Department Of Medicine
Finance 101
November 17, 2015
Maureen OSullivan
1
Agenda
• Department of Medicine Overview
• Revenue Breakdown
• Financial Statements
 Objective of Financial Statements
 Income Statement
 Revenue
Used portions of
John Lindstedt’s
(VP Finance FPF)
presentation
 Clinical
 Research
 Teaching
 Expense
 Operating Income/(Loss)
 Balance Sheet
2
Department of Medicine (DOM) Overview
DOM History
•
•
Boston University Hospital—1855
Boston City Hospital— 1864
•
•
Merged 1996– Boston Medical Center
1910, Evans Memorial Department of Clinical Research established
•
Maria Antoinette Evans



•
Endowment = Donation, gift
Current value $120M
Annual Endowment Spending, $5-6M
Department of Medicine
• Clinical
• Research
• Teaching
3
Department of Medicine (DOM) Overview
DOM continued
• Comprised of 10 Clinical/Research sections, 5 Research sections, and 6 DOM
offices
• Clinical/Research Sections: Cardiology, Endocrine, Gastro, General Internal Medicine,
Geriatrics, Hem/Onc, Infectious Disease, Pulmonary, Renal, and Rheumatology
• Research Sections: Clinical Epidemiology, Computational Biomedicine, Genetics, Preventative
Medicine, and Vascular Biology
• DOM Offices: Faculty & Diversity Development, Residency, VC Clinical Affairs, Evans Center for
Interdisciplinary Biomedicine Research, VC Finance & Administration, and VC Research
• Consolidated DOM Financial Statements roll up Faculty Practice Foundation
(FPF) and then to Boston Medical Center (BMC)
• DOM represents one of the 18 Faculty Practice Plans (FPPs)
• Nonprofit Organization
• Fiscal Year July 1st – June 30th
• Academic Year
• Board of Directors
• Department of Medicine Chair on FPF Board
• Evans Board of Directors
4
AY15 Revenue Break-down— $102M
AY15 DOM Revenue Distribution
In Millions $$'s
$12.34
$5.26
$56.22
$43.42
Clinical
Research
BU/BMC Teaching
Other
5
DOM Reporting Constraints
• Research is a significant portion of DOM’s business
• This is not true of the other 18 FPPs, where primary
focus is Clinical operations
 DOM is an outlier
 Creates reporting differences and constraints
 “Square peg in a round hole”
6
Financial Statements
7
Financial Statements
• Financial Statements



Income Statement
Balance Sheet
Statement of Cash Flows
Objectives:
• Provide information useful for the entity’s stakeholders




Owners, Management, Directors
Creditors
Regulatory agencies
Investors
• Support business and economic decisions
 Transparency – understand the health of a business and how well resources are being
manage
 Management principle – If you can’t measure it, you can’t manage it
• Used to formulate budgets
 Use historical data to create plans
 Compare actuals to planned targets
8
Income Statement
9
Income Statement
• Reports the “profitability” of operations
• Net income = “bottom line”
• Specific period of time
 Monthly
 Quarterly
 Annual (fiscal year)
DOM produces
Financial
Statements on a
monthly basis.
Review with Chair
monthly and
Sections quarterly.
• Compare to Budget or Prior Year
Net Operating Income = Revenue - Expenses
10
DOM AY15 Income Statement
• AY15: July 1 2014 – June 30, 2015
• Brackets: Favorable/(Unfavorable)
• In Millions $$’s
Actual
Budget
Budget
6/30/15
6/30/15
Variance
Total Revenues
$117.23
$110.49
$6.74
Total Expenses
$116.20
$112.72
($3.48)
$1.03
($2.22)
$3.25
Net Income/(Loss) from Operations
11
Income Statement– AY15 DOM Revenue
l
Clinical, $56.2M
AY15: July 1 2014 – June 30, 2015
Favorable/(Unfavorable)
Actual
6/30/15
$102.16
Budget
6/30/15
$109.40
Budget
Variance
($7.23)
NPSR
Net BMC Purchases
Free care
Sub-total Clinical
$38.35
$14.83
$3.04
$56.22
$37.15
$16.40
$3.01
$56.56
$1.19
($1.57)
$0.03
($0.35)
Gross UP
Indirects/REFs
Endowment
Sub-total Research
$35.35
$1.87
$6.20
$43.42
$32.49
$1.80
$5.65
$39.94
$2.87
$0.07
$0.54
$3.48
BU Medical School Support
BMC Teaching Support
Sub-total Teaching
$1.47
$3.79
$5.26
$1.31
$3.79
$5.10
$0.16
$0.00
$0.16
Sub-total Other Revenue
$12.34
$8.88
$3.45
Gross Charges
Total Revenues
$117.23
$110.49
$6.74
•
NPSR= Net Payment Service Revenue
 Reflects Gross Charges less Contractuals
 Currently paid ~33% of charges– after Bad
Debt
 BMC brings payment level up through C+
portion of CARE+
•
NPSR less Bad Debt
 Bad Debt is an uncollectible account that
was once collectible
 Bad Debt is reported in Expense Section
 AY15: NPSR-BD:
 $34.2M vs. budget of $35.0M-- Unfavorable
•
Free Care
 Population with no insurance
Other Revenue, $12.3M
•
•
•
Health Center Revenue
Capitation
Recruitment
12
Clinical Revenue Components
Gross Charges
NPSR –
Bad Debt
Contractuals
Bad Debt
BMC Purchased
Service
• Charge amount at 100%
• No deductions taken
• Example: MassHealth only pays $150 for Level 3 Office Visit
• Actual cost for professional service is $450
• Contractual Obligation Write-off: $300
• Examples: Copay/Co-insurance from member not collected
• Medical note not submitted/signed in time timely filing
• BMC receives ‘Technical’ or Facility fee for Office Visit
• Most hospitals, with physician based practices, pass portion of fee
to professional side
13
Income Statement– AY15 DOM Revenue
l
Research, $43.4M
AY15: July 1 2014 – June 30, 2015
•
($ Millions)
Actual
6/30/15
$102.16
Budget
6/30/15
$109.40
Budget
Variance
($7.23)
NPSR
Net BMC Purchases
Free care
Sub-total Clinical
$38.35
$14.83
$3.04
$56.22
$37.15
$16.40
$3.01
$56.56
$1.19
($1.57)
$0.03
($0.35)
Gross UP
Indirects/REFs
Endowment
Sub-total Research
$35.35
$1.87
$6.20
$43.42
$32.49
$1.80
$5.65
$39.94
$2.87
$0.07
$0.54
$3.48
BU Medical School Support
BMC Teaching Support
Sub-total Teaching
$1.47
$3.79
$5.26
$1.31
$3.79
$5.10
$0.16
$0.00
$0.16
Sub-total Other Revenue
$12.34
$8.88
$3.45
$117.23
$110.49
$6.74
Gross Charges
Total Revenues
Gross Up
 Represents Salary & Fringe expense portion of
BU/BMC Grants
 Expense Offset
•
Indirects/REFs
 Represents the 10% of the Facility &
Administrative Expense portion of BMC/BU
Grants
 BU: Paid once per year
 BMC: Paid through CARE+
•
Endowment
 EMF Endowment-- $5-6M per year
 Comes in as revenue from BMC
BU/BMC Teaching Support, $5.2M
•
•
•
VC Education
Chair Support
Fellowship Directors
14
Grant/Contract Expenses
Researchers, Lab Workers,
etc.
Lab Supplies
Facility & Overhead
Direct Costs= Researchers (Salary/Fringe) + Lab Supplies, ~ 70%
Indirect Costs= Facilities + Overhead, ~ 30% (BU/BMC)
15
Gross Up Method
• If a Researcher’s salary/fringe is covered by grant, then there
is no impact to the bottom line
Researcher Salary/Fringe
Amount charged to Grant in SAP
Financial Impact
$129,000
($129,000)
$0
Salary/Fringe Expense charged to DOM
$0
• Should we just not book anything in Financial Statements?
• But, DOM is financially liable for salary/fringe if grant ends
• May have professional liability as well
• And, we need to ensure transparent reporting and that economic
decisions can be made, etc.
16
Gross Up Method
• Record Salary/Fringe Expense and book offsetting Grant
Revenue
• Gather all payroll reports and add up salary and fringe charged to
grants
• Book to Gross Up Salary/Fringe Expense
• Offset by booking corresponding Gross Up Revenue
• Why?
• Allows the financial statement reader to know portion of Salary/Fringe
on Grants/Contracts
• Aids in planning– what would happen if NIH funding was cut by X %
17
Income Statement– AY15 DOM Expenses
l
AY15: July 1 2014 – June 30, 2015
Salary & Fringe, $64.6M
($ Millions)
•
Physician, NP, and Administrative
staff, etc.
Salary & Fringe
Actual
6/30/15
$64.66
Budget
6/30/15
$66.59
Budget
Variance
$1.93
Gross Up
$35.35
$32.49
($2.87)
Bad Debt
$4.14
$2.10
($2.04)
Professional Outside Exps
$3.18
$2.88
($0.30)
Insurance
$1.41
$1.44
$0.03
Supplies
$0.26
$0.24
($0.02)
Depreciation
$0.94
$1.00
$0.06
Professional Outside Expense
Facilities
$0.65
$0.74
$0.10
•
Other
$5.62
$5.24
($0.37)
Other
$116.20
$112.72
($3.48)
•
Total Expenses
Gross Up, $35.3M
•
Represents offset to Gross Up
Revenue for Grants/Contracts
 Salary/Fringe
Bad Debt
•
Accounts written off that were once
collectible
Billing/PBO/Payroll fees
Meals/Dues/FPP Support/Fellow Ex
18
Income Statement– AY15 Total
Actual
6/30/15
$102.16
Budget
6/30/15
$109.40
Budget
Variance
($7.23)
NPSR
Net BMC Purchases
Free care
Sub-total Clinical
$38.35
$14.83
$3.04
$56.22
$37.15
$16.40
$3.01
$56.56
Gross UP
Indirects/REFs
Endowment
Sub-total Research
$35.35
$1.87
$6.20
$43.42
BU Medical School Support
BMC Teaching Support
Sub-total Teaching
Sub-total Other Revenue
Gross Charges
Total Revenues
Salary & Fringe
Actual
6/30/15
$64.66
Budget
6/30/15
$66.59
Budget
Variance
$1.93
$1.19
($1.57)
$0.03
($0.35)
Gross Up
$35.35
$32.49
($2.87)
Bad Debt
$4.14
$2.10
($2.04)
Professional Outside Exps
$3.18
$2.88
($0.30)
$32.49
$1.80
$5.65
$39.94
$2.87
$0.07
$0.54
$3.48
Insurance
$1.41
$1.44
$0.03
Supplies
$0.26
$0.24
($0.02)
Depreciation
$0.94
$1.00
$0.06
$1.47
$3.79
$5.26
$1.31
$3.79
$5.10
$0.16
$0.00
$0.16
Facilities
$0.65
$0.74
$0.10
Other
$5.62
$5.24
($0.37)
$12.34
$8.88
$3.45
Total Expenses
$116.20
$112.72
($3.48)
$117.23
$110.49
$6.74
$1.03
($2.22)
$3.25
Net Income from Operations
19
Balance Sheet
20
Balance Sheet
• Presents financial position as of a specific date
• Lists a company’s assets
 Things of value an entity owns or controls
 Were acquired at a measurable cost
• Lists a company’s sources of funds to acquire assets
 Liabilities
 Equity
Assets = Liabilities + Equity
Assets – Liabilities = Equity (Net Worth)
21
DOM– Balance Sheet: June 30, 2015
2015 JUNE
Cash & Cash Equivalents
$31,589,449
Patient Accounts Receivable
$3,540,851
Affiliated Receivables
$2,483,631
Assets (What we own or control)
• Cash & Equivalents; $31.5M
 High due to profitable years
Other Receivables
$607,914
Prepaid Expenses
$81,653
Net Fixed Assets
$2,697,983
Other Long Term Assets
$64,040
Total Assets
$41,065,522
•
•
Patient A/R
Affiliated A/R
Liabilities (What we owe)
•
Accounts Payable
 Catering, FedEx bills, etc.
•
Intercompany– BU and BMC Payroll
Accounts Payable
$3,803,394
Equity (What we are worth)
Intercompany Payables
$8,765,022
•
•
Total Liabilities
$12,568,416
Unrestricted Net Assets
Total Equity
$28,497,106
$28,497,106
Total Liabilities & Equity
Net Assets, $28.4M
If we sold business today, this what we are
worth
$41,065,522
22
DOM
• Additional Questions??
23