended June 30, 2013 is additional depreciation of $3.5 million associated with an
electronic medical record information system. Management has determined that it is probable
that the existing system will be replaced prior to the end of its previously estimated useful life.
For financial reporting purposes, JUP uses straight-line depreciation over the assets’ estimated
lives, which are as follows:
Buildings and building improvements
Fixed equipment
Major moveable equipment
20-40 years
5-10 years
5-10 years
4. PENSION PLANS
JUP has a defined contribution plan for employees who work at least 1,000 hours a year. JUP
makes contributions to the plan based on a percentage of compensation and years of service
within limits as established by the IRS. Employees become fully vested after one year of
service. Contributions to the plan for each of the years ended June 30, 2013 and 2012 were
approximately $11.9 million and $11.3 million, respectively.
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
5. PROFESSIONAL LIABILITY CLAIMS
JUP maintains professional liability insurance under both self-insured and alternative risk
financing insurance programs. For all self-insured programs JUP accrues for estimated retained
risk liability arising from both asserted and unasserted claims. The estimate of liability is based
upon an analysis of historical claims data as prepared by an independent actuary. Accrued
professional liability claims of $150.8 million and $165.5 million were included in the
consolidated balance sheets at June 30, 2013 and 2012, respectively, using discount rates of 3%
at June 30, 2013 and 2012. Pursuant to the requirements of Accounting Standards Update No.
2010-24, Presentation of Insurance Claims and Related Insurance Recoveries, included in the
accrued professional liability claims is $84.2 and $93.6 million at June 30, 2013 and 2012,
respectively, related to estimated liabilities that have been transferred to third parties. A
corresponding receivable of $84.2 and $93.6 million is included in Insurance receivable in the
balance sheet at June 30, 2013 and 2012, respectively.
Professional liability expense of $28.0 million and $46.8 million is included in the statement of
operations for the years ended June 30, 2013 and 2012, respectively.
Effective July 1, 2005, JUP maintains professional liability insurance through a policyholderowned, Vermont-domiciled, risk retention group, Mountain Laurel Risk Retention Group, Inc.
(“RRG”), which is owned by Jefferson Health System (JHS). For the professional liability
coverage only, the RRG is 100% reinsured by a JHS sponsored, non-profit captive protected cell
insurance company, Five Pointe Insurance Company, domiciled in Delaware.
JUP participates in the Medical Availability and Reduction of Error Fund (“MCARE Fund”),
which is a Pennsylvania governmentally authorized entity that consists of coverage with limits of
$500,000 per medical incident and a $1.5 million annual aggregate per physician. The annual
assessments for MCARE Fund coverage are based on the schedule of occurrence rates approved
by the Insurance Commissioner of Pennsylvania for the Pennsylvania Professional Liability Joint
Underwriting Association multiplied by an annual assessment percentage. No provision has
been made for any future MCARE Fund assessments in the accompanying consolidated financial
statements as JUP’s portion of the MCARE Fund unfunded liability cannot be reasonably
estimated.
While management continues to monitor the factors used in making these estimates, the ultimate
liability for professional and general liability claims could differ from current estimates due to
the inherent uncertainties involved in making such estimates.
TJUH has agreed to partially fund JUP payments for professional liability settlements in excess
of primary and MCARE coverage limits. Pursuant to these agreements, $1.7 million and $12.0
million is included in the related party reimbursement for physician services in the statement of
operations and changes in net assets for the years ended June 30, 2013 and 2012, respectively.
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Jefferson University Physicians
Notes to Financial Statements
June 30, 2013 and 2012
6. COMMITMENTS AND CONTINGENCIES
JUP is involved in litigation and regulatory investigations arising in the ordinary course of
business. Based on the information currently available, in the opinion of management, all such
matters are adequately covered by commercial insurance or by accruals, and if not so covered,
are of such kind, or involve such amounts, as would not have a material adverse effect on the
financial position or results of operations of JUP.
7. LINES OF CREDIT
JUP has available an unsecured line of credit of $5.0 million at June 30, 2013, under which there
were no borrowings as of June 30, 2013. This arrangement does not have a termination date and
is reviewed periodically. No compensating balance is required or maintained.
8. RELATED PARTY
JUP and the University provide TJUH with physician and non-physician personnel and other
support necessary to preserve and maintain the tertiary care capacity of TJUH. As a result, JUP
receives funds from the University and TJUH. Additionally in 2013 and 2012, TJUH agreed to
partially fund JUP payments for professional liability settlements. Refer to Note 5. The amounts
recognized for the years ended June 30, 2013 and 2012 were $106.0 million and $95.0 million,
respectively. Included in due from TJUH on the blance sheet is $21.1 million and $22.7 million
at June 30, 2013 and 2012 respectively.
JUP supports the education and research missions of the University. For the years ended June
30, 2013 and 2012 the amounts were $37.4 million and $29.6 million, respectively and are
included in transfers to Thomas Jefferson University, net.
The University provides support to certain clinical programs in JUP. The amounts provided for
the years ended June 30, 2013 and 2012 were $3.6 and $2.7 million, respectively. These
amounts are included in transfers to Thomas Jefferson University, net.
The University provides JUP the following services: administrative, finance, legal, human
resources, internal audit, information systems, maintenance, and security services. The amounts
charged to JUP were $5.7 million and $5.3 million, respectively and are recorded as part of other
expenses on the statement of operations and changes in net assets for the years ended June 30,
2013 and 2012..
9. SUBSEQUENT EVENTS
JUP has monitored subsequent events from the date of the balance sheet through September 16,
2013. No material items were noted that would require an adjustment to or disclosure in the
financial statements.
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