Beyond 60 Years of Care: Preparing for the Future
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM
2012 ANNUAL REPORT
BOB HARRISON, president of the Patient and Family
Advisory board for the N.C. Cancer Hospital;
JOEL RAY, rn , msn , director, Surgery Service
COVER PHOTO COURTESY OF
TOM FULDNER
PHOTO CREDITS
BRIAN STRICKLAND
RICHARD PRUDHOMME
DAN SEARS
ROBERT CAMPELL PHOTOGRAPHY
CONTRIBUTING WRITER
AMY FULK
Table of Contents
introduction
UNC Health Care: Providing Excellent Care Today, Poised for the Future
2
60 Years of Adapting to Change Shaped the UNC Health Care System
4
Leading, Teaching, Caring
8
Leading, Teaching, Caring
10
Leading, Teaching, Caring
12
Community Benefit Report 2012
14
financials and statistics
Letter of Transmittal
18
UNC Health Care System Reporting Structure
21
The Board of Directors
22
Management’s Discussion and Analysis
23
Pro Forma Statement of Net Assets
26
Pro Forma Statement of Revenues and Expenses
27
Pro Forma Statement of Cash Flows
28
UNC Physicians & Associates Statement of Net Assets (Unaudited)
29
UNC Physicians & Associates Statement of Revenues and Expenses (Unaudited)
30
UNC Physicians & Associates Statement of Cash Flows (Unaudited)
31
Pro Forma Selected Statistics and Ratios
32
Notes to Financials
33
Generations of Caring were recognized and celebrated during the 60th Anniversary events held throughout the year.
2012 ANNUAL REPORT
1
UNC Health Care: Providing Excellent Care Today, Poised for the Future
UNC Hospitals opened its doors six decades ago with a purpose: to
serve the health care needs of North Carolinians. As we celebrate the
accomplishments that have laid the foundation of our organization, we
also must recognize the important work we are currently doing to address
the changing needs of the people who depend on us for care.
We continue to collaborate with our partners
and leaders across the state on innovations
that will allow us to meet the challenges of the
future. Our synergies with the UNC School
of Medicine allow us to train residents in
underserved areas where the need for care is
urgent. Our partnerships with other hospitals
in North Carolina allow us to deliver care
and access to life-saving treatments more
efficiently and cost-effectively.
The commitment and curiosity of our
researchers has enabled us to be included
among the best in the country. A recent
report by U.S. News & World Report listed
the UNC School of Medicine as #11 in
research dollars. That ranking played a
significant role in the University of North
Carolina at Chapel Hill’s current position
among the top 10 universities in overall
research funding.
This Annual Report tells the story of how
we are working together to make a real
difference for each patient who walks
through our doors. Our commitment to
patient care, research and teaching will
ensure that our organization grows stronger
well into the future.
In addition, two of our researchers recently
made significant strides in the battle against
HIV. Dr. Myron Cohen and Dr. David
Margolis are leading clinical trials that show
promise for eventually being able to prevent
HIV and finding a cure for the disease.
ACCOMPLISHMENTS
Behind all of the work we do is a dedicated
group of individuals. Together, UNC Health
Care and the UNC School of Medicine
staff have earned widespread recognition
in the form of awards, accolades and
accomplishments. UNC Hospitals was named
one of the top 65 hospitals for patient safety
and quality by the Leapfrog Group—the only
hospital in North Carolina on the list.
We also were honored with a first place ranking
among Triangle hospitals in all 10 categories
of the 2011 Hospital Consumer Assessment
of Healthcare Provider Systems survey.
2
UNC HEALTH CARE
For the 20th year in a row, specialty
departments within UNC Hospitals were
included in the 2012 U.S. News & World
Report rankings.
• Cancer: 43rd
• Gynecology: 34th
• Ear, nose and throat: 42nd
In addition, eight specialties were named
“high performing,” which means they
are within the top 25 percent of hospital
specialty departments in the nation. The eight
specialties are: cardiology and heart surgery,
gastroenterology, nephrology, pulmonology,
diabetes and endocrinology, geriatrics,
neurology and neurosurgery, and urology.
The School of Medicine and its campuses
in Chapel Hill, Asheville and Charlotte
continue to be nationally recognized as
leading institutions for medical education.
The School was ranked by U.S. News &
World Report as the #2 school in the country
for primary care and #21 for research.
We have entered into an agreement with
WakeMed, focusing on both education and
addressing the mental health needs of Wake
County. We are working with Wake County
officials to provide managerial and clinical
services at WakeBrook Campus, and we
will begin operating a new 16-bed inpatient
psychiatric program in 2013.
WORKING TOGETHER FOR PATIENTS
Our accomplishments in care, education
and research position us to better serve
patients—those we already have, and those
who will need our services in the future.
North Carolina’s population is expected to
grow by 4 million people in the next 18
years, and our state’s health care challenges
will grow along with it. Access to quality
medical care will be critical as we move
forward. We recognize that we must work
with partners across the state to identify and
address the needs of North Carolinians.
As health care continues to change, more
community hospitals are partnering to
provide higher quality care more effectively.
Our longtime partnerships with Rex
Healthcare in Raleigh and Chatham
Hospital in Siler City, and more recent
partnerships with Pardee Hospital in
Hendersonville, High Point Regional
Health System and Caldwell Memorial
Hospital in Lenoir, allow us to better serve
more patients, all while keeping trusted
local providers in place.
EDUCATION AND CARE ACROSS
THE STATE
The average physician-to-patient ratio in
North Carolina is low—nine physicians per
10,000 patients. The need for physicians
becomes even more severe in rural and
economically vulnerable areas.
The UNC School of Medicine and UNC
Health Care continue to work together to
mitigate the health care challenges in the
rural areas of our state. One of the ways we
do this is by providing our residents with
opportunities to train in underserved areas
across North Carolina.
UNC Family Medicine’s new Underserved
Residency Program is the first of its kind
in North Carolina and one of a few similar
programs in the country. The program
is being implemented at Prospect Hill
Community Health Center in Caswell
County, where there are 3.4 physicians
per 10,000 patients. We hope that as the
program grows, it will become a model for
meeting the needs of the underserved in
our state.
Our students continue to train at satellite
campuses in Charlotte and Asheville, and
we are in partnership with others to provide
more medical education opportunities in
our state. The School currently is partnering
with Blue Cross and Blue Shield of North
Carolina to create a Master’s of Physician
Assistant Studies degree program. This
program will be available to veterans who
have an undergraduate degree as well as
medical training and experience as Special
Forces Medical Sergeants.
We provide care for patients from all 100
counties of the state, and we continue
to be there when our patients need us.
UNC Lineberger recently was approached
by Carteret General Hospital to form a
partnership for cancer treatment in the
area. Through this partnership, we will help
provide comprehensive cancer treatment
and support services for patients in the area,
who will now have access to our research,
technology and clinical staff.
On behalf of UNC Health Care staff, faculty
and patients, thank you. Your continued
support makes it possible for us to provide
affordable, excellent patient care; to conduct
groundbreaking medical research; and to
train the next generation of physicians.
Sincerely,
William L. Roper, MD, MPH
Chief Executive Officer
The University of North Carolina
Health Care System
Tim Burnett
Chairman, Board of Directors
(November 2012-Present)
The University of North Carolina
Health Care System
UNC Health Care is proud to be a partner
in addressing the health care needs of our
state. While there are challenges ahead, we
are confident that our dedicated faculty
and staff will meet those challenges while
maintaining a focus on our mission.
2012 ANNUAL REPORT
3
60 Years of Adapting to Change Shaped the UNC Health Care System
On Sept. 2, 1952, North Carolina’s first and only state-owned hospital
opened its doors. Sixty years later, that hospital has transformed into a
fully integrated health care system that is connected to communities all
across North Carolina—and is better able than ever to fulfill its statemandated mission of providing quality patient care, training physicians
and health care professionals, and advancing innovative research to help
find cures and save lives.
The UNC Health Care System actually had its roots in the 1940s,
when state leaders were looking for solutions to North Carolina’s
dismal state of public health. The state had the nation’s highest
rejection rate in America of World War II draftees due to health
issues, and infant and child death rates also were among the highest
in the country. A third of North Carolina’s counties had no local
hospital, and shortages of doctors and nurses were severe.
As a result, and with a groundswell of public support, the General
Assembly approved the Good Health Plan in 1947 to help address
North Carolina’s significant health problems. The Plan included
expanding the University’s medical education program from a
two-year curriculum to a four-year school and building a large
teaching hospital, N.C. Memorial Hospital, to partner with the
UNC School of Medicine.
4
UNC HEALTH CARE
In the six decades since N.C. Memorial opened, the hospital has
undergone many changes in order to enhance its ability to serve the
state’s health care needs. Four other hospitals and several clinics have
been built on and around the Chapel Hill campus; together these
facilities now are called UNC Hospitals, and they serve patients
from all 100 counties.
To reach patients outside Chapel Hill, the statewide Area Health
Education Centers (AHEC) program was developed to connect
UNC Hospitals to communities across North Carolina. AHEC
trains the next generation of physicians and health care professionals,
many of whom practice in rural or underserved areas of the state.
UNC’s School of Medicine, the largest in North Carolina, has
expanded to allow students to spend their third and fourth years
at satellite campuses in Charlotte or Asheville. Community-based
pilot projects, statewide clinical trials, and telemedicine networks
Drs. William McLendon and Colin Thomas were presented with the Order of the Long Leaf Pine for work to make UNC Health Care one of the nation’s leading academic
medical centers and for their efforts to preserve its history for future generations.
supported by the University Cancer Research Fund and other
sources are other ways UNC Health Care positively impacts local
residents and communities.
Cancer Genome Atlas project. UNC’s HIV-prevention research
was named the “2011 Scientific Breakthrough of the Year” by
Science magazine.
The mission of the UNC Health Care System is rooted in the state
laws that created it: to provide quality patient care to the people of
North Carolina, to educate tomorrow’s physicians and health care
professionals, and to conduct groundbreaking research that can help
find cures. UNC Health Care has earned high marks in each of its
mission areas and is widely known as one of the best health care
systems in the nation.
“We aspire to be the nation’s leading public academic health system,”
said Dr. William L. Roper, MD, MPH, CEO of UNC Health Care.
“UNC Health Care is proud to be a partner in addressing North
Carolina’s health needs, and we know that the next several years will
be years of change—and challenges.”
PATIENT CARE: UNC Hospitals has the No. 1 ranking for
patient-centeredness in the country, has more than a dozen
specialties ranked in U.S. News and World Report, and has achieved
a rare Magnet designation for nursing excellence. The Leapfrog
Group named UNC as one of the top 65 hospitals nationwide—
and the only hospital in North Carolina—for patient safety and
quality in 2011.
TEACHING: The UNC School of Medicine is ranked second in
the nation for primary care and 21 for research, according to U.S.
News and World Report, with several specialties also receiving high
rankings. UNC is the eighth most popular medical school in the
country, and North Carolina is home to more than 4,500 School
alumni and former UNC Hospitals residents.
st
RESEARCH: UNC is sixth among all public schools, and 15th
overall, in NIH funding, and faculty members have been at the
forefront of many groundbreaking research projects, including the
The emergence of managed care sparked drastic changes in the
health care market, and many hospitals and health care providers
began to consolidate and grow into large networks in response to
the new market structure. Realizing that the state-owned hospital
system also had to adapt to continue its service to the people of
North Carolina, the General Assembly merged UNC Hospitals
and the School of Medicine in 1998, creating the UNC Health
Care System and giving it the flexibility and authority it needed to
operate in such a complex and rapidly changing field.
“We are not immune from the pressures to build larger networks or
from requests from smaller community and regional hospitals to be
assimilated into our network,” Dr. Roper said. “We have a shared
responsibility for improving health outcomes and reducing costs.”
Today, the system is an interdependent organization of hospitals,
the medical school, physicians, nurses, researchers, teachers and
students. It includes UNC Hospitals, UNC Faculty Physicians,
UNC Physicians Network, Rex Healthcare in Raleigh, Chatham
Hospital in Siler City, and managed affiliates, Pardee Hospital in
2012 ANNUAL REPORT
5
Kirby believes the future of health care, especially once the
Affordable Care Act is fully implemented, will require a stronger,
more coordinated focus on population health and communitybased health services. UNC Health Care’s presence in western North
Carolina, through its work with Pardee and Mission Hospitals and
its satellite medical campus in Asheville, allow UNC to expand its
clinical and educational portfolio in a region hundreds of miles
away from the Chapel Hill campus.
Celebrating the 60th Anniversary of the Volunteer Association, an integral part of carrying out UNC Health Care’s mission.
Hendersonville, Caldwell Memorial Hospital in Lenoir, and High
Point Regional Health System. UNC Health Care will open a
medical office in Hillsborough in 2013, and a new cancer center
at Rex Healthcare is expected to open in 2014. UNC Health
Care also has an ongoing partnership with WakeMed in Raleigh,
which was expanded last year when UNC agreed to invest
in community-based mental health services and an inpatient
psychiatric hospital in Wake County.
Sen. Tom Apodaca, a Hendersonville Republican who serves as
chair of the N.C. Senate Rules Committee and supported the
expanded agreement between UNC and WakeMed, said UNC
Health Care must be able to compete in the health care market and
form successful partnerships in order to meet its three-fold mission
of patient care, medical education and innovative research.
“Our responsibility is to provide the best services we can to
residents,” Sen. Apodaca said. “UNC Health Care is a vital part of
providing care for the people of North Carolina.”
Health care now makes up nearly 20 percent of the GDP. The
movement toward larger and more integrated care networks will
only escalate in the coming years as providers prepare for the
Affordable Care Act to take effect and as they collaborate to provide
coordinated care for growing numbers of patients—all while trying
to rein in rising health care costs.
Consolidation and change is occurring across North Carolina, not
just at UNC. In the past year, Duke Health partnered with LifePoint
Hospitals, a for-profit health care company, to own and manage
community hospitals in North Carolina and the surrounding region.
Carolinas Healthcare System signed a 10-year agreement to manage
Greensboro-based Cone Health and is having conversations with
New Hanover Regional in Wilmington for a similar arrangement.
6
UNC HEALTH CARE
“I see UNC changing with the population aging and with the
hospital environment changing,” Sen. Apodaca said. “Lots of
hospitals can’t stand alone financially, and there is a lot of movement
toward consolidation. The aging population will stretch the system
even more. UNC will play a critical role in providing services to
those hospitals.”
Dr. Roper said forming partnerships with other providers can help
drive down health care costs through greater effectiveness and
efficiency. Just as important, these partnerships enable a continuum
of care that allows patients to receive quality care in low-cost
settings near their homes. UNC Health Care provides management
expertise, along with clinical and research capabilities, to strengthen
local providers’ ability to serve their communities.
“The key to successful partnerships has been maintaining local
governance and community involvement,” he said. “These local
institutions are vital to their communities.”
Pardee Hospital, a not-for-profit community hospital in
Hendersonville founded in 1953, is one of those vital community
institutions. Henderson County’s second-largest employer, Pardee
has a main hospital licensed for 222 acute care beds and several
other facilities separate from the main campus.
Like many smaller independent hospitals, Pardee saw the need to
join forces with another provider to maximize its ability to provide
services in an increasingly competitive landscape. Last year, it
entered into a management agreement with UNC Health Care.
“We had a forward-thinking hospital board and board of
commissioners who recognized that we had a changing
environment—and an increasingly competitive environment in
terms of hospitals, physicians and employment,” Pardee CEO Jay
Kirby said. “Scale and brand mattered, and we needed to seek a
partnership. UNC has a strong commitment to clinical excellence,
and Pardee Hospital is fortunate to be part of UNC Health Care.
Our first year of partnership has exceeded our expectations, and we
look forward to continuing to grow together.”
Through leveraging purchasing power, implementing a productivity
benchmarking system and other steps, Pardee Hospital has realized
more than $3 million in savings through its partnership with UNC
Health Care. Stronger alignment and communication with local
physicians, as well as access to UNC subspecialty experts, research
capabilities and managerial insights, have enhanced Pardee’s service
to its community, Kirby said.
Pardee has changed its logo to reflect the importance of its
agreement with UNC, incorporating the Old Well icon and
a Carolina blue font. Rick Prudhomme, director of Creative
Marketing and Communications at Pardee, said co-branding
with UNC shows the sincerity of the collaborative and strategic
partnership between the two entities.
“These are the same people at Pardee who have always cared for our
community for the past 60 years, but UNC provides subspecialty
clinics, medical manpower and other resources that we wouldn’t
otherwise have,” Prudhomme said. “Our community is expected to
grow 30 percent over the next 20 years, and UNC’s expertise and
input will help us plan for the future.”
“As the federal government demands better outcomes and better
value, scale matters for UNC Health Care in terms of better managing
population health to meet the state’s needs,” Kirby said. “As UNC
grows, it continues to pick up some ideas from those of us in smaller
markets—not just Pardee, but also Chatham and High Point—as it
continues to reach out to new partners and adapt to these changes.”
Dr. Roper said successful collaborations between UNC Health Care
and its partners—both existing and future ones—will be essential
in facing North Carolina’s greatest health care challenges, including
stroke, cancer and heart disease.
“By partnering with others to improve access to care in North
Carolina, we can mitigate the challenges of the future and improve
the overall health of our communities,” Dr. Roper said. “UNC
Health Care does not do this alone. We have partners across the
state to connect communities with the health care resources they
need, provided by the local hospitals and doctors they trust.”
Sen. Apodaca, who has been a supporter of UNC’s strategic growth
from a health care policy standpoint, recently had first-hand
experience with UNC’s partnerships from a patient’s perspective.
This summer he underwent successful open heart surgery at
Mission Hospital in Asheville, after doctors at UNC Health Care
found blockage in his arteries.
“I have never been a UNC fan in sports,” he said, “but I am definitely
a fan of UNC Hospitals.”
North Carolina’s population is expected to grow by 4 million people
by 2030, and that population also is growing older. In 20 years, more
than 2 million people age 65 and older will live in North Carolina—
that is one-fifth of the state’s entire population. They will need more
care and for a longer time period as lifespans continue to rise.
At the same time, the physician population is aging, and by 2020,
one-third of today’s practicing physicians will have retired. North
Carolina will have 25 percent fewer primary care doctors than
needed. UNC’s growing medical school, and UNC Health Care’s
training partnerships with hospitals across the state, will be critical
in addressing the anticipated shortage of physicians—particularly in
rural and underserved areas.
UNC Hopsitals’ President Gary Park, left, with William Lapsley, right, president of
the Pardee Hospital board of directors.
2012 ANNUAL REPORT
7
Leading, Teaching, Caring
UNC Health Care strives to be a leading academic medical institution, and
research is central to its mission. In 2012, UNC rose from 12th to 10th among
all universities in funding from the National Institutes of Health, receiving
more than $340 million in support of faculty research. The human impact
of UNC research is even more important than the economic one. Patients
have access to treatments and trials that could help them individually,
and scientific discoveries are enhancing doctors’ long-term ability to treat
diseases like cancer, heart disease, AIDS and many other illnesses.
Myron Cohen, MD, and David Margolis, MD, lead research teams
at the UNC Center for Infectious Diseases that are researching HIV
and AIDS in hopes of eradicating the disease. About 33 million
people are living with HIV globally and more than 1 million of
those live in the United States, according to the U.S. Centers for
Disease Control and Prevention (CDC).
People with the HIV/AIDS virus can lead relatively normal lives if
they have access to and can afford antiretroviral treatment. Current
HIV therapy stops the virus from reproducing, but it does not cure
the disease. For many people with the virus, lifelong treatment is not
feasible because of the cost or because they do not have access to it.
8
combination with other promising clinical trials, the results have
galvanized efforts to end the world’s AIDS epidemic in a way that
would have been inconceivable even a year ago.”
While antiretroviral treatment is effective in stopping the AIDS virus
from reproducing, and could also slow the spread of HIV, lifelong
treatment is expensive and is not available to everyone who needs it.
After an infected person has taken antiretroviral therapy for years, it is
common to be unable to detect HIV in his or her blood—but once a
patient stops taking the medication, the virus comes back.
In 2011, Dr. Cohen reached a major milestone when a multi-site,
international clinical trial he led definitively showed that standard
HIV antiretroviral treatment also works to prevent the disease. If
the treatment-as-prevention idea can be applied broadly, it would
greatly slow HIV’s spread.
Soon after a person is infected with HIV, a few copies of the HIV
virus “hide” inside the body. Called latent infection, these are the
copies that cause the virus to come back once treatment stops. Dr.
Margolis has found that the chemotherapy drug Vorinostat can force
latent HIV to start expressing HIV genes again to bring latent copies
of the virus out of hiding. His next step is to try to determine how to
eradicate the latent HIV once it is forced out of hiding.
The prestigious journal Science named Dr. Cohen’s findings the
“Breakthrough of the Year” in 2011. The journal’s editors wrote, “In
AIDS experts hope that a cure will one day become reality, and Drs.
Cohen and Margolis are on the front lines in working to reach that goal.
UNC HEALTH CARE
Myron Cohen, MD, division chief for UNC Center for Infectious Diseases
David Margolis, MD, professor of medicine and microbiology, immunology, and
epidemiology in the UNC School of Medicine
INTERNATIONAL COLLABORATION
The breast cancer reports, which Dr. Perou co-authored with Katie
Hoadley, PhD, helped identify some of the genetic causes of the
most common forms of breast cancer and suggested new therapeutic
targets. The breast cancer group also found molecular similarities
between ovarian cancer and one sub-type of breast cancer, and was
the first study to integrate information from six analytic technologies
to provide new insights.
UNC is also on the front lines of an ambitious cancer project called
The Cancer Genome Atlas (TCGA), the biggest effort in genetic
research since the original effort to sequence the human genome. A
project of the National Cancer Institute and the National Human
Genome Research Institute, TCGA is an unprecedented, large-scale
collaboration to genetically characterize the entire genome of 20
different cancer types in an effort to better understand the DNA errors
that cause human tumors to grow uncontrolled—the basis of cancer.
Funds from the University Cancer Research Fund were used to
invest in genomic technology that helped UNC take a leadership
role as one of 12 cancer centers involved in TCGA and leverage
this into more than $20 million in outside research funds for this
project. The project is fueling rapid advances in cancer research
including categorizing tumors in new ways, identifying new
therapeutic targets, and allowing clinical trials to focus on patients
who are most likely to respond to specific treatments.
“It’s the most exciting time ever to be a scientist or clinical scientist
working in cancer genetics,” said Chuck Perou, PhD, who with Neil
Hayes, MD, led a team of UNC researchers in performing the RNA
sequencing and analysis for all the major TCGA reports.
The TCGA reports have given researchers new insights that were
never before possible. For example, the research group in colon and
rectal cancer found that these two cancers are, genetically speaking,
nearly indistinguishable, and that colorectal tumors with high
levels of genetic errors were more aggressive. Todd Auman, PhD,
helped author this report, which is helping doctors improve the
development of treatments that target colorectal cancer.
Dr. Hayes was a major author on the lung cancer report, which
discovered a large number and variety of DNA mutations that
appear to have important effects on the initiation and progression
of a common type of lung cancer, and identified new potential
therapeutic targets. These findings should stimulate new clinical
trials for patients with this lung squamous cell carcinoma.
Dr. Hayes said TCGA is making data sets publicly available, including
the 25 trillion base pairs of RNA sequenced by the UNC project, so
that scientists around the world can use it for analysis and publication
of their own interpretations. “These data sets are huge and spectacular,”
he said. “Knowledge is being generated faster than we can absorb it.”
Medical Devices Approved for Use by FDA
Two devices tested at UNC Hospitals that repair damage to the
body’s main artery have been approved by the U.S. Food and Drug
Administration for use in the United States. Mark Farber, MD, director
of UNC Aortic Disease Management, was the national principal
investigator for both trials.
UNC Health Care is one of only a few centers in the United States to
offer comprehensive, minimally invasive treatment of complex aortic
disease. With these newly approved devices, patients with aortic disease
or injury have more life-saving options available through minimally
invasive endoscopic surgery.
The RELAY thoracic stent graft is specifically designed to treat
thoracic aortic aneurysms, which occur in the aorta as it passes through
the chest and which are the 13th leading cause of death in the nation.
The RELAY device is made in a wide range of sizes so treatment can be
provided to broader segments of patients.
The TAG thoracic endoprosthesis is used to repair traumatic tears
in the aorta, which causes profuse bleeding and high mortality. Until
now, surgical repair has been the only treatment option for these types
of tears. The endovascular repair that the TAG enables is a less-invasive
approach that reduces patient pain and recovery time.
2012 ANNUAL REPORT
9
to have local community physicians practicing medicine in a rural
community,” Dr. Wroth said. “That’s why we say community health
centers offer the right care at the right place at the right cost.”
UNC is developing a new physician assistant program for veterans
with similar levels of medical training and experience. The 24-month
Master of Physician Assistant Studies degree will include classroom
experience and clinical rotations throughout the state.
TAPPING INTO A VALUABLE RESOURCE
A physician assistant program for veterans with medical experience
is another way UNC is working to address the looming shortage of
health care providers–and to help veterans re-enter the job market
after leaving the military. This initiative relies on collaboration
with military installations, private-sector partners, and clinics and
alumni across the state.
Since 2009, the School has been working with the medical training
center at Fort Bragg, offering Special Forces Medical Sergeants
additional training in critical care services at UNC to supplement
their extensive war surgery training. As an offshoot of that initiative,
Leading, Teaching, Caring
Blue Cross Blue Shield of NC has pledged to help fund the program.
The GI Bill will help soldiers pay for their educational costs, but
a private scholarship committee will be formed to raise additional
money for scholarships. Outreach efforts to School alumni who are
veterans will help broaden support for the program.
Through collaborative projects like these, the School of Medicine is
working to address specific workforce challenges in the health care
field. Strong partnerships across the state enable UNC to succeed
in its mission of educating North Carolina’s next generation of
physicians and health care professionals.
Since the UNC School of Medicine was expanded into a four-year program
60 years ago, it has been the state’s most prolific producer of new physicians.
Today there are more than 4,500 alumni and former UNC Hospitals residents
in North Carolina, and satellite campuses in Charlotte and Asheville opened
in 2012 for third- and fourth-year students.
Nationally recognized for the quality of its educational programs,
UNC’s medical school is ranked second in the country for primary
care and 21st in research by U.S. News and World Report. Through its
N.C. Area Health Education Centers program, UNC Health Care
offers educational training to providers across the state, focusing on
underserved and rural areas.
During the next two decades, as the current generation of doctors
nears retirement age—and as North Carolina’s patient population
grows and ages–UNC is more committed than ever to addressing the
expected physician shortage. Collaborating with partners is critical to
the success of these efforts.
PREPARING TO SERVE THE UNDERSERVED
A new residency program at UNC Family Medicine—the first of its
kind at UNC and one of a few trendsetting programs in the nation—
trains family doctors to practice in underserved and vulnerable
areas across the state and nation. The Underserved Track provides
residents with the opportunity to care for diverse patient populations
that often have significant health disparities.
“The goal of this project is to form North Carolina’s first teaching
health center—to create a partnership between community health
centers and our academic medical center to train family medicine
physicians to provide care to vulnerable communities,” said Evan
Ashkin, MD, a UNC faculty member who serves as the program’s
site director. “The teaching health center will give family medicine
10
UNC HEALTH CARE
residents a very real experience of caring for our vulnerable neighbors,
increasing the likelihood that those doctors will begin their
professional practices in rural communities across North Carolina.”
Residents have their continuity clinic experience at the Prospect
Hill Community Health Center, a rural Federally Qualified Health
Center (FQHC) located 27 miles northeast of Chapel Hill in
Caswell County. Prospect Hill is the oldest FQHC site in North
Carolina and is part of the Piedmont Health system of health
centers in the region. In addition to medical care, the health center
offers dental care, on-site pharmacy, nutrition, care management
and migrant/seasonal farm worker outreach services that give UNC
residents an opportunity to function as part of an interdisciplinary
team. All services are available in Spanish to meet the needs of a
large group of Spanish-speaking patients.
Christina Drostin and Mimi Miles, the program’s inaugural residents,
are now training and providing care at Prospect Hill. “Academic and
clinical links to UNC and a practice that has been grounded in the
community for 40 years make Prospect Hill the perfect location
for this partnership,” said Tom Wroth, MD, Piedmont’s Medical
Director. The program looks to add four residents during the next
two years, for a total of six resident physicians training at Prospect
Hill, which will also increase access to care for the community.
“It is a win-win situation for Piedmont Health and UNC, but it also
is a win for the community of Prospect Hill and surrounding areas
A Unique Surgical Training Opportunity
In January, the UNC School of Medicine established an innovative multidisciplinary surgical skills lab that will bring together
three neurosciences departments: Ophthalmology, Neurosurgery, and Otolaryngology/Head and Neck Surgery.
The training facility will be the only one of its kind in the region and will provide training opportunities to medical students,
residents, fellows and physicians across the state.
“Training future generations of eye surgeons to serve the people of North Carolina is one of our top priorities,” said Donald
L. Budenz, MD, MPH, professor and chair of Ophthalmology at UNC Health Care. “The new surgical training center will
greatly enhance our educational mission by providing our residents with a state-of-the-art facility where they can practice and
learn from our world-class surgeons.”
Funded by a $1 million gift from the North Carolina Eye Bank, the facility includes a simulation lab with access to robotic
stations and anatomic computer-based simulators, and the entire training lab is wired for telecommunications.
“This gift is a transformative investment in the training of ophthalmologists, neurosurgeons and ENT surgeons,” said Matthew
Ewend, MD, professor and chair of the Department of Neurosurgery. “Patients can expect that the physicians of North Carolina
who take advantage of this training lab will be armed with the best and newest techniques.”
2012 ANNUAL REPORT
11
2010, supports more than 150 physicians in 34 practices and is in the
process of expanding to other parts of the state. The network provides
operational support to physician practices so doctors can focus on
prevention, wellness, and improving patient satisfaction and outcomes.
Member physician practices coordinate with UNC Hospitals and
UNC Physicians and Associates in Chapel Hill, Chatham Hospital
in Siler City and Rex Hospital in Raleigh, to give patients convenient
access to specialty care services such as cancer care, heart and vascular
surgery, neurosciences and other nationally recognized services.
Leading, Teaching, Caring
State leaders established N.C. Memorial Hospital 60 years ago because North
Carolina’s basic health care needs were simply not being met—which is why
caring for patients is such an important part of UNC Health Care’s mission
today. Individualized, compassionate and accessible care is a top priority not
only in UNC Hospitals and its clinical facilities, but also through statewide
collaborations with community-based physician and hospital partners.
UNC Hospitals is home to 277 of the nation’s Best Doctors,
according to U.S. News and World Report, and is among only 6
percent of all U.S. hospitals to have earned Magnet designation
for excellence in nursing. These outstanding physicians and nurses
work together to ensure that all patients in UNC Hospitals get the
high-quality care they need and deserve.
UNC Health Care is fortunate to have forged strong health care
partnerships across the state. Establishing cooperative centers of care
in local hospitals, affiliating with a growing number of physician
practices, and using telemedicine to connect with patients and
providers are some of the ways UNC Health Care is working to care
for patients in communities throughout North Carolina.
WORKING TOGETHER TO EXTEND CARE
In 2012, the UNC Lineberger Comprehensive Cancer Center
worked with Carteret General Hospital to establish a cancer
care partnership to serve patients in Carteret County and the
surrounding areas. The affiliation will promote community-wide
strategies to improve cancer screening and early detection, enhance
treatment planning and consultation, enable telemedicine for
patient case consultation and training for medical personnel, and
provide Carteret General with access to clinical trials and other new
resources to help cancer patients.
12
UNC HEALTH CARE
The decision to collaborate with UNC Health Care complements
the steps that Carteret General Hospital had already been taking
toward a comprehensive cancer center that would offer radiation
and oncology services in one setting, including establishing a nurse
navigator to provide patients with needed guidance and support.
“We are excited to join forces with UNC Lineberger and UNC
Cancer Care,” said Richard Brvenik, MHA, president and CEO
of Carteret County General Hospital. “This collaboration will
benefit cancer patients and families from our region and build
upon the high-quality cancer services already provided by our
hospital and medical staff.”
Through this partnership, Carteret County became the latest
community to join the UNC Cancer Network, which connects
UNC researchers and clinicians to community physicians and clinics
across North Carolina. The network, whose outreach programs are
funded primarily through the University Cancer Research Fund,
aims to move research into practice and to provide patients with the
best cancer services available.
The cancer network is just one of several statewide networks allowing
UNC to collaborate with community-based physicians. The UNC
Physicians Network, which began in the Raleigh/Durham area in
Patient Becomes Medical Student
Providing improved mental health services in Wake County has been
a great concern of health care leaders in recent years. In 2012, UNC
Health Care pledged to invest $30 million to develop and operate
at least 28 inpatient psychiatric beds in Wake County to address
crisis and emergency demand. It also will fund additional outpatient
services and assume management of crisis services, assessment services
and the voluntary inpatient substance abuse program at WakeBrook,
the county’s 19-acre mental health and addictions treatment campus.
Wake County had been talking to UNC about helping with local
mental health services ever since the state decided to close Dorothea
Dix Hospital. The agreement will allow for a stable transition for
patients and provide a higher level of mental health and substance
abuse services in Wake County, meaning people who need help will
not rely on emergency rooms for treatment.
At a more statewide level, the UNC Center for Excellence in
Community Mental Health, in partnership with the North Carolina
Area Health Education Centers and the North Carolina Psychiatric
Association, has established the North Carolina Community Mental
Health Medical Directors’ Network to help support psychiatrists
and other physicians as the state’s system of mental health continues
to evolve and face new challenges.
“UNC Health Care is committed to working together with
community partners and stakeholders to provide the best possible
care to the Wake County residents who need behavioral health
services,” said William L. Roper, MD, MPH, CEO of UNC Health
Care. “We are exploring ways to improve programs and services with
an eye toward what is best for Wake County citizens who depend on
these critical services.”
For first-year UNC medical student Katy Sims, caring for patients is
highly personal. She decided to become a doctor while undergoing
treatment for Ewing’s sarcoma, a type of bone cancer that affects
children and young adults.
Sims had just begun her freshman year at Davidson College when
she was diagnosed. After a surgery to remove the tumor, along with
three ribs, Sims endured 14 cycles of chemotherapy. Her personal
experience as a young adult oncology patient—and a challenge from
a cancer nurse—put her on the path to medical school and a career
of caring for others.
At the time of her treatment, Sims was a dual language major and had
thought about a career as a medical interpreter. But, she remembers,
“This nurse had been with me at my first hospital admission and had
always been there when I was having chemotherapy. She asked me what
I was going to do when I finished my therapy. I said, ‘I’m going to get
back to my life. Make it exactly the way it was before.’ And she asked,
‘Really? So all of this was for nothing? You’re not changing anything?’ I
asked her, ‘What do you think I should change?’ And she said, ‘I think
you should be a doctor.’”
At her next treatment visit, Sims told the nurse she was going to become
a doctor and switched to a pre-med biology major. After graduating
from Davidson in 2011, she applied for medical school at UNC.
Sims thinks her cancer experience will shape her medical education
for the better. “I understand what the patients are going through. I
know pain, I know death, I know fear and I know illness. Many of my
classmates are coming to medical school from a different point of view. I
am in it for being able to take care of patients and taking care of myself
by taking care of people.”
2012 ANNUAL REPORT
13
1
$750,000
event to recognize local veterans
for their service
to Piedmont Health
to improve access to care
40,000
miles walked through
our Mallwalker programs
Community Benefit Report 2012
$72,500
in scholarships presented
by the UNC Hospitals
Volunteer Association
UNC Health Care has always embraced its unique place in
its local community and across the state. It is a health care
provider, an educator and corporate citizen; each role carrying
with it certain responsibilities. Its physicians and staff have
embraced these duties and were formally recognized this
past year for their efforts with the Duke Energy Citizenship
and Service Award. The presentation took place at the Chapel
Hill-Carrboro Chamber of Commerce’s annual meeting in
January 2012 and marked the first time in the Chamber’s
history the award has been presented to a group of employees
rather than to an individual or an organization.
UNC Health Care’s employees were recognized for efforts that led
to the addition of new jobs, the development of a new hospital
campus in Hillsborough, and continuing to expand in Wake and
Chatham Counties. They also were recognized for their number one
ranking in the University Health System Consortium’s Quality and
Accountability Scorecard for overall “patient-centeredness.”
Chris McGrath, Linda Bynum and Lucy McMillan were chosen to
accept the award in recognition of their volunteer service to their
local communities and for their membership in UNC Health Care’s
Employee Ambassador Program.
The Ambassador program was created to help better connect
employees with their communities support employees who give
back. Through the Employee Ambassador Recognition Program,
UNC Health Care makes a one-time donation up to $250 to any
qualified 501(c)3 non-profit organization to which an employee
gives 50 or more hours of their time.
Executive Vice President and COO Brian Goldstein, MD, MBA, recognizes an
Employee Ambassador for her volunteer efforts in the community.
The award is presented annually to a business or person who
demonstrates a commitment to service and civic participation,
and who participates in activities that set a standard and foster
a culture for citizenship, service and community responsibility.
Also, recipient/s should demonstrate one or more of the following
business values: integrity, stewardship, inclusion, initiative,
teamwork, and accountability.
14
UNC HEALTH CARE
15,000
items collected for local schools
“I really appreciate that we have this program to recognize how
people are giving in their off time,” said McGrath who volunteers
as an assistant scoutmaster with Boy Scout Troop 213. “It makes it
easier for us to do things like take a trip or to purchase equipment.”
In 2012, UNC Health Care recognized 40 Employee Ambassadors
who volunteered close to 4,300 hours with dozens of local charities.
2012 ANNUAL REPORT
15
300
Coordinated mock crashes for
4,300
high school students
Employee Ambassadors volunteered close to
hours with local charities
1,000
10,000
Pharmacy Assistance Program prescriptions dispensed
$13 million
in Pharmacy Assistance Program benefits to patients
Financials and Statistics
CHAPEL HILL, NORTH CAROLINA
For the year ending June 30, 2012
COMMITMENT TO COMMUNITY HEALTH
UNC Health Care encourages wellness and healthier lifestyles
through several programs each year. The organization sponsored
the Healthiest You Fitness Challenge for 97.9 FM and 1360 AM
WCHL this year. Sixty-four participants were chosen from more
than 400 applicants to be a part of one of the Challenge’s eight
teams. With UNC Health Care’s support, participants were given
access to a wide range of fitness facilities in the Chapel HillCarrboro community. This included yoga, Pilates, swimming,
massage, jazzercise, boot camp training, dancing, and spin classes. It
also provided one-on-one consultations with nutritionists, access to
the UNC Wellness Center at Meadowmont and the chance to be a
part of team workouts led by their coach.
By the end of the eight-week challenge, the teams lost a combined
300 pounds.
“It’s more about a lifestyle change than just losing weight,” said
George Wayson, director of the UNC Wellness Center and coach of
one of the Challenge’s teams. To mark his team’s progress, Wayson
used a very unusual but effective method.
“Once a week, after our team workout, we would step out into the
parking lot and push my truck up an incline. We would mark where
we stopped, and each week our goal would be to push that truck
just a little farther.”
Another way UNC Health Care is helping local residents live
healthier lifestyles is through its Mallwalker programs at The Streets
at Southpoint in Durham and University Mall in Chapel Hill. Since
2002 at Southpoint and 2008 at University Mall, these programs
have provided community members the opportunity to stretch
their legs and exercise in safe and comfortable environments. Every
month, guest speakers talk to members about health topics such as
managing diabetes or recognizing the signs of stroke.
“Going to walk is the first thing we think about when we wake
up,” said Franklin Boone one of the program’s top walkers along
with his wife Lois. “It keeps us feeling fit and energized.”
Since its inception 10 years ago, the mallwalking program at
Southpoint has grown to more than 1,200 members who have
logged more than 250,000 miles.
16
UNC HEALTH CARE
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 Care) as established by General Statute 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 Care. The University of North Carolina Hospitals (UNC Hospitals), Rex Healthcare, Inc. (Rex),
Chatham Hospital, Inc. (Chatham), and Triangle Physician Network (As of July 1, 2012, TPN changed its name
to UNC Physicians Network (UNCPN) to better identify with UNC Health Care.) prepare and publish their own
separate audit reports on an annual basis. The University of North Carolina Physicians & Associates (UNC P&A)
is included in the audited 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 Care’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.
Letter of Transmittal
DECEMBER 31, 2012
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 William L. Roper, CEO.
The Financials and Statistics section presents management’s discussion and analysis and pro-forma financial
statements for UNC Health Care and financial statements for UNC P&A. 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 explanations for the reader.
FINANCIAL INFORMATION
Internal Control Structure
UNC Health Care’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 follows the assessment process to ensure the State of North Carolina
and the public that UNC Health Care is committed to safeguarding its assets and provides 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 Care is responsible for ensuring compliance with all applicable
laws and regulations. A combination of State and UNC Health Care policies and procedures, integrated with a system
of internal controls, provides for this compliance. The accounts and operations of UNC Hospitals and UNC P&A
(as a part of UNC-CH) are subject to an annual examination by the Office of the State Auditor. Rex, Chatham and
UNCPN have annual audits performed by outside independent CPA firms. All five entities are 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 Controls
On an annual basis, UNC Health Care’s Board of Directors approves budgets for UNC Hospitals, UNC P&A,
Rex, Chatham and UNCPN. The budget for UNC P&A also is subject to approval by UNC-CH. Each entity of
UNC Health Care 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. In addition to the monthly reports, an encumbrance system is
maintained by UNC Hospitals and UNC P&A to track open purchase orders and commitments made to vendors.
18
UNC HEALTH CARE
2012 ANNUAL REPORT
19
N.C. General Statute 116-37 granted UNC Health Care flexibility for management of UNC Hospitals in regard
to its policies for personnel and salary management, purchasing of goods, services and property, and property
construction. On an annual basis, UNC Health Care submits a report on its activity under this flexibility. The
report is sent to the Health Affairs Committee of the Board of Governors and the Joint Legislative Commission on
Governmental Operations on or before September 30 each year.
UNC Health Care is subject to the provisions of the Executive Budget Act, except for trust funds identified in N.C.
General Statutes 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 UNC P&A. UNC Hospitals submits monthly
reports to the Office of State Budget and Management that reflect both the state appropriation received and their
overall operations. Under the budgetary procedure followed by the State, all State revenues are appropriated by the
General Assembly pursuant to appropriation acts adopted every two years, with modifications in the second year.
UNC Health Care through UNC Hospitals received State Appropriation of approximately $18 million for the past
fiscal year. The General Assembly appropriates these funds from the General Fund to cover a portion of operating
expenses, including a portion of the expenses attributable to the cost of providing (i) care to indigent patients and (ii)
graduate medical education.
UNC Health Care System Reporting Structure
Board of Directors
Audit and
Compliance
Executive Council
William L. Roper
William L. Roper
CEO
Governmental Affairs
Debt Administration
During the past fiscal year, UNC Hospitals and Chatham Hospital did not enter into new debt-financing arrangements.
Rex Hospital closed a construction loan and issued a note to pay off the construction loan.
Communication
Standard & Poor’s and Moody’s ratings services classify UNC Hospitals’ bonds as AA and Aa3 respectively. Standard
& Poor’s, Moody’s and Fitch classify Rex’s bonds as A+/A1/A+.
Cash and Investment Management
UNC Health Care continues to work with the Office of the State Treasurer to maximize the investment earnings for
UNC Hospitals based on changes in the General Statutes that were made during the 2005 session of the General
Assembly. In addition, UNC-CH has allowed UNC P&A to invest a portion of its funds in an intermediate fund
beginning in FY08. Investment earnings subsidize operating income and enable UNC Health Care 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.
John Lewis
Gary Park
Allen Daugird
Chief Financial Officer
President, UNC Hospitals
President
Chief Information Officer
UNC Health Care
UNC Hospitals
(Chapel Hill)
UNC Physicians
& Associates
Marschall Runge
Executive Dean,
UNC School of Medicine
Risk Management
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. 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. In addition,
we have 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 health care industry. Continual evaluation of existing programs and new service development is
the only way to maintain or increase our competitive advantage.
Acknowledgements
Preparation for this Annual Report in a timely manner would not have been possible without the coordinated
efforts of the various financial staffs within UNC Health Care, with special assistance from the CEO’s office and
Public Affairs office.
John P. Lewis
Chief Financial Officer
The University of North Carolina Health Care System
Managed Care
Strategic Planning &
Networking / Outreach
Shared Services
Rex Hospital
(Raleigh)
Chatham Hospital
(Siler City)
Pardee Hospital
(Hendersonville)
Management Contract
20
UNC HEALTH CARE
UNC Physicians
Network
Facility Planning
Human Resources
Legal Services
Quality & Patient Safety
Risk Management
Management’s Discussion and Analysis
UNC Health Care System Board of Directors
INTRODUCTION
Management’s Discussion and Analysis provides an overview of the financial position and
activities of the University of North Carolina Health Care System (UNC Health Care) for the fiscal
years ending June 30, 2012, and June 30, 2011. The financial statements included for UNC Health
NOVEMBER 2012–OCTOBER 2013
Care — Statement of Net Assets, Statement of Revenues and Expenses, and Statement of Cash
Flows — are labeled “pro forma” to demonstrate that they are an aggregation of assets and liabilities
and results of financial activities that cannot easily be the subject of an unqualified opinion by an
independent auditor. The reasons for the pro forma descriptive are as follows:
Timothy Burnett
Karol Kain Gray
Thomas W. Ross
(Chair)
President, Bessemer Improvement Company
Greensboro, NC
Vice Chancellor for Finance and Administration
Chapel Hill, NC
President, The University of North Carolina
Chapel Hill, NC
A. Dale Jenkins
M. Andrew Greganti, MD
Marschall Runge, MD, PhD
Vice Chair, Department of Medicine
Chapel Hill, NC
Barbara Jessie-Black
Executive Dean, School of Medicine
Chair, Department of Medicine
Director of TraCS
Chapel Hill, NC
Executive Director, PTA Thrift Shop, Inc.
Carrboro, NC
James H. Speed, Jr.
(Vice Chair)
CEO, Medical Mutual Insurance Company of
North Carolina
Raleigh, NC
Anne H. Bernhardt
Vice Chair, Bernhardt Furniture Company
Lenoir, NC
William H. Cameron
President and Principal Engineer, William G.
Lapsley & Associates, P.A.
Hendersonville, NC
President, Cameron Management, Inc.
Wilmington, NC
John W. Lassiter
Susan B. Culp
President, Carolina Legal Staffing LLC
Charlotte, NC
Past Chair, High Point Regional Health System
High Point, NC
Charles D. Owen, III
Allen Daugird, MD, MBA
President, Fletcher Development Group, Inc.
Fletcher, NC
President, UNC Physicians & Associates
President, UNC Physicians Network
Chapel Hill, NC
Reverend Lisa G. Fischbeck
Vicar, The Episcopal Church of the Advocate
Carrboro, NC
Ernest J. Goodson, DDS
Orthodontist
Fayetteville, NC
22
William G. Lapsley
UNC HEALTH CARE
Gary Park
President, UNC Hospitals
Chapel Hill, NC
Roger Perry
President, East-West Partners
Chapel Hill, NC
William L. Roper, MD, MPH
Dean, School of Medicine
Vice Chancellor for Medical Affairs
CEO, UNC Health Care System
Chapel Hill, NC
President and CEO, North Carolina Mutual Life
Insurance Company
Durham, NC
Holden Thorp, PhD
Chancellor, The University of North Carolina at
Chapel Hill
Chapel Hill, NC
Greg Wessling
Business Advisor
Davidson, NC
D. Jordan Whichard
Retired Publisher and CEO, Cox North Carolina
Publications, Inc.
Private Investor
Greenville, NC
Edward Willingham
President, First Citizens Bank
Raleigh, NC
UNC Health Care was established November 1, 1998, by North
Carolina General Statute 116-37. The original legislation included
only the University of North Carolina Hospitals (UNC Hospitals)
and the clinical patient care programs of the University of North
Carolina at Chapel Hill (UNC-CH). UNC Health Care is governed
by a Board of Directors and as an affiliated enterprise of the
University of North Carolina. UNC Health Care and the UNC-CH
are sister entities. Rex Healthcare, Inc. (Rex), Chatham Hospital,
Inc. (Chatham), and Triangle Physicians Network (TPN) have been
added to the organization since its inception. As of July 1, 2012,
TPN changed its name to UNC Physicians Network (UNCPN) to
better identify with UNC Health Care.
As illustrated in the reporting structure on page 21, UNC Health
Care owns and/or controls the net assets and financial operations
of UNC Hospitals, Rex, Chatham and UNCPN. UNC-CH
owns and controls the net assets and financial operations of UNC
Physicians & Associates (UNC P&A). The UNC Health Care
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 UNC P&A. Final direct control
of the monetary operations of UNC P&A remains within UNCCH. The physicians who provide patient care at UNC Hospitals
and in the UNC-CH clinics are employees of the 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 Care.
For purposes of these financial statements, UNC P&A 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 Care (UNC Hospitals, Rex, Chatham
and UNCPN) are separately audited on an annual basis and have
received unqualified opinions for their prior year reports. The
financial activities of UNC P&A are included in the financial report
and audit report of UNC-CH. Since an unqualified audit opinion
on the aggregation of financial information for these entities cannot
be efficiently obtained, we have used the term “pro forma” to describe
fairly the full financial scope and worth of UNC Health Care.
In the interest of being concise, we have included pro forma
consolidated financial statements for UNC Health Care, which
includes UNC Hospitals, Rex, Chatham, UNCPN and UNC
P&A. Since UNC P&A’s financial activities are not separately
disclosed elsewhere, we also are presenting UNC P&A’s Statement
of Net Assets and Statement of Revenues and Expenses for the fiscal
years ending June 30, 2012 and 2011.
USING THE FINANCIAL STATEMENTS
The Governmental Accounting Standards Board (GASB) requires
three basic statements: the Statement of Net Assets; the Statement
of Revenues, Expenses and Changes in Net Assets; and the
Statement of Cash Flows.
Pro forma financial statements are presented and follow reporting
concepts consistent with those required of a private business enterprise.
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 Financials provide information relative to the
significant accounting principles applied in the financial statements
and further detail 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 the financial statements.
The pro forma Statement of Net Assets provides information relative
to the assets, liabilities and net assets as of the last day of the fiscal
year. Assets and liabilities on this Statement are categorized as either
current or non-current. 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. Net assets on this Statement are
categorized as invested in capital assets (net of related debt), restricted
or unrestricted. Restricted net assets are categorized as expendable
2012 ANNUAL REPORT
23
for the purposes noted. Management estimates are necessary in
some instances to determine current or noncurrent categorization.
Overall, the pro forma Statement of Net Assets provides information
relative to the financial strength of the organization and its ability to
meet current and long-term obligations.
The pro forma Statement of Revenues and Expenses provides
information relative to the results of the organization’s operations,
non-operating activities and other activities affecting net assets,
which occurred during the fiscal year. Non-operating activities
include noncapital gifts and grants, investment income (net of
investment expenses) and loss realized on the disposition of capital
assets. Other activities include change in fair value of investments
and gain or loss on affiliate activity. Under GASB, the subsidies
from the State of North Carolina in the form of appropriations
and bond interest expense are considered non-operating activities;
but for these pro forma statements, they are presented as operating.
Overall, the pro forma Statement of Revenues and Expenses provides
information relative to the management of the organization’s
operations and its ability to maintain its financial stability.
The pro forma Statement of Cash Flows provides information relative
to UNC Health Care’s sources and uses of cash for operating
activities, non-capital financing activities, capital and related
financing activities, and investing activities. The Statement provides
a reconciliation of beginning cash balances to ending cash balances
and is representative of the activity reported on the pro forma
Statement of Revenues, Expenses and Changes in Net Assets as adjusted
for changes in the beginning and ending balances of noncash
accounts on the pro forma Statement of Net Assets.
The Notes to the Financials provide information relative to the
significant accounting principles applied in the financial statements,
authority for and associated risk of deposits and investments,
information on long-term liabilities, accounts receivable, accounts
payable, revenues and expenses, pension plans and other post
employment benefits, insurance against losses, commitments and
contingencies, accounting changes, and a discussion of adjustments
to prior periods and events subsequent to the enterprise’s financial
statement period when appropriate. Overall, 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 2012 TO 2011
Data for 2012 and 2011 are presented in this report and discussed
in the following sections. Discussion in the following sections is
pertinent to fiscal year 2012 results and changes relative to ending
balances in fiscal year 2011.
while net assets increased by 7.1 percent during the year ending June
30, 2012. Assets increased overall by $275 million or 11.2 percent
from fiscal year 2011 to 2012, with much of this growth occurring
in current assets. Asset growth was attributable to positive operations,
increases to patient accounts receivable, increases to capital assets, and
most significantly, increases in receivables related to the UPL program.
Beginning in 2012, UNC Health Care’s entities transitioned from
being reimbursed through the Medicaid cost report to participating
in a newly implemented Upper Payment Limit (UPL) program.
equipment throughout the facilities including $4.1 million on
computer software and an additional $67 million on the acquisition
of land, buildings, infrastructure and renovations.
Liabilities increased $154.6 million or 20.0 percent from fiscal
year 2011. The largest increases within the current liabilities
section occurred in the “due to state of North Carolina component
units,” “accounts payable,” and the “accrued salaries and benefits”
categories. The increase in the amount due to state of North
Carolina component units resulted from the timing of payments
related to Mission Support and Home Office Expenses. Accounts
payable increased due to the timing of payments and the amount
of invoices processed during the exercise of capturing all applicable
invoices in the correct fiscal year. Accrued salaries increased with
FTE growth, salary growth and with increased number of calendar
days in 2012 compared to last year, as well as an increase in the
employee incentive accrual.
Chatham continued significant capital investment in infrastructure
projects, primarily the Meditech Hospital Information System and
the newly completed Medical Office Building.
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
For the year, UNC Health Care generated an operating margin
of 6.1 percent, or $142.1 million on net operating revenue of
$2.3 billion. The 13.3 percent increase in operating revenues was
primarily the result of volume growth and increased payments
from negotiated payor contracts. Operating expenses grew at a
slower 12.8 percent rate, the result of continued aggressive cost
containment efforts and decreased medical malpractice expense. In
order to remain financially strong, to reinvest in new facilities, and
to retain the most highly trained work force, UNC Health Care’s
goal is to average at least 4 percent for its annual operating margin.
Nonoperating performance was negative, attributable to poor
investment performance during the year. UNC Health Care
continues to recover from several consecutive years of depressed
investment performance. Additionally, UNC Health Care made
UPL payments of $4.7 million to the UNC School of Medicine
and Rex Healthcare made distributions of $6.5 million to noncontrolling partners of joint ventures.
Net income was $120.7 million, a 5.2 percent margin. Positive
operations were impaired by the declining investment market and
the timing of UNC Hospitals’ transfer to a new investment manager.
Discussion of Capital Asset and Long-Term Debt Activity
CAPITAL ASSETS
Analysis of Overall Financial Position and Results of Operations
24
STATEMENT OF NET ASSETS
UNC Health Care continued to improve and modernize its facilities
during the past year.
The statements reflect a successful system, with total assets in excess of
$2.7 billion. Total assets increased by 11.2 percent over the prior year,
UNC Hospitals expended $29 million during the year for capital
UNC HEALTH CARE
Rex continued growth seen in prior fiscal years. Capital investments
in fiscal year 2012 consisted primarily of costs incurred in
conjunction with the construction of Rex Healthcare of Holly
Springs, a replacement Central Energy Plant for the main campus,
new inpatient beds and technology assets.
LONG-TERM DEBT ACTIVITY
UNC Health Care 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 arises to finance
construction projects and if the market rates are favorable. UNC
P&A issues its bonds through UNC-CH. As such, its revenues and
assets are a part of the bond covenants of UNC-CH.
UNC Hospitals and Chatham did not enter into new debtfinancing arrangements during the past fiscal year. Rex converted
a $30 million construction loan into a longer-lived note payable.
Standard & Poor’s and Moody’s ratings services classify UNCH’s
bonds as AA and Aa3 respectively. Standard & Poor’s, Moody’s and
Fitch classify Rex’s bonds as A+/A1. Additional information about
debt activity can be found in the notes to the pro forma statements.
Discussion of Conditions that May Have a Significant Effect on
Net Assets or Revenues and Expenses
UNC Health Care derives the vast majority of its operating revenues
from patient care services. Because the System Fund provides no
revenue-generating services, it is entirely dependent upon the
financial wherewithal of the entities within UNC Health Care. In
recent years, the largest entities of UNC Health Care have achieved
strong operating performance. Their performance has enabled the
investments made through the System Fund in support of the
clinical, education and research programs of UNC P&A and the
UNC School of Medicine. These investments have, in turn, yielded
positive results as measured by growth in needed services, expansion
of the medical school class and increased research funding. Further,
UNC Health Care has been able to support the fledgling UNCPN
during its start-up period and Chatham Hospital despite adverse
economic conditions in its primary service area.
The conditions impacting UNC Health Care’s operating entities
constitute the greatest risk to the System Fund. National health
policy changes are altering the financial outlook for health systems.
Adapting to new models requires greater coordination of patient
care, major investments in information technology and an increased
focus on wellness. Successfully managing in the future requires
tighter integration of administrative functions across the entities
of UNC Health Care, caring for patients in lower-cost delivery
settings, and comprising sufficient scale to spread the cost of major
investments across a broad base. UNC Health Care has begun
planning for these changes through a health system-wide planning
and implementation process.
Payments for professional services continue to pressure the
performance of physician providers. The pressure is strongest
in academic medicine. Funding from major sources, patient
care revenues for clinical services, research revenues for research
discovery, and education revenue from State-appropriated funds are
each under pressure and inadequate to fully cover their costs. At the
same time, improvements to the Medicaid payment mechanism will
help reduce what have been large and increasing losses.
The private health insurance market has driven important changes in
patient coverage and in how/when patients seek care. As premiums
have increased in a soft employment market, some employers have
dropped employer-provided insurance. For others, the premiums
have driven plan design decisions that have shifted cost to employees
or created disincentives for seeking care, particularly for elective
procedures. UNC Health Care relies heavily on privately insured
patients as indigent and government payers generally do not cover
the full cost of care. As this trend continues, UNC Health Care will
face increasing pressure to reduce expenses.
Community-based practices face challenges attributable to similar
health care financings and broader economic trends. As such,
many community physicians have sought employment within
health systems. UNC Health Care formed UNCPN to facilitate
employment of community primary care providers. As a startup, UNCPN has required cash infusions to develop central
administrative infrastructure and deploy electronic medical records
in the physician offices. Additionally, primary care practices
historically situated within Rex Hospital, Inc. or UNC Hospitals
moved into UNCPN. The losses from these practices are now
incurred by UNCPN. These capital and operating investments will
continue in future years. Physicians newly employed by UNCPN
also have short-term negative cash flow. Acquiring physical assets
at fair market value constitutes a relatively small investment. More
importantly, UNCPN incurs operating expenses as providers and
their support staffs begin employment with UNCPN. Conversely,
payments for providing patient care typically lag by several months.
To further the mission of promoting the health of North Carolinians,
UNC Health Care contractually agreed to fund the development of
a coordinated system of clinical care for Piedmont Health Services,
Inc. (PHS). PHS is a North Carolina non-profit corporation with
six locations serving 14 counties in the Piedmont region. The
purpose of this development is to increase access to care for the
uninsured. UNC Health Care contributed $750,000 to PHS for
this program during the year ended June 30, 2012, and $750,000
in the year ended June 30, 2011.
2012 ANNUAL REPORT
25
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM
Pro Forma Statement of Net Assets
Pro Forma Statement of Revenues and Expenses
For the Years Ended June 30, 2012, and June 30, 2011
For the Years Ended June 30, 2012, and June 30, 2011
2012
2011 *
CURRENT ASSETS
Cash and investments
Patient Accounts Receivable - Net
Inventories
2012
OPERATING REVENUE
$341,427,738
$307,787,702
279,663,222
243,806,014
Net Patient Service Revenue
State Appropriations
34,088,798
15,849,942
Other Operating Revenue
226,338,659
35,129,256
Net Operating Revenue
Assets Whose Use Is Limited or Restricted
76,605,684
81,481,486
Prepaid Expenses
13,808,395
11,449,761
971,932,496
695,504,162
Other Assets and Receivables
Total Current Assets
2011 *
$2,224,957,586
$1,940,070,963
18,000,000
33,743,133
75,124,714
72,991,480
2,318,082,300
2,046,805,576
1,309,046,418
1,156,046,190
Medical and Surgical Supplies
385,482,040
319,665,219
OPERATING EXPENSES
Salaries and Fringe Benefits
Contracted Services
208,858,655
182,137,843
Property, Plant & Equipment - Net
948,353,932
887,123,721
Other Supplies and Services
116,209,743
106,347,586
Assets Whose Use Is Limited or Restricted
783,323,988
845,705,498
Communications and Utilities
35,083,697
33,161,881
40,254,643
40,232,397
5,026,932
17,917,915
NONCURRENT ASSETS
Other Assets
Total Noncurrent Assets
Total Assets
Medical Malpractice Costs
1,771,932,563
1,773,061,616
Depreciation
87,790,915
83,737,611
2,743,865,059
2,468,565,778
Bond and Other Interest Expense
18,065,571
17,385,262
Medical School Trust Fund (MSTF)
10,413,693
12,344,271
2,175,977,665
1,928,743,778
142,104,635
118,061,798
CURRENT LIABILITIES
Total Operating Expenses
Accounts & Other Payables
149,849,215
81,447,338
Accrued Salaries & Benefits
104,636,203
82,651,378
Estimated Third-Party Settlements
78,836,855
20,475,201
Notes & Bonds Payable
23,381,134
50,231,247
Interest Payable
4,633,384
4,680,512
Interest and Investment Activity
(7,422,449)
122,724,975
Other
8,094,167
15,919,063
Nonoperating Income (Expense)
(1,718,358)
(1,420,220)
369,430,958
255,404,738
Grants
(12,309,123)
(29,895,050)
Total Nonoperating Gains (Losses)
(21,449,930)
91,409,706
$120,654,705
$209,471,504
Total Current Liabilities
OPERATING INCOME (LOSS)
NONOPERATING GAINS (LOSSES)
NONCURRENT LIABILITIES
Notes & Bonds Payable
474,087,057
444,953,056
Compensated Absences
83,802,222
72,317,866
557,889,279
517,270,922
927,320,237
772,675,661
1,816,544,822
1,695,890,117
$2,743,865,059
$2,468,565,778
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
TOTAL LIABILITIES AND NET ASSETS
* 2011
26
UNC HEALTH CARE
NET INCOME (LOSS)
* 2011
restated
restated
2012 ANNUAL REPORT
27
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM // UNC PHYSICIANS & ASSOCIATES
Pro Forma Statement of Cash Flows
Statement of Net Assets (Unaudited)
For the Years Ended June 30, 2012, and June 30, 2011
For the Years Ended June 30, 2012, and June 30, 2011
2012
2011 *
CASH FLOWS FROM OPERATING ACTIVITIES
$114,913,876
$86,946,668
CURRENT ASSETS
$2,164,735,383
$1,902,762,288
Cash and Investments
Payments to Employees and Fringe Benefits
(1,275,577,237)
(1,137,397,913)
Patient Accounts Receivable - Net
30,733,663
29,613,327
Payments to Vendors and Suppliers
(698,262,710)
(641,558,963)
Estimated Third-Party Settlements
31,541,164
37,858,466
Payments for Medical Malpractice
(11,444,003)
(9,167,180)
Other Assets and Receivables
18,497,086
13,936,017
26,330,365
78,794,456
Assets Whose Use Is Limited or Restricted
205,781,798
193,432,688
Net Cash Provided (Used)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Health Care System Grants Paid to UNC
(6,418,817)
(30,000,000)
State Appropriations
18,000,000
33,743,133
Net Cash Provided (Used)
11,581,183
3,743,133
Proceeds from Issuance of Long-Term Debt
6,935,428
4,314,191
202,621,216
172,668,669
Property, Plant & Equipment - Net
1,649,800
3,199,600
Total Noncurrent Assets
1,649,800
3,199,600
204,271,016
175,868,269
Total Current Assets
NONCURRENT ASSETS
CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES
Total Assets
CURRENT LIABILITIES
30,072,000
181,423,722
Accounts and Other Payables
22,959,075
7,972,491
Principal & Arbitrage Paid on Outstanding Debt
(51,514,581)
(93,605,320)
Accrued Salaries and Benefits
18,345,518
12,214,368
Interest and Fees Paid on Debt
(11,161,561)
(12,691,119)
Estimated Third Party Settlements
6,944,026
6,893,882
-
-
Notes & Bonds Payable
1,649,800
1,549,800
Acquisition and Construction of Capital Assets
(100,699,566)
(114,739,455)
Other
Net Cash Provided (Used)
(133,303,708)
(39,612,172)
Total Current Liabilities
11,611,060
20,446,253
Notes & Bonds Payable
Purchase and Sale of Investments, Net of Fees
(49,876,001)
(101,774,560)
Compensated Absences
26,688,000
26,714,455
Investments in and Loans to
Affiliated Enterprises - Net
(12,154,297)
(12,679,152)
Total Noncurrent Liabilities
26,688,000
28,364,255
Net Cash Provided (Used)
(50,419,238)
(94,007,459)
78,124,152
58,828,595
$33,640,035
$63,556,190
NET ASSETS
$126,146,864
$117,039,674
BEGINNING CASH AND CASH EQUIVALENTS
$307,787,702
$244,231,512
TOTAL LIABILITIES AND NET ASSETS
$204,271,016
$175,868,269
ENDING CASH AND CASH EQUIVALENTS
$341,427,737
$307,787,702
Capital Grants
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Income & Other Activity
NET INCREASE (DECREASE)
* 2011
UNC HEALTH CARE
2011
Received from Patients and Third Parties
Other Receipts
28
2012
1,537,733
1,833,799
51,436,152
30,464,340
-
1,649,800
NONCURRENT LIABILITIES
Total Liabilities
restated
2012 ANNUAL REPORT
29
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM // UNC PHYSICIANS & ASSOCIATES
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM // UNC PHYSICIANS & ASSOCIATES
Statement of Revenues and Expenses (Unaudited)
Statement of Cash Flows (Unaudited)
For the Years Ended June 30, 2012, and June 30, 2011
For the Years Ended June 30, 2012, and June 30, 2011
2012
2011
OPERATING REVENUE
Net Patient Service Revenue
Other Operating Revenue
Net Operating Revenue
2011
Received from Patients and Third Parties
$302,544,621
$248,636,372
Payments to Employees and Fringe Benefits
(303,951,905)
(280,810,911)
CASH FLOWS FROM OPERATING ACTIVITIES
$297,297,510
$261,727,831
56,738,651
58,331,714
354,036,161
320,059,545
OPERATING EXPENSES
Salaries and Fringe Benefits
2012
Payments to Vendors and Suppliers
(36,157,941)
(44,366,637)
Payments for Medical Malpractice
(6,721,237)
(7,235,692)
Operating Capital Grants
48,490,345
47,513,766
Other Receipts
46,324,958
45,987,443
Net Cash Provided (Used)
50,528,841
9,724,341
310,056,600
286,783,442
Medical and Surgical Supplies
13,523,754
9,848,940
Contracted Services
14,505,817
14,893,412
Other Supplies and Services
23,835,411
21,481,082
2,256,667
2,538,152
Principal & Arbitrage Paid on Outstanding Debt
826,810
7,243,418
Interest and Fees Paid on Debt
1,671,762
1,575,169
Acquisition and Construction of Capital Assets
Communications and Utilities
Medical Malpractice Costs
Bond and Other Interest Expense
Medical School Trust Fund (MSTF)
Total Operating Expenses
10,413,693
12,344,271
377,090,514
356,707,886
CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES
(1,549,800)
(1,449,800)
(221,962)
(225,369)
100,000
100,000
(1,671,762)
(1,575,169)
334,847
2,484,028
Investments in and Loans to Affiliated
Enterprises - Net
(21,224,718)
(6,754,470)
Net Cash Provided (Used)
(20,889,871)
(4,270,442)
$27,967,208
$3,878,730
$86,946,668
$83,067,938
$114,913,876
$86,946,668
Net Cash Provided (Used)
CASH FLOWS FROM INVESTING ACTIVITIES
OPERATING INCOME (LOSS)
(23,054,353)
(36,648,341)
NONOPERATING GAINS (LOSSES)
Interest and Investment Income
Nonoperating Income (Expense)
-
(6,754,470)
Transfers from HCS Enterprise Fund
53,051,414
49,762,454
Total Nonoperating Gains (Losses)
32,161,543
45,492,012
$9,107,190
$8,843,671
NET INCOME (LOSS)
UNC HEALTH CARE
2,484,028
(21,224,718)
Transfers to HCS Enterprise Fund
30
334,847
Investment Income & Other Activity
NET INCREASE (DECREASE)
BEGINNING CASH AND CASH EQUIVALENTS
ENDING CASH AND CASH EQUIVALENTS
2012 ANNUAL REPORT
31
Notes to Financials
THE UNIVERSITY OF NORTH CAROLINA HEALTH CARE SYSTEM
Pro Forma Selected Statistics and Ratios
For the Years Ended June 30, 2012, and June 30, 2011
NOTE 1 // SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION – The University of North Carolina Health Care System
UNCPN
SITES
2012
UNC
HEALTH
CARE
TOTAL
2011
UNC
HEALTH
CARE
TOTAL
(UNC Health Care) was established November 1, 1998, by North Carolina General
Statute 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.
REX
SITES
CHATHAM
SITES
UNC
SITES
115,210
2,125
250,304
367,639
359,129
25,768
548
37,744
64,060
65,361
4.0
3.1
6.5
5.7
5.5
9,160
21
12,084
21,265
20,592
Outpatient Operating Room Cases
20,869
587
16,862
38,318
37,375
Emergency Department Visits
57,832
14,565
73,469
145,866
135,889
The University of North Carolina Hospitals – The University of North
Clinic Visits
67,389
-
869,809
1,242,634
1,070,306
5,505
-
3,522
9,027
9,428
Operating Margin Percentage
6.13%
5.77%
Operating Margin Percentage (excluding cost report settlements)
6.13%
4.99%
45.88
46.27
Carolina Hospitals at Chapel Hill (UNC Hospitals) is the only state-owned teaching
hospital in North Carolina. With a licensed base of 806 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
and North Carolina Cancer Hospital. As a state agency, UNC Hospitals is required to
conform to financial requirements established by various statutory and constitutional
provisions. While UNC Hospitals is exempt from both federal and State income taxes,
a small portion of its revenue is subject to the unrelated business income tax.
159.08
165.08
73.35
46.36
20.70%
20.80%
Current Debt Service Coverage
3.74
2.10
Maximum Future Debt Service Coverage
6.89
7.82
PATIENT SERVICE STATISTICS
Patient Days
Inpatient Discharges
Average Length of Stay
Inpatient Operating Room Cases
Births/Deliveries
305,436
FINANCIAL RATIOS
Days in Net Accounts Receivable
Days of Cash on Hand (includes investments)
Average Payment Period (days)
Long-Term Debt to Equity
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 including
University of North Carolina Physicians and Associates (UNC P&A). UNC Health
Care is under the governance of the Board of Directors of UNC Health Care. Rex
Healthcare, Inc. (Rex), Chatham Hospital, Inc. (Chatham) and UNC Physician
Network, LLC (UNCPN) have been added to the organization since its inception.
BLENDED COMPONENT UNITS – Although legally separate, Health System
Properties, LLC (the LLC), and Carolina Dialysis, LLC (the CDLLC), are component
units of UNC Hospitals and are reported as if they were part of the Hospitals.
The LLC was established to purchase, develop and/or lease real property. The LLC
is reported as part of the Hospitals because UNC Health Care is the sole member
manager and the LLC is governed by the same Board that directs the Hospitals’
operations. Additionally, the only properties owned to date by the LLC are for the sole
use and benefit of the Hospitals.
The Hospitals has a two-third ownership interest in the CDLLC. Renal Research
Institute owns the remaining one-third interest. A Board of Managers composed of
six members manages the CDLLC, with four appointed by the Hospitals through
the Chief Executive Officer and two appointed by Renal Research Institute. The
CDLLC was formed for the purposes of owning and operating chronic dialysis
programs, thus improving the quality of care to end-stage renal disease patients by
providing dialysis services and conducting research in the field of nephrology in the
state of North Carolina.
The University of North Carolina Physicians & Associates – The
University of North Carolina Physicians & Associates (UNC P&A) is the clinical
service component of the UNC School of Medicine. At the heart of UNC P&A are
the approximately 1,100 physicians who provide a full range of specialty and primary
care services for patients of UNC Health Care. 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 18 clinical departments, two affiliated departments and two
administrative units that collectively form UNC P&A.
32
UNC HEALTH CARE
CLINICAL DEPARTMENTS:
AnesthesiologyOrthopaedics
DermatologyOtolaryngology
Emergency Medicine Pathology & Laboratory Medicine
Family Medicine Pediatrics
MedicinePsychiatry
Neurology Physical Medicine & Rehabilitation
Neurosurgery Radiation Oncology
Obstetrics & Gynecology Surgery
OphthalmologyRadiology
AFFILIATED DEPARTMENTS:
Allied Health Sciences
Center for Development and Learning
ADMINISTRATIVE UNITS:
Administrative Office (Billing & Collections, Managed Care)
Ambulatory Administration
While UNC P&A is affiliated with UNC Health Care, the net assets of UNC P&A
are held in a UNC-CH trust fund. The operating income and expenses for UNC P&A
are managed via UNC-CH’s accounting infrastructure; and, as such, its operational
results are included in the annual audit for the UNC-CH.
Rex Healthcare Inc. – Rex Healthcare, Inc. (Rex) is a not-for-profit corporation
and is exempt from federal and North Carolina income taxation as a 501(c)(3)
charitable organization. Rex does not conduct active operations but serves as the
parent corporation for a multi-entity health care delivery system that was organized
to provide a wide range of health care services to the residents of Wake County, NC,
and surrounding counties. UNC Health Care acquired Rex in 2000 and is the sole
member of the corporation. UNC Health Care appoints eight of the 13 seats on Rex’s
Board of Trustees and also reviews and approves Rex’s annual operating and capital
budgets. The principal corporate entities under the common control of Rex are:
REX HOSPITAL, INC. – Rex Hospital, Inc. is a 433-bed hospital located in Raleigh,
NC, that provides inpatient, outpatient and emergency services primarily to the residents
of Wake County, NC. Rex Hospital operates Rex Cancer Center, Rex Women’s Center,
and Rex Rehab and Nursing Care Center of Raleigh on its main campus. Rex Hospital
has additional campuses in Cary, Wakefield (in Raleigh), Garner, Holly Springs,
Knightdale and Apex. Rex Hospital also owns Rex Home Services, Inc., that primarily
serves residents of Wake County.
REX ENTERPRISES COMPANY, INC. – Rex Enterprises Company, Inc., is a
North Carolina for-profit corporation organized to hold investments in various
affiliates and to promote the development of real property in support of the mission of
Rex. Rex Enterprises Company, Inc. is the sole member of Rex CDP Ventures, LLC,
which is a limited liability company organized to own and develop real estate in the
Wakefield community of northern Wake County.
REX HEALTHCARE FOUNDATION, INC. – Rex Healthcare Foundation, Inc.,
is a North Carolina not-for-profit corporation organized to promote the health and
welfare of residents in Rex’s service area by promoting philanthropic contributions and
public support of Rex.
REX HOLDINGS, LLC – Rex Holdings was formed in 2007 to provide medical
services through various affiliations, joint ventures and independent physician
practices. Rex Holdings is the sole member of Rex Physicians, LLC, which was
established in 2009 to employ physicians of specialty practices.
2012 ANNUAL REPORT
33
Chatham Hospital, Inc. – Chatham Hospital, is a private, nonprofit 501(c)
(3) corporation that owns and operates a 25-bed critical access facility located in Siler
City, NC. The facility operates 21 acute/swing beds and four intensive care beds, along
with a complement of surgical suites, emergency room and ancillary services.
UNC Hospitals entered into a five-year management agreement with Chatham
Hospital on August 1, 2006, which includes executive staffing and assistance with
operations and planning. By contractual agreement, the UNC Health Care became
the sole member of Chatham Hospital, Inc. on July 1, 2008. The UNC Health Care
appoints nine of the 15 members on the Chatham Hospital Board and reviews and
approves its annual operating and capital budgets.
UNC Physicians Network, LLC – Formerly known as Triangle Physicians
Network, UNCPN is a wholly owned subsidiary of the UNC Health Care that
owns and operates 34 community based practices throughout the Triangle (Raleigh,
Durham and Chapel Hill), NC, area. The purpose of the community based practices
is to provide care close to home for the convenience of the patients and allow clinicians
and staff of the UNC Health Care to be part of their local communities
B. BASIS OF PRESENTATION – The accompanying financial statements
present all activities under the direction of the UNC Health Care Board of Directors.
The financial statements for UNC Health Care are presented as a compilation of the
various statements generated by its separate entities. UNC Hospitals, Rex, Chatham
and UNCPN issue their own audited financial statements while UNC P&A is
included as a part of the audited statements for UNC-CH.
In compiling the financial statements for UNC Health Care, 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 UNC P&A, this annual report includes
the assets, liabilities and net assets of UNC P&A, which are included in the audited
financial statements for 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, Rex, Chatham and UNCPN and the modified accrual basis of
accounting for UNC P&A. 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. For UNC P&A, their monthly financials are maintained
on a cash basis; and then at year-end, adjustments are made to accrue all known
material amounts for revenue and expense.
D. CURRENT AND NON-CURRENT 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. REVENUE AND EXPENSE RECOGNITION – Revenues
and expenses are classified as operating or non-operating in the accompanying
Statements of Revenues, Expenses and Changes in Net Assets. 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.
Non-operating 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
34
UNC HEALTH CARE
(loss) on disposal of capital assets,” are considered non-operating since these are
investing, capital or noncapital financing activities.
Revenue, amounts due from affiliates and other State agencies, and billings to outside
companies for ancillary testing.
F. CASH AND CASH EQUIVALENTS – This classification includes petty
L. ASSETS WHOSE USE IS LIMITED OR RESTRICTED – Current
cash, security deposits, cash on deposit in private bank accounts and 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. All highly
liquid investments with an original maturity of three months or less and which are not
designated as investments are considered to be cash equivalents and are recorded at
cost, which approximates market.
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 will be used to pay bond interest and principal as it becomes due.
UNC-CH manages the funds of UNC P&A as authorized by the University of North
Carolina Board of Governors pursuant to General Statute 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 General
Statute 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 are measured at fair value.
Investment income or loss (including realized and unrealized gains and losses on
investments, interest and dividends) is included in non-operating 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
indigent care, contractual allowances and allowances for bad debt to determine the net
realizable value of the accounts receivable balance.
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 with selected payors have been established to
optimize collection of past-due accounts, and any amounts payable beyond one year
are classified as non-current assets.
Non-current 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 the Liability Insurance Trust Fund.
M. PREPAID EXPENSES – Prepaid expenses represent current year
expenditures for services that extend beyond the current reporting cycle. Payments
include insurance premiums, maintenance contracts and lease arrangements.
N. PROPERTY, PLANT AND EQUIPMENT – Property, plant and
equipment are stated at cost at date of acquisition or fair value at date of donation
in the case of gifts. The value of assets constructed includes all material direct and
indirect construction costs. Interest costs incurred during the period of construction
are capitalized. Only assets having a cost or fair value of at least $5,000 and an
estimated useful life of three years or more are capitalized.
Assets under capital lease are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation is computed using the straight-line method over the estimated useful lives
of the assets, generally three to 20 years for equipment, 10 to 40 years for buildings
and fixed equipment and five to 25 years for general infrastructure and building
improvements. Assets under capital leases and leasehold improvements are depreciated
over the related lease term, generally periods ranging from five to seven years.
O. OTHER NON-CURRENT ASSETS – Other non-current assets
include amounts for long-term payment arrangements for patient accounts receivable,
bond issuance costs-net of amortization and investments in affiliates.
P. ACCOUNTS AND OTHER PAYABLES – Accounts and other payables
represent the accrual of expenses for goods and services that have been received as of
the end of the year but have not been paid.
Q. ACCRUED SALARIES AND BENEFITS – Accrued salaries and
benefits represent the accrual of salaries and associated benefits earned as of the end of
the year but which have not been paid.
U. 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.
V. NET ASSETS – Net assets represent the difference between assets and
liabilities. Due to the complexities of consolidating these entities, only a combined
number is shown for net assets.
Normally, under general accepted accounting principles, the net asset category would
be further categorized as the amounts (1) Invested in Capital Assets, Net of Related
Debt, (2) Restricted Net Assets – Expendable and (3) Unrestricted Net Assets.
W. 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 collectable is
recognized as revenue deductions on an accrual basis.
Charity care represents health care services that were provided free of charge or at rates
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 UNC P&A,
uninsured patients receive a 35 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, non-implantable 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, but is settled based on documented cost for all services except hearing aids,
durable medical equipment (DME), outpatient pharmacy and home health.
I. ESTIMATED THIRD-PARTY SETTLEMENTS – Estimated third-
R. NOTES AND BONDS PAYABLE – Notes and bonds payable represent
party amounts represent settlements with Medicare, Tricare 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. In 2012, UNC Health Care’s physician and hospital entities began to be
reimbursed for Medicaid via the Upper Payment Limit methodology.
debt issued for the construction of buildings and the acquisition of equipment. The
current amount is the portion of bonds due within one year, and the balance is
reflected as non-current.
J. INVENTORIES – Inventories consist of medical and surgical supplies,
S. INTEREST PAYABLE – Interest payable represents accrued interest at the
pharmaceuticals, prosthetics and other supplies that are used to provide patient care
by service departments. Inventories are stated at the lower of cost or market on the
FIFO (first-in, first-out) basis.
end of the year that has not yet been paid.
X. MEDICAL AND SURGICAL SUPPLIES – Medical and surgical
T. OTHER CURRENT LIABILITIES – Other current liabilities represent
supplies represent the items used to provide patient care. This includes instruments,
special medical devices and pharmaceuticals.
K. OTHER ASSETS AND RECEIVABLES – Other assets and receivables
The bonds carry interest rates ranging from 0.12 percent to 10.1 percent. The various
bond series have fixed, variable or synthetic rates with final maturity in fiscal year 2034.
Bonds payable are 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. The notes payable carry various interest rates
ranging from 1.64 percent to 3.76 percent with a final maturity in fiscal year 2022.
funds held for others and amounts due to patients or third parties for credit balances.
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 Care. Medicaid
reimburses physician services at a rate of ninety-five percent (95 percent) of allowable
Medicare rates. UNC P&A is also reimbursed on a cost-basis, receiving the federally
reimbursed portion of costs of providing care to Medicaid patients not covered by
fee-for-service reimbursement.
relate to items such as sales tax refunds due from the North Carolina Department of
2012 ANNUAL REPORT
35
Y. 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.
Z. MEDICAL SCHOOL TRUST FUND – Medical School Trust Fund
(MSTF) expenses represent an assessment of 4.6 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.
AA. 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 Care.
NOTE 2 // ESTIMATED THIRD-PARTY SETLEMENTS
NOTE 4 // LONG-TERM DEBT
For Medicare and Medicaid, reported amounts reflect the net difference between the
filed cost report settlements and amounts reserved for possible future audit findings.
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.
A summary of capital assets as of June 30 was:
NOTE 3 // CAPITAL ASSETS
A summary of capital assets as of June 30 was:
BB. CONCENTRATIONS OF CREDIT RISK – UNC Health Care
provides services to a relatively compact area surrounding the Research Triangle Park,
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.
FY2012
FY2011
Land and Improvements
96,369,752
91,501,833
Buildings and Improvements
889,096,731
865,641,386
Equipment
749,130,063
697,164,322
Construction in Progress
96,280,770
46,651,729
Gross PP&E
1,830,877,316
1,700,959,270
Accumulated Depreciation
(882,523,384)
(815,380,392)
Net PP&E
$948,353,932
$885,578,878
Chatham Series 2007 Bonds
FY2012
FY2011
28,000,000
28,755,000
UNC P&A Series Bonds
1,649,800
3,199,600
Rex Series 2010A Bonds
119,847,000
122,965,000
UNC Hospitals Series 2001 Bonds
96,800,000
98,200,000
UNC Hospitals Series 2003 Bonds
93,490,000
94,055,000
UNC Hospitals Series 2005 Bonds
11,660,000
15,185,000
UNC Hospitals Series 2009 Bonds
37,295,000
39,705,000
UNC Hospitals Series 2010 Bonds
47,075,000
48,875,000
FACE VALUE OF BONDS OUTSTANDING
435,816,800
450,939,600
Deferred Costs - Loss on Refunding
(14,194,576)
(15,414,507)
5,403,529
6,164,243
125,010
25,002
Deferred Costs - Premium on Issuance
Arbitrage Rebate Payable
Hedging Liability
26,832,040
15,821,518
453,982,803
457,535,856
Current Portion of Bonds
17,259,800
15,119,800
Current Portion of Notes
11,784,812
35,111,447
TOTAL CURRENT BONDS AND NOTES
29,044,612
50,231,247
Noncurrent Portion of Bonds
436,723,003
442,416,056
Noncurrent Portion of Notes
31,622,054
425,000
5,742,000
2,112,000
474,087,057
444,953,056
NET VALUE OUTSTANDING
Other Noncurrent Debt
TOTAL NONCURRENT BONDS AND NOTES
Annual requirements to pay principal and interest on the bonds outstanding at
June 30, 2010 are:
36
UNC HEALTH CARE
As currently constituted, UNC Health Care has no
authority to issue debt. Only the individual entities
within UNC Health Care have assets and revenue that
can be pledged as collateral for the debt.
Annual requirements to pay principal and interest on the notes outstanding at
June 30, 2010, are:
FISCAL YEAR
PRINCIPAL
INTEREST
TOTAL
FISCAL YEAR
PRINCIPAL
INTEREST
TOTAL
2013
$17,259,800
$13,590,487
$30,850,287
2013
$11,784,812
$1,156,025
$12,940,837
2014
16,215,000
12,976,423
29,191,423
2014
1,859,569
1,095,358
2,954,927
2015
16,775,000
12,374,074
29,149,074
2015
1,659,052
1,039,983
2,699,035
2016
17,740,000
11,777,110
29,517,110
2016
1,552,433
1,003,456
2,555,889
2017
18,375,000
11,163,732
29,538,732
2017
876,000
960,000
1,836,000
2018-2022
103,510,000
41,892,566
145,402,566
TOTAL
$43,406,866
$9,347,822
$52,754,688
2023-2027
122,500,000
28,664,128
151,164,128
2028-2031
118,822,000
9,310,442
128,132,442
2032-2034
4,620,000
282,250
4,902,250
TOTAL
$435,816,800
$142,031,212
$577,848,012
2012 ANNUAL REPORT
37
NOTE 5 // PENSION PLANS
NOTE 7 // RISK MANAGEMENT
UNC Health Care has a variety of retirement plans available to its permanent, fulltime employees. The majority of employees of UNCH and UNC P&A 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.
UNC Health Care 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.
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. Administrators and eligible
faculty of the University 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.
Funding amounts for all of the plans are based upon actuarial calculations.
In addition to the employer plans, UNC Health Care 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.
NOTE 6 // OTHER EMPLOYMENT BENEFITS
UNC Hospitals and UNC P&A 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 UNC P&A assume no liability for retiree health
care benefits provided by the programs other than their required contributions.
UNC Hospitals and UNC P&A 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 UNC P&A assume no liability for long-term disability benefits under
the Plan other than their contribution.
Rex offers a full menu of employment benefits to its employees through various thirdparty carriers. These include medical insurance, dental coverage, short-term and longterm disability benefits and life insurance coverage.
More information about these plans can be found in the individual audit reports for
the various entities.
38
UNC HEALTH CARE
Liability Insurance Trust Fund – UNC Hospitals and UNC P&A 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 for the
Years Ended June 30, 2012, and June 30, 2011. Copies of this report may be obtained
from The University of North Carolina Liability Insurance Trust Fund, 211 Friday
Center Drive, Hedrick Building - Room 2029, Chapel Hill, NC, 27517.
NOTE 8 // RELATED PARTY TRANSACTIONS
The Medical Foundation of North Carolina, Inc. – UNC Hospitals
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 Care. 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 Care and their affiliates. The funding source for the Endowment is the
$100 million transfer that came from UNC Health Care in April 2000.
NOTE 9 // 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 Care
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 Care 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 our community. UNC Health Care
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 and expenses.
UNC Health Care and its entities participate in the North Carolina Hospital
Association’s (NCHA) Advocacy Needs Data Initiative (ANDI) to quantify their
Community Benefit. The data for calculating the FY12 Community Benefit remains
fluid, and will be included in NCHA’s report in spring 2013.
and UNC P&A 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, the amount would be recorded at the time of receipt on UNC
Hospital’s financial statements.
UNC Health Care System Enterprise Fund – The Board of Directors
of UNC Health Care authorized and approved the creation of the UNC Health Care
System Enterprise Fund (The System Fund) to support UNC Health Care’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, UNC P&A,
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 is the name of UNC Health Care’s bank account for central
administrative functions. It contains several distinct funds. As defined by North
Carolina General Statutes, these funds may “consist of moneys received from or for the
operation by an institution of any of its self-supporting auxiliary enterprises, including
institutional student auxiliary enterprise funds for the operation of housing, food, health,
and laundry services; or moneys received by an institution in respect to fees and other
payments for services rendered by medical, dental or other health care professionals
under an organized practice plan approved by the institution or under a contractual
agreement between the institution and a hospital or other health care provider.”
The System Fund assesses, holds and allocates funds across the entities of UNC Health
Care. Initially formed as the Enterprise Fund to facilitate investments in support of
the clinical, academic and research missions of UNC Health Care and the UNC
School of Medicine, the Enterprise Fund today exists as a sub-account within the
System Fund. Since its formation, the System Fund has been used to enable additional
types of transfers between entities of UNC Health Care. As such, the Enterprise Fund,
Outreach Fund, Patient Safety Fund, Recruitment Fund, and Shared Administrative
Services Fund each function as sub-accounts of the System Fund.
2012 ANNUAL REPORT
39
101 Manning Drive | Chapel Hill, NC 27514
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