THE CENTER FOR HEALTH AFFAIRS
AND AFFILIATES
COMBINED FINANCIAL REPORT
DECEMBER 31, 2014 and 2013
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
CONTENTS
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Page
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INDEPENDENT AUDITORS' REPORT ON THE COMBINED FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
Combined statements of financial position
Combined statements of activities
Combined statements of cash flows
Notes to combined financial statements
1-2
3
4
5
6-16
Independent Auditors' Report
To the Board of Trustees
The Center for Health Affairs
Cleveland, Ohio
We have audited the accompanying combined financial statements of The Center for Health Affairs
and affiliates, which comprise the combined statements of financial position as of December 31, 2014
and 2013, and the related combined statements of activities and cash flows for the years then ended,
and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these combined financial
statements in accordance with accounting principles generally accepted in the United States of
America; this includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of combined financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these combined financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the combined financial statements. The procedures selected depend on the auditors' judgment,
including the assessment of the risks of material misstatement of the combined financial statements,
whether due to fraud or error. In making those risk assessments, the auditors consider internal
control relevant to the entity's preparation and fair presentation of the combined financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express
no such opinion. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
-1-
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material
respects, the financial position of The Center for Health Affairs and affiliates as of December 31,
2014 and 2013, and the changes in their net assets and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Cleveland, Ohio
April 23, 2015
-2-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
COMBINED STATEMENTS OF FINANCIAL POSITION
December 31, 2014 and 2013
2014
2013
$ 3,319,162
1,897,911
27,070
5,244,143
$ 7,959,700
2,128,951
786,519
10,875,170
3,217,816
1,443,959
4,661,775
2,340,754
2,321,021
3,120,129
1,155,762
4,275,891
2,153,503
2,122,388
22,311
11,939,462
(2,401,433)
5,449,901
183,641
6,371,394
(2,647,744)
2,619,298
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Total current assets
PROPERTY AND EQUIPMENT, AT COST
Building
Equipment
Less accumulated depreciation
OTHER ASSETS
Deposits
Investments - other (Note 3)
Less subscription payable (Note 3)
Investments - marketable (Note 3)
Total assets
$ 22,575,405
$ 19,524,147
$
$
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Current portion of long-term debt (Note 6)
Current portion of capital lease (Note 6)
Accounts and grants payable
Accrued expenses and other liabilities
Deferred revenue (Note 4)
Federal income tax payable
Deferred tax liability (Note 8)
Pension termination liability (Note 7)
Current portion of fair value of interest rate swap (Note 6)
Total current liabilities
LONG-TERM OBLIGATIONS
Long-term debt, less current portion (Note 6)
Capital lease, less current portion (Note 6)
Deferred compensation liability (Note 7)
Fair value of interest rate swap, less current portion (Note 6)
Total long-term obligations
NET ASSETS
Unrestricted:
Operating
Board designated
Unrealized gain on investments and minimum pension liability adjustment
Total unrestricted
Total liabilities and net assets
210,155
95,739
428,772
891,171
113,240
1,259,353
1,446,300
78,617
4,523,347
207,285
1,136,792
822,401
514,539
507,000
1,122,437
86,942
4,397,396
2,174,703
167,872
4,343,803
84,245
6,770,623
2,384,423
4,218,061
150,262
6,752,746
7,550,396
63,332
3,667,707
11,281,435
9,712,124
52,962
(1,391,081)
8,374,005
$ 22,575,405
The accompanying notes are an integral part of these financial statements.
-3-
$ 19,524,147
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
COMBINED STATEMENTS OF ACTIVITIES
Years Ended December 31, 2014 and 2013
SUPPORT AND REVENUE
Membership support
Program fees
Government grant
Grant revenue and other
Net investment income
Income (loss) on investment in CHAMPS Patient Experience
Total support and revenue
EXPENSES
Member services
Program and grant expenses
Government grant expense
Total expenses
2014
2013
$ 1,059,550
14,133,288
1,297,053
10,234
51,088
36,136
16,587,349
$ 1,050,575
14,521,553
1,473,527
141,511
(38,441)
17,148,725
942,559
12,732,989
1,297,053
14,972,601
981,261
16,103,911
1,473,527
18,558,699
1,614,748
(1,409,974)
2,046,663
34,474
1,621,232
4,648,711
(1,898,640)
74,342
4,871,076
8,989,357
(2,000,000)
102,838
8,747,901
PROVISION FOR INCOME TAX
3,578,394
2,255,300
INCREASE IN NET ASSETS
2,907,430
5,082,627
NET ASSETS – BEGINNING OF YEAR
8,374,005
3,291,378
$ 11,281,435
$ 8,374,005
INCREASE (DECREASE) IN NET ASSETS BEFORE OTHER
ADJUSTMENTS AND PROVISION FOR INCOME TAX
OTHER ADJUSTMENTS
Minimum pension liability adjustment, net of deferred income taxes of
$9,800 for 2013 (Note 7)
Unrealized gain on investments, net of deferred income taxes of $952,170
and $835,400, respectively
Investment income
Patron dividends
Unrealized gain on interest rate swap
Total other adjustments
NET ASSETS – END OF YEAR
The accompanying notes are an integral part of these financial statements.
-4-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2014 and 2013
2014
CASH FLOWS FROM OPERATING ACTIVITIES
Increase in net assets
Adjustments to reconcile increase in net assets to
net cash used by operating activities:
Depreciation
Net realized and unrealized gain on investments
(Income) loss on investment in CHAMPS Patient Experience
Unrealized gain on interest rate swap
Minimum pension liability adjustment
Deferred income taxes
(Increase) decrease in:
Accounts receivable
Prepaid expenses
Deposits
Increase (decrease) in:
Accounts and grants payable
Accrued expenses and other liabilities
Deferred revenue
Deferred compensation liability
Federal income tax payable
Pension termination liability
Total adjustments
Net cash used by operating activities
$
2,907,430
2013
$
261,883
(7,706,563)
(36,136)
(74,342)
939,300
5,082,627
281,054
(10,746,320)
38,441
(102,838)
(34,474)
(119,700)
231,040
759,449
161,330
1,796,371
(712,414)
(183,641)
(708,020)
68,770
(401,299)
125,742
1,259,353
(1,122,437)
(6,241,930)
(3,334,500)
105,106
(151,681)
383,065
3,395,376
(33,889)
(6,085,544)
(1,002,917)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
Proceeds from sale of investments
Purchases of investments
Net cash (used) provided by investing activities
(176,393)
9,290,307
(10,192,590)
(1,078,676)
(431,751)
10,228,703
(2,889,210)
6,907,742
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt
Payment on capital lease
Proceeds from long-term debt
Net cash (used) provided by financing activities
(206,850)
(20,512)
(227,362)
(148,292)
1,000,000
851,708
(4,640,538)
6,756,533
7,959,700
1,203,167
CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS – END OF YEAR
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Taxes
Interest
$
3,319,162
$
7,959,700
$
1,360,604
188,875
$
3,396,300
171,717
The accompanying notes are an integral part of these financial statements.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1.
Summary of Significant Accounting Policies
A. Organization – The Center for Health Affairs (the "Center") commenced operations on
January 1, 1998 to represent and serve hospitals and health systems in meeting the
health needs of communities in Northeast Ohio. The Center is a not-for-profit trade
association exempt from income taxes pursuant to Section 501(c)(6) of the Internal
Revenue Service Code. The Center is the sole member of The Greater Cleveland
Healthcare Association, Inc. ("Association"), an Ohio nonprofit corporation organized
and operated to improve the quality of health care in Northeast Ohio. Its activities
include providing health-related education programs, monitoring the distribution of
charitable funds to hospitals, providing a community-wide forum for critical health
care issues, organizing and supporting disease control and prevention, wellness and
outreach programs and conducting and/or supporting research and data collection
concerning health care.
The Association is a not-for-profit organization as described in Section 501(c)(3) of
the Internal Revenue Code and is exempt from federal income taxes. However,
HealthComp, Inc. ("HealthComp"), the Association's wholly-owned subsidiary, is a
for-profit corporation, subject to federal, state and local income taxes.
Central Hospital Services, Inc. ("CHS") is a not-for-profit cooperative hospital and
health systems services organization. Its participants are not-for-profit hospitals and
health system members of the Center. CHS is a not-for-profit organization as
described in Section 501(c)(3) of the Internal Revenue Code and is exempt from
federal income taxes. CHS also qualifies as a hospital cooperative under Section 501
(e).
The accompanying combined financial statements include the accounts of The Center
for Health Affairs and affiliates, including the Association, its wholly owned
subsidiary, HealthComp and CHS (hereinafter referred to together as "CHA"). Due to
the shared services and customer relationships, management has determined that a
combined reporting for these entities is appropriate. All significant intercompany
transactions have been eliminated in the combined financial statements.
B. Use of Estimates – The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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 those estimates.
C. Recognition of Contribution Revenue – Contributions received are recorded as
unrestricted, temporarily restricted and permanently restricted support depending on
the existence and/or nature of any donor restrictions. Temporarily restricted net assets
are reclassified to unrestricted net assets upon satisfaction of time or purpose
restrictions. Permanently restricted net assets represent funds which are subject to
donor restrictions that the contributed principal be invested in perpetuity and only the
income be utilized. Temporarily restricted revenue that is received and spent in the
same year is recorded as unrestricted revenue. At December 31, 2014 and 2013, CHA
had no permanently or temporarily restricted net assets.
-6-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 1.
Summary of Significant Accounting Policies (Continued)
D. Cash and Cash Equivalents – For purposes of the combined statements of cash flows,
CHA considers all highly liquid investments with an original maturity of three months
or less to be cash equivalents. Cash on hand at financial institutions may at times
exceed federally insured amounts. Cash restricted for the government grant was
$61,512 and $412,155 at December 31, 2014 and 2013, respectively.
E. Accounts Receivable – Accounts receivable represent amounts due primarily from
group purchasing activities and fees for service programs to hospitals and healthcare
providers. At December 31, 2014 and 2013, CHA has reserves against these
receivables of $10,000, based upon historical and expected collectibility.
F.
Property and Equipment – Property and equipment is recorded at historical cost.
Depreciation on property and equipment is calculated on the straight-line method over
the estimated useful lives of the assets. Additions and major improvements are
capitalized. Repairs and maintenance costs are expensed as incurred. Depreciation
expense was $261,883 and $281,084 for 2014 and 2013, respectively.
G. Investments – CHA reports investments in the combined statements of financial
position at fair value, except for HealthComp's investments in CHAMPS Patient
Experience and Premier, Inc. which are recorded on the equity method, with any
realized or unrealized gains and losses reported in the combined statements of
activities. Investment income is reported as revenue in the period it is earned and
gains and losses are recognized as changes in net assets in the accounting periods in
which they occur.
H. Board Designated Net Assets – The Board of Trustees has designated a portion of
unrestricted net assets to fund programs that support member hospitals.
I.
Fair Value of Financial Instruments – The carrying values of cash and cash
equivalents, accounts receivable, due from affiliated organizations, accounts and
grants payable and accrued expenses and other liabilities are reasonable estimates of
fair value due to the short-term nature of these financial instruments. The carrying
value of long-term debt is based upon CHA's current incremental borrowing rates for
similar types of borrowing arrangements which approximate fair value.
CHA estimates the fair value of financial instruments using available market
information and other generally accepted valuation methodologies. Fair value is
defined as the price that would be received to sell an asset or would be paid to transfer
a liability in an orderly transaction between market participants at the measurement
date. The inputs used to measure fair value are classified into three levels:
Level 1 – Quoted market prices in active markets for identical assets and
liabilities.
Level 2 – Observable market-based inputs or unobservable inputs that are
corroborated by market data.
Level 3 – Unobservable inputs in which little or no market data exists.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 1.
Summary of Significant Accounting Policies (Continued)
I.
Fair Value of Financial Instruments (Continued)
The following tables set forth by level CHA's assets and liabilities that are accounted
for at a fair value on a recurring basis:
As of December 31, 2014
Fair Value
Level 1
Level 2
Assets:
Marketable equity securities
Bonds and fixed income funds
Commodities
Money market funds and cash
Liabilities:
Interest rate swap
$ 3,403,290
1,767,815
53,026
225,770
5,449,901
$ 3,403,290
1,767,815
53,026
225,770
5,449,901
$ 162,862
$ 162,862
As of December 31, 2013
Fair Value
Level 1
Level 2
Assets:
Marketable equity securities
Bonds and fixed income funds
Money market funds and cash
Commodities
Liabilities:
Interest rate swap
$ 1,672,749
872,486
57,032
17,031
2,619,298
$ 237,204
$ 1,672,749
872,486
57,032
17,031
2,619,298
$ 237,204
Investments – CHA invests in money market funds, equity mutual funds, fixed income
mutual funds and commodities funds with quoted prices in active markets that are
considered to be Level 1 inputs.
Interest Rate Swap – CHA has an interest rate swap for which the Association pays a
fixed rate and receives a variable interest rate that is observable based upon a forward
interest rate curve and is, therefore, considered a Level 2 input.
J.
Revenue Recognition – CHA recognizes revenues from program fees and shared
services as the services are performed. Membership support revenue is recognized
over the term of the membership.
K. Subsequent Events – CHA has evaluated subsequent events through April 23, 2015,
which is the date the combined financial statements were available to be issued.
L. Reclassification – Certain reclassifications have been made to prior year amounts to be
consistent with the current year presentation.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 2.
Transactions With Affiliated Organizations
The Association and HealthComp provide professional staff and certain support services to
the Center and CHS as well as each other. The services provided and the allocation to each
organization are approved by the respective Boards.
All such allocations and
intercompany balances are eliminated in combination.
Note 3.
Investments
Investments are stated at fair value as determined by quoted prices. At December 31, 2014
and 2013, CHA's investment portfolio, excluding investments in CHAMPS Patient
Experience and Premier, Inc., consists of the following:
2014
2013
Market
Cost
Market
Cost
Marketable equity securities
Bonds and fixed income funds
Commodities
Money market funds and cash
$ 3,403,290
1,767,815
53,026
225,770
$ 3,229,535
1,776,405
59,742
225,770
$ 1,672,749
872,486
57,032
17,031
$ 1,279,752
874,788
55,020
17,031
Total
$ 5,449,901
$ 5,291,452
$ 2,619,298
$ 2,226,591
HealthComp is invested in a joint venture arrangement with a third party to provide patient
experience services, through which it obtained a 50% interest in CHAMPS Patient
Experience. HealthComp accounts for its investment in CHAMPS Patient Experience on
the equity method. The carrying value of this investment at December 31, 2014 and 2013
is $207,485 and $68,032, respectively.
In April 2013, HealthComp entered into an investment and subscription agreement with
Premier Purchasing Partners, LP ("Premier LP") and Premier, Inc. ("Premier") for a total
initial investment of $5,220,773 and $75,000, respectively. As part of the investment,
HealthComp recognized a subscription payable for $5,205,093. In June 2013, due to
Premier's reconciliation of partner capital accounts, the investment in Premier LP and the
corresponding subscription payable were reduced by $2,500,000.
Effective October 1, 2013, Premier went through a reorganization and initial public
offering. As part of the reorganization, HealthComp received 1,975,705 class B units in
Premier Healthcare Alliance, L.P. ("PHA"), which is the majority owner of newly formed
Premier, which is the public entity. One-seventh of the B units in PHA are convertible to
class A common shares of Premier on a one-to-one basis on each of the first seven
anniversary dates, provided that HealthComp continues to participate in Premier's Group
Purchasing Agreement.
HealthComp accounts for its investment in PHA on the equity method, except as class B
units are considered to vest. Class B units are considered to vest pro-rata through the year
and are recorded based upon the market value of the class A common shares of Premier.
Although HealthComp owns less than 20% of PHA, management believes accounting for
its investment in this way provides a more accurate reporting of operations.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 3.
Investments (Continued)
As of December 31, 2014, 112,244 of the class B units fully vested on October 1, 2014 and
are eligible for conversion. In addition, as of December 31, 2014, an additional 70,561
class B units were considered to be vested. As of December 31, 2014, a total of 182,805
class B units were valued using the closing price of $33.53 per share, for a value of
$6,129,452, which is considered a Level 1 valuation. In October 2014, 282,244 class B
units fully vested, of which HealthComp converted and sold 170,000 shares at a gain of
$4,647,646. This gain is included in investment income in the combined statement of
activities. As of December 31, 2014, the total investment balance, including the unrealized
gain for units valued at fair market value, was $11,731,977. The outstanding balance of
the subscription payable is $2,401,433 as of December 31, 2014, which has been offset
against the investment balance. The value of all units based upon the December 31, 2014
closing price would be approximately $66.2 million. Interest expense on the subscription
payable was $42,150 for the year ended December 31, 2014.
As of December 31, 2013, 70,561 class B units were considered to be vested and were
valued using the closing price of $36.76 per share, for a value of $2,593,821, which is
considered a Level 1 valuation. As of December 31, 2013, the total investment balance,
including the unrealized gain for units valued at fair market value, was $6,303,362. The
outstanding balance of the subscription payable is $2,647,744 as of December 31, 2013,
which has been offset against the investment balance. The value of all units based upon
the December 31, 2013 closing price would be approximately $72.6 million. Interest
expense on the subscription payable was $35,669 for the year ended December 31, 2013.
The components of the investments - other were as follows as of December 31:
2014
Investment in CHAMPS Patient Experience
Investment in Premier:
$
Class B units recorded on equity method
Class B units vested and recorded at fair value
of class A common shares
Less subscription payable to Premier
$
68,032
5,602,553
3,709,541
6,129,424
11,939,462
(2,401,433)
2,593,821
6,371,394
(2,647,744)
$ 9,538,029
Total investments - other
Note 4.
207,485
2013
$ 3,723,650
Deferred Revenue
As of December 31, 2014 and 2013, deferred revenue is comprised as follows:
2014
Government grants
Program fees and other
-10-
2013
$
61,512
51,728
$
412,155
102,384
$
113,240
$
514,539
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 5.
Line of Credit
CHA has an available line of credit with a maximum borrowing limit of $750,000. As of
December 31, 2014 and 2013, the outstanding balance on this line of credit was $-0-.
Interest payments are made monthly at a variable rate based upon the prime rate (3.25% at
December 31, 2014). The line of credit is collateralized by an interest in substantially all
of CHA's assets.
Note 6.
Long-Term Obligations
In August 2013, CHA obtained a $1,000,000 term note. The note requires 59 monthly
payments of $9,788 principal and interest at a fixed rate of 3.239%. All outstanding
principal and accrued interest is due on August 16, 2018. The term note is collateralized
by an interest in substantially all of HealthComp's and CHS's assets. As of December 31,
2014 and 2013, the outstanding balance on the term note was $884,858 and $971,708,
respectively.
The Association has a mortgage note payable at a variable interest rate of 1.5% plus the
one month LIBOR rate (1.67% as of December 31, 2013). The note requires monthly
principal payments of $10,000 plus interest through June 2017 and is collateralized by the
building. All unpaid principal and interest is due in full in June 2017. The outstanding
balance on this note was $1,500,000 and $1,620,000 as of December 31, 2014 and 2013,
respectively.
As part of the mortgage note payable financing in 2007, the Association entered into a
corresponding interest rate swap agreement with PNC Bank amortized at $10,000 per
month with a termination date of June 30, 2017. The interest rate swap agreement is
designated and qualifies as a fair value hedge and is reported at fair value. The swap
agreement created a synthetic fixed interest rate of 5.73%. Changes in the swap's fair
value are reported in the combined statements of activities within unrestricted net assets.
For the years ended December 31, 2014 and 2013, the unrealized gain on the swap
agreement was $74,342 and $102,838, respectively.
Interest expense for the years ended December 31, 2014 and 2013 was $132,611 and
$141,111, respectively. The Association has met all loan covenants.
Principal payments required are as follows:
2015
2016
2017
2018
$ 210,155
213,119
1,356,180
605,404
$ 2,384,858
During 2014, the Association entered into two capital leases for office equipment. Both
leases have 36-month terms, and require monthly payments of $697 and $7,195,
respectively. The total cost of equipment associated with these leases is $284,123. As of
December 31, 2014, no depreciation expense or accumulated depreciation was recorded on
this equipment, as it was not placed in service by year end.
-11-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 6.
Long-Term Obligations (Continued)
Payments required for under the capital leases are as follows:
2015
2016
2017
$
95,739
98,842
87,152
281,733
(18,122)
$
263,611
Less: amount attributable to interest
Note 7.
Pension Plans
HealthComp maintains a noncontributory defined benefit pension plan for the benefit of
eligible employees. Benefits are based on years of service and the employee's career
average compensation. It is HealthComp's policy to contribute annually to the defined
benefit plan amounts which are actuarially determined to provide the plan with sufficient
assets to meet future benefit payment requirements.
Effective January 1, 2005, HealthComp froze the defined benefit plan. During 2013,
HealthComp elected to terminate the defined benefit plan, and recorded as a current
liability the estimated payment required upon regulatory approval to terminate. In June
2014, HealthComp paid $1,487,710 to complete the termination.
The following represents selected information about the plan for 2013:
Net Periodic Benefit Cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of loss
$
180,399
(343,989)
529,901
Total net periodic benefit cost
$
366,311
Reconciliation of Projected Benefit Obligation
Projected benefit obligation at the beginning of the year
Interest cost
Benefits paid
Actuarial loss
Assumption change
$ 5,512,205
180,399
(278,490)
46,745
432,773
Projected benefit obligation at the end of the year
$ 5,893,632
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 7.
Pension Plans (Continued)
Reconciliation of Projected Benefit Obligation
Projected benefit obligation at the beginning of the year
Interest cost
Benefits paid
Actuarial loss
Assumption change
$ 5,512,205
180,399
(278,490)
46,745
432,773
Projected benefit obligation at the end of the year
$ 5,893,632
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at the beginning of the year
Actual return on plan assets
Employer contributions
Benefits paid
$ 4,311,805
337,880
400,000
(278,490)
Fair value of plan assets at the end of the year
$ 4,771,195
Amounts Included in Minimum Pension Liability
Adjustment (Before Tax Effect)
Unrecognized net loss
$ 3,866,655
Minimum Pension Liability Adjustment, net of deferred tax
of $854,400
$ 3,012,255
Other Changes in Plan Assets and Benefit Obligations in
Minimum Pension Liability Adjustment
Net loss
Amortization of prior services costs
Amortization of gain
$
485,627
(529,901)
Total recognized in minimum pension liability adjustment
$
(44,274)
$
545,631
-
$
545,631
Amounts Expected to be Recognized in Minimum
Pension Liability Adjustment Over Next Fiscal Year
Net loss
Prior service credit
Total
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 7.
Pension Plans (Continued)
Funded Status
Accumulated benefit obligation
$ (5,893,632)
Projected benefit obligation
Fair value of plan assets
$ (5,893,632)
4,771,195
Funded status
$ (1,122,437)
Significant assumptions underlying the actuarial computations were as follows:
Actuarial Assumptions
Discount rate for net periodic
benefit cost
Expected return on plan assets
Discount rate for disclosure
obligations
1st segment rate
2nd segment rate
3rd segment rate
Mortality table
Measurement date
Actuarial cost method
3.40%
4.00%
0.97%
3.76%
5.01%
2013 IRS Applicable
December 31, 2013
Projected Unit Credit Funding
Effect of a change in the discount rate is was as follows:
A ½% increase in the discount rate would have decreased the prospective Net Periodic
Cost by $110,400. A ½% decrease in the discount rate would have increased the
prospective Net Periodic Cost by $101,400.
HealthComp terminated the defined benefit plan and all expected benefit disbursements
were paid out during 2014.
In order to protect the plan assets from volatility in the market leading up to the plan
termination, as of December 31, 2013, all plan assets were invested in money market
accounts, generally Level 2 valuations.
HealthComp has a defined contribution 401(k) plan. Under the terms of the plan,
HealthComp is obligated to contribute the first 3% of an employee's salary. The plan
covers all employees meeting service requirements. Contributions to the plan for the years
ended December 31, 2014 and 2013 were $269,305 and $218,851, respectively.
HealthComp has a non-qualified deferred compensation plan for certain employees. The
participants vest in the plan over seven years. Contributions to the plan for the years ended
December 31, 2014 and 2013 were $2,593,995 and $196,486, respectively. The deferred
compensation accrual at December 31, 2014 and 2013 was $4,343,803 and $4,218,061,
respectively. Upon retirement or termination, participants can receive payments in lump
sum or up to 120 monthly installments.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 8.
Income Taxes
Under the asset and liability method of accounting for income taxes under accounting
principles generally accepted in the United States of America, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
The components of the provision for taxes are as follows:
Current federal provision
State and local taxes
Deferred tax provision (benefit) - income items
2014
2013
$ 2,440,000
360,000
778,394
$ 2,040,000
335,000
(119,700)
$ 3,578,394
$ 2,255,300
HealthComp has timing differences which relate primarily to the deductibility of deferred
compensation, pension termination and the exclusion of unrealized gains on investments
from taxable income.
The components of the net deferred tax liability are as follows:
2014
Deferred tax assets
Deferred tax liabilities
$
443,100
1,889,400
Net deferred tax liability
$ (1,446,300)
2013
$
430,269
937,269
$ (507,000)
CHA recognizes the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by taxing authorities, based on
the technical merits of the position. CHA believes that it has appropriate support for any
tax positions taken and, as such, does not have any uncertain tax positions that are material
to the financial statements.
As of December 31, 2014, CHA's income tax and informational returns remain subject to
examination by the Internal Revenue Service, as well as state and local taxing authorities,
generally for three years.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 9.
Operating Leases
The Association has executed several operating leases for office equipment, parking and
automobiles. Minimum lease payments required are as follows:
2015
2016
$
21,587
5,334
$
26,921
Lease payments for the years ended December 31, 2014 and 2013 were $23,534 and
$114,437, respectively.
Note 10. Functional Expenses
The following represents management's classification of operating expenses by function
for the years ended 2014 and 2013:
Program services
Supporting services
2014
2013
$ 12,846,932
2,125,669
$ 16,079,331
2,479,368
$ 14,972,601
$ 18,558,699
Note 11. Patron Dividends
During 2014 and 2013, CHS paid $1,898,640 and $2,000,000, respectively, as patron
dividends to its hospital and health system members.
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