AHS FC Debt Restructure Sep 22 2014

8/11/2019 AHS FC Debt Restructure Sep 22 2014

1/18

Alameda Health System

Debt Restructure Plan

September 22, 2014

1


2/18

Agenda

1. Primary Issue: AHS Accounts Receivable2. Reasonable Level of Debt: Moodys Medians

3. AHS Request for Debt Restructure

4. Proposed Debt Service Schedule

5. Supplemental Reimbursement Seasonality

6. Fiscal 2015 Debt Forecast7. Required Operating Performance

8. Current Financial Performance and Position

9. Performance Improvement Plan

2


3/18

AHS current cash situation is largely the result of accounts

receivable increase due to system conversion in July 2013.

These funds can be recovered.

3

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

AHS Accounts ReceivableAHS NPR - Invision AHS NPR - Signature AHS NPR - Soarian

SLH NPR - Meditech AHD NPR - Meditech


4/18

AHS Credit Ratios vs. Moodys Medians

Comments

1. AHS has the overall size to qualify as aninvestment grade credit.

2. Total Debt is reasonable in relation toour Total Revenue at 24.2%. Themedian is 39% to 45%.

3. However, Days in Cash and Debt toCapitalization are far belowrequirements.

4. AHS requires sustained profitability tobuild equity and cash reserves.

5. An EBIDA Margin target of 8% to 10% isrecommended.

4

Moody's Medians ($,000) AHS Baa1 Baa2

Performance

Total Revenues 807,300$ 454,440$ 272,384$

Net Income (37,938)$ 21,104$ 8,725$

EBIDA (9,282)$ 47,319$ 24,255$

Net Margin -4.7% 3.8% 3.5%

EBIDA Margin -1.1% 7.8% 8.8%

Liquidity

Days in Cash 2 149 140

Cash to Debt 3% 91% 86%

Leverage

Debt to Total Revenue 24.2% 38.9% 45.5%

Debt to Capitalization 117.0% 47.4% 49.3%


5/18

Debt Restructure Request

AHS is requesting support for a restructure of the Agreement to achieve a level

of total debt service that can be carried by operations:

The $195 million negative balance to be restructured as Term Debt,and to be repaid by 2034.

The Pension Obligation Bond payment schedule to be restructured.

The plan allows AHS to make the $7 million annual hospitalreplacement building debt service payments starting in 2019.

The Flexible Maximum Policy to be maintained, allowing AHS to goabove the annual targets during the year.

5


6/18

Proposed Debt Service Schedule requires AHS to generate $20+ million

of free cash flow per year, plus requirements for CapEx and Reserves.

6

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

AHS Annual Debt Service Payments

AHS LT Debt POB HRB Debt Service


7/18

The exact structure of the Debt Service is under discussion.

7

TOTAL DEBT PAYMENTS AHS OUTSTANDING DEBT - at June 30

AHS LT Debt POB

HRB Debt

Service

Total AHS

Debt Service AHS LT Debt PBO

HRB Debt

Service

Total AHS

Debt Service

2014 - - - - 2014 195,000,000 59,071,286 119,000,000 373,071,286

2015 5,000,000 3,000,000 - 8,000,000 2015 190,000,000 56,071,286 119,000,000 365,071,286

2016 6,000,000 3,500,000 - 9,500,000 2016 184,000,000 52,571,286 119,000,000 355,571,286

2017 6,000,000 4,000,000 - 10,000,000 2017 178,000,000 48,571,286 119,000,000 345,571,286

2018 6,000,000 4,500,000 - 10,500,000 2018 172,000,000 44,071,286 119,000,000 335,071,286

2019 6,000,000 5,000,000 7,000,000 18,000,000 2019 166,000,000 39,071,286 112,000,000 317,071,286

2020 7,500,000 5,500,000 7,000,000 20,000,000 2020 158,500,000 33,571,286 105,000,000 297,071,286

2021 7,500,000 6,000,000 7,000,000 20,500,000 2021 151,000,000 27,571,286 98,000,000 276,571,286

2022 7,500,000 6,500,000 7,000,000 21,000,000 2022 143,500,000 21,071,286 91,000,000 255,571,286

2023 7,500,000 7,000,000 7,000,000 21,500,000 2023 136,000,000 14,071,286 84,000,000 234,071,286

2024 7,500,000 7,000,000 7,000,000 21,500,000 2024 128,500,000 7,071,286 77,000,000 212,571,286

2025 7,500,000 7,071,286 7,000,000 21,571,286 2025 121,000,000 - 70,000,000 191,000,000

2026 10,000,000 - 7,000,000 17,000,000 2026 111,000,000 - 63,000,000 174,000,000

2027 10,000,000 - 7,000,000 17,000,000 2027 101,000,000 - 56,000,000 157,000,000

2028 10,000,000 - 7,000,000 17,000,000 2028 91,000,000 - 49,000,000 140,000,000

2029 15,000,000 - 7,000,000 22,000,000 2029 76,000,000 - 42,000,000 118,000,000

2030 15,000,000 - 7,000,000 22,000,000 2030 61,000,000 - 35,000,000 96,000,000

2031 15,000,000 - 7,000,000 22,000,000 2031 46,000,000 - 28,000,000 74,000,000

2032 15,000,000 - 7,000,000 22,000,000 2032 31,000,000 - 21,000,000 52,000,000

2033 15,000,000 - 7,000,000 22,000,000 2033 16,000,000 - 14,000,000 30,000,000

2034 16,000,000 - 7,000,000 23,000,000 2034 - - 7,000,000 7,000,000

2035 - - 7,000,000 7,000,000 2035 - - - -

195,000,000 59,071,286 119,000,000 373,071,286


8/18

The Flexible Maximum Policy is important to maintain due to the variability of

the receipt of Supplemental Reimbursement during the year.

8

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

7/4/14 8/4/14 9/4/14 10/4/14 11/4/14 12/4/14 1/4/15 2/4/15 3/4/15 4/4/15 5/4/15 6/4/15

AHS Cash Receipts Projection

Net Patient Service Revenue Supplemental Revenue


9/18

AHS Supplemental ReimbursementCash Forecast vs. Budget

Comments

1. The Forecast is Cash, the Budget isAccrual, and there are timingdifferences.

2. JulDec 2014 = $122 million.

3. JanJun 2015 = $180 million.

9

2015 FCST 2015 Budget

27

28 Medi-Cal Waiver fy14 (not net of IGT) 10,000,000

29 IGT: Medi-Cal Waiver fy14 (2,500,000)30 Medi-Cal Waiver fy15 (not net of IGT) 120,450,000 84,000,000

31 IGT: Medi-Cal Waiver fy15 (35,222,500) -

32 IGT: MCD Mgd Care (trauma funds u - -

33 HealthPac 38,870,546 34,040,728

34 Measure A Tax Revenue 94,700,275 95,270,496

35 Hospital Fee 2,500,000 -

36 Trauma Subsidy 5,300,000 6,210,717

37 FQHC PPR Recon (fy10,fy11,fy12) 700,000 -

38 FQHC PPS Recon fy13 3,200,000 -

39 Medi-Cal Mgd Care supplemental (rat 44,927,824 7,000,00040 IGT: MCD Mgd Care rate range (26,548,438) -

41 Medi-Cal Mgd Care AB85 newly eligib 15,754,631 14,000,000

42 SPD-Mgd Care SB208 (not net of IG 25,700,000 9,375,000

43 IGT: SPD fy14 (17,800,802) -

44 SPD-Mgd Care SB208 (not net of IG - -

45 SPA Physician Supplemental 3,800,000 7,000,000

46 SNF Supplemental 4,500,000 5,000,000

47 Medi-Cal Admin Adjustment (MAA) 1,877,039 -

48 Medi-Care/Medical Settlements - 5,950,152

49 AB915 Supplemental 2,500,000 3,000,00050 Other Miscellaneous receipts / Grants 7,308,394 12,923,070

51 Other Revenue 61,500 58,000

52 AARA Incentive - Meaningful Use 2,500,000 2,424,000

53 DSRIP 23,036,400

54 DSRIP - HIV Category 5 - 2,559,600

55 SUBTOTAL - Reimbursement 302,578,469 311,848,163


10/18

Based on our current Cash Forecast, the Term Debt can be reduced to at

or below $190 million by June 2015, but will go as high as $220 million

during the year.

10

-$15,000,000

-$10,000,000

-$5,000,000

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

7/11/14

8/11/14

9/11/14

10/11/14

11/11/14

12/11/14

1/11/15

2/11/15

3/11/15

4/11/15

5/11/15

6/11/15

AHS System Totals

Operating Accounts Accounts Payable

$150,000,000

$160,000,000

$170,000,000

$180,000,000

$190,000,000

$200,000,000

$210,000,000

$220,000,000

$230,000,000

2015

FCST

7/4/14

7

/25/14

8

/15/14

9/5/14

9

/26/14

10

/17/14

1

1/7/14

11

/28/14

12

/19/14

1/9/15

1

/30/15

2

/20/15

3

/13/15

4/3/15

4

/24/15

5

/15/15

6/5/15

6

/26/15

AHS Debt Forecast2015 FORECAST

County LOC Balance CURRENT LOC LIMIT

LOC with FLEX MAX


11/18

To meet the County obligations, as well as provide funds for operations,

routine capital and growth, AHS needs to increase annual cash flow to

approximately $50 million per year.

11

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

Projected Cash Flow

Accounts Receivable Acceleration

MedAssets Performance ImprovementPlan

Revenue Cycle Improvement Plan

Baseline Financial Plan


12/18

AHS Current Run Rate is ($36) million per year

Comments

1. Adjusted Discharges are 3.1% belowbudget.

2. Gross Charges are 4.2% below budget,Net Revenue 8.2%, or $12 million below.

3. Collection Ratio below budget; payermix and targeted improvements not yetachieved.

4. Expenses $5 million favorable, or 3.4%

5. AHS Net Loss of $5.3 million, or 4.8%.

6. SLH Net Loss of $1.3 million, or 12.4%.

7. AH Net Income of $254k, or 1.7%.

8. Consolidated Net Loss of $6.3 million

for July and August, or 4.7%.

12

Actual Budget Variance % Variance

Inpatient service revenue 222,511 237,482 (14,971) -6.3%

Outpatient service revenue 114,219 114,616 (397) -0.3%Professional service revenue 42,793 44,014 (1,221) -2.8%

Gross patient service revenue 379,523 396,112 (16,589) -4.2%

Deductions from revenues (299,129) (305,300) 6,171 -2.0%

Net patient service revenue 80,394 90,812 (10,418) -11.5%

Net operating revenue 134,550 146,591 (12,041) -8.2%

Total operating expense 140,849 145,841 4,992 3.4%

Income (6,323)$ 683$ (7,006)$ -1025.8%

Operating Margin -4.7% 0.5%

Collection % 21.2% 22.9%

Total discharges 2,931 3,088 (157) -5.1%

Total patient days 25,925 25,656 269 1.0%

ALOS 8.85 8.31 1 6.5%

ADC 418 414 4 1.0%

Adjusted patient days 39,233 38,038 1,194 3.1%

Adjusted discharges 4,436 4,578 (143) -3.1%

Net revenue per adj discharge 30.33 32.02 (2) -5.3%Expense per adj discharge 31.75 31.85 0 0.3%

Income per adj discharge (1.43) 0.15 (2) -1055.6%

Paid Full time equivalents 3,682 3,902 220 5.6%

Paid FTE's per adjusted occupied b 5.82 6.36 1 8.5%

Salaries, benefits & registry % of n 71% 67% (0) -6.2%

Year-To-Date


13/18

Consolidated Balance Sheet Excerpts

Comments

1. Operating cash has declined to $5.0million.

2. Accounts receivable continue to climb,reaching $149 million.

3. Available restricted funds have beenbrought into operations.

4. And Accounts Payable have increase to$65.8 million over the last two months.Cash available to pay vendors has beenvery low.

5. The negative balance with the Countywas $198.7 million at the end of August.

13

LIABILITIES & NET ASSETS

Working Capital Loan - Current $0 $0 $0

Accounts Payable 65,806 56,599 51,078

Compensation Related Liabilities 37,909 34,508 42,909

Estimated third-party settlement 79,299 75,911 74,148

Due to County of Alameda & Sta 15,462 14,310 12,886 Other Payables 27,234 27,086 26,424

TOTAL CURRENT LIABILITIES 225,710 208,414 207,446

Self Insurance Liability 20,352 20,352 20,352

Working Capital Loan - Long-te 198,734 193,574 192,566

Pension and Postemployment 60,876 59,876 58,876

Other Long-term Liabilities 11,808 11,808 11,808

TOTAL LONG TERM LIABILITIE 291,770 285,610 283,601

Current

Month Prior Month FY 2014

ASSETS

Current assets:

Cash & Cash Equivalents $5,040 $8,420 $22,885 Cash Held in Trust 30 30 43

Net Patient Receivables 149,122 141,695 141,601

Due from County of Alameda & 73,786 66,484 64,108

Inventories 5,632 5,742 5,649

Prepaid expenses 2,236 2,774 2,429

Other receivables 143,098 130,200 114,767

TOTAL CURRENT ASSETS 378,944 355,344 351,482

Restricted Cash Hospital Fee 0 2,389 7,389

Cash Held Board Designated 23,287 23,287 23,287

TOTAL RESTRICTED CASH 23,287 25,677 30,677


14/18

AHS to implement a comprehensive and focused plan to improve

operating performance; including revenue cycle improvement, cash

reduction, supplemental reimbursement, growth, and philanthropy.

1. Current run rate (subject to refinement),is a negative $36 million annually.

2. Revenue Cycle Improvement areestimated at $20 to $25 million.

3. Efficiency gains will need to be $20 to$25 million.

4. DPH Status for SLH and AH may take ayear.

5. AB85 Supplemental Medi-Cal may takea year.

6. Assumed Revenue Growth - $12 million.

7. Philanthropy - $10 million.

8. Other Sources?

9. The result would be annual free cashflow of $50+ million, sufficient to meetour obligations to the County.

14

Improvement Plan - DRAFT Annual

Operating Loss - Current (36,000,000)$

Revenue Cycle Improvement 24,000,000Efficiency Gains 24,000,000

DPH Status - SLH and AH 8,000,000

AB85 Supplemental MediCal 8,000,000

Growth 12,000,000

Philanthropy 10,000,000

Other Support -

Operating Gain - Target 50,000,000$

Accounts Receivable Recapture 60,000,000$


15/18

Discussion

15


16/18

Revenue Cycle Improvement Program

16

The major activities that need to be completed are:

Reorganize Patient Financial Services to have dedicated units for Hospital,Clinic and Professional. Organize workgroups by payer, establish andmonitor collection targets, establish a Denials/Follow Up unit, and work downaged A/R.

Complete MediCal billing certification for SLH and AH, and Medicarecertification for the FQHCs.

Improve Professional Billing through Clinical Documentation, ChargeCapture, Coding, and alignment of incentives.

Improve FQHC Revenue by improving productivity through opening up theschedules, specialty referral authorizations, improve front end registration

information, and improved charge capture and billing.

Implement our managed care contracting strategy to cover all affiliates withall payers with appropriate rates and terms.


17/18

MedAssets BETTER II Performance Improvement

17


18/18

Managed Care Contracting and Capitation

18

The major activities in process:

Brought the contracting function in-house, promoted a new Director ofContracting, retained an external expert, and relocated Provider Enrollmentto Contracting.

Completed inventory of existing contracts, rates, and terms.

Assessed AHS current contract terms, rates and conditions and developedpreferred structure.

In active negotiation with: Blue Cross

Kaiser

Alameda Alliance for Health

In negotiation to convert contract to capitation or shared risk.

Gathering data to analyze the DOFR, rates, and terms.

Analyzing system support requirements.

Documents

AHS FC Debt Restructure Sep 22 2014