ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Financial Statements
September 30, 2012 and 2011
(With Independent Auditors’ Report Thereon)
KPMG LLP
6th Floor, Suite A
100 Westminster Street
Providence, RI 02903-2321
Independent Auditors’ Report
The Board of Trustees
Roger Williams Medical Center
(Formerly known as Roger Williams Hospital):
We have audited the accompanying balance sheets of Roger Williams Medical Center (formerly known as
Roger Williams Hospital) (the Medical Center) as of September 30, 2012 and 2011 and the related
statements of operations, changes in net assets and cash flows for the years then ended. These financial
statements are the responsibility of the Medical Center’s management. Our responsibility is to express an
opinion on these 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 financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Medical
Center’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Medical Center as of September 30, 2012 and 2011, and the results of its
operations, changes in its net assets and its cash flows for the years then ended in conformity with
U.S. generally accepted accounting principles.
January 29, 2013
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Balance Sheets
September 30, 2012 and 2011
Assets
Current assets:
Cash and cash equivalents (restricted cash of $2,453,595 in 2012 and $2,449,059 in 2011
Patient accounts receivable, less allowance for doubtful accounts of $9,405,847 in 2012
and $7,842,800 in 2011
Inventories
Malpractice and professional receivables
Prepaid expenses and other current assets
Amounts due from related parties
$
Total current assets
Assets limited or restricted as to use:
Funds held by trustee under bond indenture
Board designated investments
Restricted investments:
Interest in perpetual trusts
By donor
By spending policy
Total assets limited or restricted as to use
2012
2011
12,265,154
12,411,338
15,838,045
3,184,326
61,128
4,146,658
792,682
13,870,947
3,079,744
607,048
3,537,592
675,319
36,287,993
34,181,988
1,329,911
5,786,666
1,329,911
5,079,479
4,129,362
4,209,522
13,677,484
3,694,529
4,209,522
12,040,424
29,132,945
26,353,865
26,589,568
4,892,824
3,101,714
1,905,753
858,684
27,774,968
5,123,068
3,472,390
2,492,102
755,785
$
102,769,481
100,154,166
$
20,109,053
580,305
632,572
61,128
1,119,652
11,276,996
20,003,390
861,639
672,378
607,048
—
11,741,286
33,779,706
33,885,741
Capital lease obligations, less current portion
Long-term debt, less current portion
Deferred gain on investment in joint venture
Asset retirement obligations
Malpractice and professional liabilities
Other liabilities
521,029
12,663,184
2,190,667
699,890
9,175,902
308,801
780,518
13,391,326
2,290,144
684,345
9,928,476
333,692
Total liabilities
59,339,179
61,294,242
18,881,358
16,210,060
8,338,884
16,397,505
14,558,368
7,904,051
43,430,302
38,859,924
102,769,481
100,154,166
Property, plant and equipment, net
Malpractice and professional receivables
Investments in joint ventures
Amounts due from related parties
Other assets
Total assets
Liabilities and Net Assets
Current liabilities:
Accounts payable and accrued expenses
Current obligations under capital lease
Current portion of long-term debt
Current portion of malpractice liabilities
Amounts due to related parties
Estimated final settlements due to third-party payors
Total current liabilities
Commitments and contingencies
Net assets:
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
$
See accompanying notes to financial statements.
2
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Statements of Operations
Years ended September 30, 2012 and 2011
Operating revenues:
Net patient service revenues
Net assets released from restrictions:
Research
General operations
Free care
Other operating revenues
$
Total operating revenues
Operating expenses:
Employee compensation and benefits
Supplies and other
Direct research expenses
License fee
Interest
Depreciation, amortization and accretion
Provision for bad debts
Total operating expenses
Gain from operations
Non–operating gains (losses):
Investment income
Expenditures for designated purposes, net
Other
Nonoperating gains (losses), net
Excess of revenues over expenses
Other changes in unrestricted net assets:
Change in net unrealized gains (losses) on investments
Funds released from temporarily restricted net assets for capital
Increase in unrestricted net assets
$
See accompanying notes to financial statements.
3
2012
2011
156,652,947
151,684,142
5,658,882
953,984
11,104
10,071,353
5,429,274
1,016,711
47,650
6,614,393
173,348,270
164,792,170
82,528,541
61,036,628
5,658,882
7,058,592
919,594
4,770,931
9,844,043
80,321,229
54,317,198
5,429,274
7,402,248
1,029,092
5,260,717
9,802,883
171,817,211
163,562,641
1,531,059
1,229,529
334,275
(370,610)
110,657
448,829
(521,812)
1,444
74,322
(71,539)
1,605,381
1,157,990
546,279
332,193
(318,350)
31,958
2,483,853
871,598
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Statements of Changes in Net Assets
Years ended September 30, 2012 and 2011
2012
Increase in unrestricted net assets
$
Temporarily restricted net assets:
Restricted income on endowment funds
Earnings on temporarily restricted net assets
Change in net unrealized gains (losses) on investments
Net realized gain on investments
Transfer from affiliate
Gifts and grants
Net assets released from restrictions
Increase (decrease) in temporarily restricted net assets
Permanently restricted net assets:
Restricted income on endowment funds
Funds transferred to temporarily restricted net assets
Change in market value of perpetual trusts
Increase (decrease) in permanently restricted
net assets
Increase (decrease) in net assets
Net assets at beginning of year
Net assets at end of year
$
See accompanying notes to financial statements.
4
2011
2,483,853
871,598
338,387
7,644
2,022,397
9,609
134,792
6,095,026
(6,956,163)
355,696
5,983
(1,791,070)
667,761
—
5,890,833
(6,525,593)
1,651,692
(1,396,390)
11,104
(11,104)
434,833
47,650
(47,650)
(194,646)
434,833
(194,646)
4,570,378
(719,438)
38,859,924
39,579,362
43,430,302
38,859,924
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Statements of Cash Flows
Years ended September 30, 2012 and 2011
2012
Cash flows from operating activities:
Change in net assets
Adjustments to reconcile change in net assets to net cash
provided by operating activities:
Depreciation and amortization
Accretion for asset retirement obligation costs
Amortization of deferred gains
Amortization of deferred financing costs
Accretion of original issue discount
(Gain) loss on disposal of assets
Equity in income of joint ventures
Net realized and change in net unrealized (gains) losses on
sales of investments
Change in market value of perpetual trusts
Provision for bad debts
Changes in operating assets and liabilities:
Patient accounts receivable
Other current assets and other assets
Accounts payable, accrued expenses and other liabilities
Estimated final settlements due to third-party payors
$
2011
4,570,378
(719,438)
4,740,614
30,317
(99,477)
8,772
17,081
(18,297)
(621,574)
5,207,190
13,724
(99,476)
8,772
17,670
39,804
(492,430)
(2,568,676)
434,833
9,844,043
2,109,420
194,646
9,802,883
(11,811,141)
(49,155)
(1,232,495)
(464,290)
(9,854,641)
546,723
(2,713,794)
2,119,941
2,780,933
6,180,994
(3,218,543)
(6,357,436)
5,712,199
992,250
23,730
1,588,638
(2,298,303)
(24,537,863)
24,050,399
950,330
—
(520,697)
Net cash used in investing activities
(1,259,162)
(2,356,134)
Cash flows from financing activities:
Repayment of long-term debt and capital leases
(1,667,955)
(2,105,053)
Net cash used in financing activities
(1,667,955)
(2,105,053)
(146,184)
1,719,807
12,411,338
10,691,531
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Purchases of investments
Sales of investments
Distributions from investments in joint ventures
Proceeds from sale of equipment
Repayment from (advances to) related parties, net
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
12,265,154
12,411,338
Supplemental disclosure:
Capital expenditures financed through capital leases
Interest paid
$
342,104
925,760
68,967
1,039,043
See accompanying notes to financial statements.
5
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(1)
Organization, Basis of Presentation and Subsequent Events
(a)
Organization
Roger Williams Medical Center (Medical Center) an affiliate of CharterCARE Health Partners, a
220-bed acute care general hospital established to provide healthcare services in Providence, Rhode
Island and surrounding communities. The Medical Center is a not-for-profit corporation.
CharterCARE Health Partners Inc, (CCHP)
CharterCARE Health Partners and Affiliates (CCHP), a not-for-profit corporation, functions as the
parent company. It is the sole member of the following organizations, which together form the
continuum of healthcare known as CharterCARE Health Care Partners Inc.
The following are wholly owned subsidiaries of CCHP:
St. Joseph Health Services of Rhode Island (SJHSRI)
St. Joseph Health Services of Rhode Island (SJHSRI) is a 359-bed acute care general hospital
established to provide healthcare services in North Providence, Rhode Island and surrounding
communities. Additionally, SJHSRI also operates an integrated network of primary care and
specialty clinics serving the economically disadvantaged and minority population in Providence,
Rhode Island. SJHSRI is a not-for-profit corporation.
Elmhurst Extended Care Facilities, Inc. (Elmhurst)
Elmhurst is a 192-bed skilled nursing home and intermediate care facility and provider of other elder
care services. Elmhurst is a not-for-profit corporation.
Roger Williams Realty Corporation (Realty)
Realty holds and manages real estate assets for the benefit of CCHP, owns and leases land and
buildings to Elmhurst, and leases clinical and research space to the Medical Center. Realty is a
not-for-profit organization.
Roger Williams Medical Associates, Inc. (RWMA)
RWMA is a not-for-profit corporation established to arrange for the provision of medical services to
patients of both the Medical Center and SJHSRI and individuals in the communities served by the
Medical Center and SJHSRI.
CharterCARE Partners Foundation, Inc. (CCHP Foundation) (Formerly SJ Foundation)
August 22, 2011, SJ Foundation changed its name to CharterCARE Health Partners Foundation Inc.
(CCHP Foundation), removed itself from the Official Catholic Directory, and became a subsidiary of
CCHP. Effective with the change in name, the Articles of Incorporation were amended. The CCHP
Foundation is a not-for-profit corporation whose mission is to raise funds for the benefit of CCHP
and its affiliates.
6
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
A Petition for Cy Pres was filed and approved in Rhode Island Superior Court to transfer the funds
raised by the SJ Foundation to benefit SJHSRI to SJHSRI. The net assets of SJ Foundation totaling
$359,129 were transferred to SJHSRI effective September 30, 2011.
Our Lady of Fatima Ancillary Services (Ancillary Services)
Our Lady of Fatima Ancillary Services is a for-profit organization. Ancillary Services holds the
licenses for the SJHSRI outreach laboratories and provides imaging services to area physicians and
medical practices. Ancillary Services participates in a joint venture with two unrelated third parties
known as Rhode Island PET Services, LLC and MRI Centers of N.E which operates Northwest
Rhode Island Imaging in Johnston RI. During 2012 the Northwest Rhode Island Imaging Center was
sold to an independent third party. All assets and liabilities associated with the joint venture were
settled prior to year end September 30, 2012.
Elmhurst Health Associates, Inc. (EHA)
EHA is a for-profit organization. EHA holds the licenses for the Medical Center outreach
laboratories.
SJ Energy, LLC
A single member LLC established to purchase wholesale energy to support the operation needs of
CCHP and affiliates.
Rosebank Corporation (Rosebank)
Rosebank holds and manages real estate assets for the benefit of CCHP. Rosebank owns several
parking lots on the main campus of the Medical Center and several other properties adjacent to the
main campus. Rosebank is a for-profit organization.
Physicians Office Building, Inc. (POB)
POB owns and operates a physician office building located adjacent to the Medical Center’s main
campus for the benefit of CCHP’s employed physicians. POB is a not-for-profit organization.
(b)
Basis of Statement Presentation
The accompanying financial statements are presented on the accrual basis of accounting in
accordance with U.S. generally accepted accounting principles (GAAP). In accordance with
provisions of the U.S. GAAP, net assets and revenue, expenses, gains, and losses are classified on
the existence or absence of donor-imposed restrictions. The Medical Center’s net assets and
activities that increase or decrease net assets are classified as unrestricted, temporarily restricted, or
permanently restricted.
In connection with the preparation of the financial statements, the Medical Center evaluated
subsequent events after the balance sheet date of September 30, 2012 through January 29, 2013,
which is the date the financial statements were available to be issued.
7
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(c)
Recently Issued Accounting Pronouncements
In July 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of
Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for
Certain Health Care Entities (ASU 2011-07), which requires certain health care entities to change
the presentation of their statement of operations by reclassifying the provision for bad debts
associated with patient service revenue from an operating expense to a deduction from patient
service revenue (net of contractual allowances and discounts). Additionally, those health care entities
are required to provide enhanced disclosure about their policies for recognizing revenue and
assessing bad debts. The amendments also require disclosures of patient service revenue (net of
contractual allowances and discounts) as well as qualitative and quantitative information about
changes in the allowance for doubtful accounts. ASU 2011-07 is effective for the Medical Center’s
fiscal year beginning October 1, 2012, and the change in presentation is not expected to significantly
impact the Medical Center’s financial position, results of operations or cash flows.
In August 2010, the FASB issued ASU No. 2010-23, Health Care Entities (Topic 954): Measuring
Charity Care for Disclosure (ASU 2010-23), which standardizes cost as a basis for charity care
disclosures and specifies the elements of cost to be used in charity care disclosures. ASU 2010-23
was effective for the Medical Center’s fiscal year beginning October 1, 2011 and did not
significantly impact the Medical Center’s financial position, results of operations, or cash flows.
Also in August 2010, the FASB issued ASU No. 2010-24, Health Care Entities (Topic 954):
Presentation of Insurance Claims and Related Insurance Recoveries (ASU 2010-24), which
eliminates the practice of netting claim liabilities with expected related insurance recoveries for
balance sheet presentation. Claim liabilities are to be determined with no regard for recoveries and
presented gross. Expected recoveries are presented separately. The implementation of ASU 2010-24
effective October 1, 2011 resulted in an increase of $4,900,000 in assets and a corresponding
increase in liabilities as of September 30, 2012. ASU 2010-24 permits retrospective application,
which the Medical Center adopted. This resulted in an increase of $5,700,000 in assets and a
corresponding increase in liabilities as of September 30, 2011.
(2)
Significant Accounting Policies
(a)
Use of Estimates
The preparation of financial statements, in conformity with U.S. GAAP, requires management to
make estimates and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include the allowance for doubtful
accounts, valuation of certain investments, estimated final settlements due third party payors,
self-insurance liabilities and other contingencies. The current economic environment has increased
the degree of uncertainty inherent in those estimates and assumptions.
8
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(b)
Statements of Operations
All activities of the Medical Center deemed by management to be ongoing, major, and central to the
provision of healthcare services are reported as operating revenues and expenses. Other activities
deemed to be non–operating include certain investment income (including realized gains and losses
not recorded as either temporarily or permanently restricted net assets) and expenditures for
designated purposes consisting primarily of research-related expenses.
The Medical Center records net patient service revenues at the estimated net realizable amounts from
patients, third-party payors and others for services rendered, including estimated retroactive
adjustments under reimbursement agreements with third-party payors. Under the terms of various
agreements, regulations, and statutes, certain elements of third-party reimbursement are subject to
negotiation, audit and/or final determination by the third-party payors. As a result, there is at least a
reasonable possibility that the recorded estimates will change by a material amount. Variances
between preliminary estimates of net patient service revenues and final third-party settlements are
included in net patient service revenues in the year in which the settlement or change in estimate
occurs. Adjustments to prior year settlements with third-party payors increased net patient service
revenue by approximately $994,000 and $253,000 for the years ended September 30, 2012 and 2011,
respectively.
The statements of operations include the excess of revenues over expenses. Changes in unrestricted
net assets which are excluded from the excess of revenues over expenses include changes in
unrealized gains and losses on investments, transfers to/from affiliates, and contributions of
long-lived assets (including assets acquired using contributions which by donor restriction were to be
used for the purposes of acquiring such assets).
(c)
Net Patient Service Revenue
The Medical Center maintains agreements with the Social Security Administration under the
Medicare Program, Blue Cross and Blue Shield of Rhode Island, Inc. (Blue Cross), United Health
Insurance (United), the State of Rhode Island under the Medicaid Program, and various commercial
and managed care payors that govern payments to the Medical Center for services rendered to
patients covered by these agreements. The agreements generally provide for per case or per diem
rates or payments based on allowable costs, subject to certain limitations, for inpatient care and
discounted charges or fee schedules for outpatient care.
Certain agreements with various third-party payors have provisions for retroactive settlements and
dispute resolution related to issues such as allowable costs, utilization, and charge structure.
Provisions have been made in the financial statements for prior and current years’ estimated
settlements with the various third-party payors. Actual adjustments may be materially different from
these estimates.
(d)
Healthcare Regulatory Environment
The healthcare industry is subject to numerous laws and regulations of federal, state and local
governments. These laws and regulations include, but are not necessarily limited to, matters such as
9
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
licensure, accreditation, government healthcare program participation requirements, reimbursement
for patient services, Medicare and Medicaid fraud and abuse and security and privacy of health
information. Government activity has increased with respect to investigations and allegations
concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.
Violations of these laws and regulations could result in expulsion from government healthcare
programs together with the imposition of significant fines and penalties, as well as significant
repayments for patient services previously billed. Management believes that the Medical Center is in
compliance with fraud and abuse regulations as well as other applicable government laws and
regulations. While no known regulatory inquires are pending, compliance with such laws and
regulations can be subject to future government review and interpretation as well as regulatory
actions unknown or unasserted at this time.
(e)
Meaningful Use
Certain health care providers can earn up to four incentive payments between federal fiscal years
2011 and 2016 if certain specific program criteria are met. In the first year, the providers are required
to establish an Electronic Health Record (EHR) system and maintain its meaningful use status for a
continuous 90-day period. In subsequent years, such meaningful use must be maintained for the
entire 365 day federal fiscal year.
The Medical Center records the revenue related to this program when management is reasonably
assured that the Medical Center has complied with the terms of the program. The Medical Center has
included $2,605,289 in other revenue related to the program in fiscal year 2012 and zero in
fiscal year 2011. The estimate is based on cost report data, which is subject to audit, and the amounts
recognized are subject to change. The Medical Center’s attestation of compliance with the
meaningful use criteria is subject to audit by the Federal or State government or its designee. As of
September 30, 2012 there were meaningful use receivables of $1,881,740 included in prepaid
expenses and other current assets. This amount was collected subsequent to September 30, 2012.
(f)
Charity Care and Allowance for Doubtful Accounts
The Medical Center provides care to patients who meet certain criteria under the charity care policies
without charge or at amounts less than the established rates. Because the Medical Center does not
pursue collection of amounts determined to qualify as charity care, they are not reported as net
patient service revenue.
The Medical Center grants credit without collateral to patients, most of whom are local residents and
are insured under third-party agreements. Additions to the allowance for doubtful accounts are made
by means of a provision for bad debts. Accounts written off as uncollectible are deducted from the
allowance and subsequent recoveries are added. The amount of the provision for bad debts is based
upon management’s assessment of historical and expected net collections, trends in federal and other
collection indicators. Services rendered to individuals when payment is expected and ultimately not
received are written off to the allowance for doubtful accounts (bad debt).
10
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(g)
Cash and Cash Equivalents
Cash equivalents represent highly liquid instruments with a maturity at the date of purchase of
three months or less, excluding amounts whose use is limited by board designation, donor or other
arrangements under trust agreements. Restricted cash represents amounts designated primarily for
research and other purposes.
(h)
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.
(i)
Assets Limited or Restricted as to Use
Assets limited or restricted as to use primarily include: (1) assets held by trustees under a bond
indenture, (2) board designated assets over which the Board of Trustees retains control and may at
their discretion appropriate for spending, (3) interest in perpetual trusts which represents the Medical
Center’s donated portion of the donor’s trust, and (4) donor-restricted investments which are funds
donated to the Medical Center and are restricted as to time or purpose.
(j)
Investment Valuation and Income Recognition
Investments are reported at fair value. The fair value of a financial instrument is the amount that
would be received to sell an asset, or the amount that would be paid to transfer a liability, in an
orderly transaction between market participants at the measurement date. See note 3 for discussion of
fair value measurements.
Investment income or loss (including realized gains and losses on investments, interest and
dividends) and unrealized changes in equity interests in the limited partnership are included in the
excess of revenues over expenses unless the income or loss is restricted by donor or law. Change in
net unrealized gains and losses on investments is excluded from the excess of revenues over
expenses.
A decline in the market value of any available for sale security below cost that is deemed to be other
than temporary results in an impairment to reduce the carrying amount to fair value. The impairment
is charged to earnings and a new cost basis for the security is established. To determine whether an
impairment is other than temporary, the Medical Center considers whether it has the ability and
intent to hold the investment until a market price recovery and considers whether evidence indicating
the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in
this assignment includes the reserves for the impairment, the severity and duration of the impairment
changes in value subsequent to year end, forecasted performance of the investor, and the general
market conditions in the geographic area or industry the investor operates in. During the years ended
September 30, 2012 and 2011, the Medical Center did not record any other-than-temporary
impairments to its portfolio.
The Medical Center’s management is responsible for the fair value measurements of investments
reported in the financial statements. The Medical Center has implemented policies and procedures to
11
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
assess the reasonableness of the fair values provided, and believes the reported fair values at the
balance sheet dates are reasonable.
(k)
Property, Plant and Equipment
Property, plant and equipment is reported on the basis of cost less accumulated depreciation and
amortization. Donated items are recorded at fair market value at the date of contribution. The
carrying value of property, plant and equipment is reviewed if the facts and circumstances suggest
that it may be impaired. Depreciation of property, plant and equipment is calculated by use of the
straight-line method at rates intended to depreciate the cost of assets over their estimated useful lives.
Interest costs incurred on borrowed funds during the period of construction of capital assets are
capitalized as a component of the cost of acquiring those assets.
Facilities and equipment under capitalized leases are stated at the present value of minimum lease
payments and are amortized using the straight-line method in a manner consistent with the Medical
Center normal depreciation policy for owned assets. Such amortization is included in depreciation
expense.
(l)
Investments in Joint Ventures
Investments in joint ventures in which the Medical Center has a 20% or less interest are accounted
for utilizing the cost method. Investments in which the Medical Center has greater than a 20% and
less than a 50% interest are accounted for utilizing the equity method. (See note 5).
(m)
Asset Retirement Obligations
The Medical Center recognizes the fair value of a liability for legal obligations associated with asset
retirements in the period in which it is incurred, if a reasonable estimate of the fair value of the
obligation can be made. When the liability is initially recorded, the Medical Center capitalizes the
cost of the asset retirement obligation by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period, and the capitalized cost
associated with the retirement obligation is depreciated over the useful life of the related asset. Upon
settlement of the obligation, any difference between the cost to settle the asset retirement obligation
and the liability recorded is recognized as a gain or loss in the statements of operations.
(n)
Malpractice Insurance
The Medical Center maintains medical malpractice insurance on a claims-made basis. For the period
October 1, 2009 through September 30, 2012, the Medical Center has commercial insurance for the
primary layer up to $2 million per claim and up to a $6 million annual aggregate. For the period
October 1, 2004 through September 30, 2009 the Medical Center had commercial insurance for the
primary layer up to $1 million per claim and up to a $2 million annual aggregate and retains a
$1 million per claim and $1 million aggregate self-insured layer above the primary layer for
malpractice claims in excess of $1 million. For claims in excess of $2 million the Medial Center
maintains commercial excess coverage with another insurer.
12
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
The Medical Center has established reserves to cover the professional liability exposure that may not
be covered by current or prior insurance policies, including reserves for estimated claims incurred
but not reported to the insurance company. Management is unaware of any claims that would cause
the ultimate cost of malpractice claims to vary materially from amounts provided.
(o)
Workers Compensation
The Medical Center was self insured for workers compensation claims made prior to December 31,
2008. As of December 31, 2008, the Medical Center obtained commercial insurance for its workers’
compensation liability. In order to provide for the ultimate payment of the self-insured estimated
losses, the Medical Center is required to maintain a letter of credit in the amount of $1.5 million.
(p)
Gifts and Grants
Unconditional promises to give cash and other assets to the Medical Center are reported at fair value
at the date the promise is received. Conditional promises to give are recognized when the conditions
are substantially met. The gifts are reported as either temporarily or permanently restricted support if
they are received with donor stipulations that limit the use of the donated assets.
Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts
of cash or other assets that must be used to acquire long-lived assets are reported as additions to
temporarily restricted net assets if the gifts are not expended or placed in service during the year.
(q)
Classification of Net Assets
The Medical Center recognizes the provisions of FASB ASC Subtopic 958-205, Classification of
Donor-Restricted Endowment Funds subject to an Enacted Version of the Uniform Prudent
Management of Institutional Funds Act (ASC 958-205). ASC 958-205 provides guidance on the net
asset classification of donor-restricted endowment funds for a not-for-profit organization that is
subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act
(UPMIFA) and also requires disclosures about endowment funds, including donor-restricted
endowment funds and board-designated endowment funds.
Under Rhode Island UPMIFA laws, assets of a donor-restricted endowment fund may be
appropriated for expenditure by the Medical Center in accordance with the standard of prudence
prescribed by UPMIFA. As the Medical Center has classified under ASC 958-205, net assets as of
September 30, 2012 and 2011 as follows:

Permanently restricted net assets contain donor-imposed stipulations that neither expire with
the passage of time nor can be fulfilled or otherwise removed by actions of the Medical Center
and primarily consist of their historic dollar value of contributions to establish or add to
donor-restricted endowment funds.

Temporarily restricted net assets contain donor-imposed stipulations as to the timing of their
availability or use for a particular purpose. These net assets are released from restrictions when
the specified time elapses or actions have been taken to meet the restrictions. Net assets of
donor-restricted endowment funds in excess of their historical dollar value are classified as
13
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
temporarily restricted net assets until appropriated by the Medical Center and spent in
accordance with the standard of prudence imposed by UPMIFA.

(r)
Unrestricted net assets contain no donor-imposed restrictions and are available for the general
operations of the Medical Center. Such net assets may be designated by the Medical Center for
specific purposes, including to function as endowment funds.
Income Taxes
The Medical Center is a not-for-profit corporation as described in the Section 501(c)(3) of the
Internal Revenue Code and is generally exempt from income taxes on related income pursuant to
Section 501(a) of the Internal Revenue Code.
The Medical Center recognizes the effect of income tax positions only if those positions are more
likely than not of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized. Changes in recognition in measurement are
reflected in the period in which the change in judgment occurs. The Medical Center did not
recognize the effect of any income tax position in either 2012 or 2011.
(s)
Fair Value of Financial Instruments
The Medical Center recognizes and discloses the fair value of financial instruments in accordance
with FASB ASC Subtopic 820 which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. Fair value represents the price that
would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly
transaction between market participants as of the measurement date. FASB ASC Subtopic 820-10
establishes a fair value hierarchy that prioritizes inputs used to measure fair value into three levels:

Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement
date for assets or liabilities;

Level 2 – observable prices that are based on input not quoted in active markets, but
corroborated by market data; and

Level 3 – unobservable inputs are used when little or no market data is available.
The fair value hierarchy gives the highest level of priority to Level 1 input and the lowest priority to
Level 3 input. In determining fair value, the Medical Center utilizes valuation techniques that
maximize the use of observable inputs and minimizes the use of unobservable input to the extent
possible.
The Medical Center has applied the accounting guidance in Accounting Standard Update
No. 2009-12, Investments in Certain Entities That Calculate Net Asset Value (NAV) per Share (or Its
Equivalent) (ASU 2009-12), which permits the use of NAV or its equivalent reported by each
underlying alternative investment fund as a practical expedient to estimate the fair value of the
investment. These investments are generally redeemable or may be liquidated at NAV under the
original terms of the subscription agreements or operations of the underlying funds. However, it is
possible that these redemption rights may be restricted by the funds in the future in accordance with
14
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
the underlying fund agreements, as applicable. Changes in market conditions, the economic
environment, or the funds’ liquidity provisions may significantly impact the NAV of the funds and,
consequently, the fair value of the Medical Center’s interest in the fund. Although certain
investments may be sold in the secondary market, the secondary market is not active and individual
transactions are not necessarily observable. It is, therefore, reasonably possible that if the Medical
Center were to sell the fund in the secondary market, the sale could occur at an amount materially
different than the reported value.
(3)
Investments, Assets Limited or Restricted as to Use and Fair Value Measurement
The Medical Center holds investments in domestic and international equities, fixed income securities,
mutual funds and real assets. The Medical Center is also the beneficiary of perpetual trusts which hold
investments in common collective trusts and commingled funds. The Medical Center also holds shares or
units in a limited partnership fund.
Investments in public-traded equity securities are valued based on quoted market prices. To the extent that
quoted market prices are not readily available, the fair value may be determined based on broker or dealer
quotations or alternate pricing sources with reasonable levels of price transparency. The fair value of
corporate bonds (fixed income securities) may be determined based on yields currently available on
comparable securities of issuers with similar credit ratings, dealer supplied prices or by discounting future
principal and interest payments at prevailing interest rates. Units held in registered mutual funds are based
on quoted prices. The Medical Center also holds alternative investments with private equity and real asset
strategies. Such alternative investments, held through funds, may hold securities or other financial
instruments for which a ready market exists and are priced accordingly. In addition, such funds may hold
assets which require the estimation of fair values in the absence of readily determinable market values.
Such valuations are determined by fund managers and generally consider variables such as operating
results, comparable earnings multiples, projected cash flows, recent sales prices, and other pertinent
information, and may reflect discounts for the illiquid nature of certain investments held. The Medical
Center’s interest in perpetual trusts are valued based on the funds’ net asset value (NAV) as supplied by
the fund administrator or trustee.
The Medical Center’ investment in private limited partnerships are recorded at the estimated fair value
based on the Medical Center’s share of the fund’s fair value or number of units outstanding. Private limited
partnership funds generally hold assets which require the estimation of fair value in the absence of readily
determinable market values. Such valuations are determined by the fund manager and generally consider
variables such as operating results, comparable earnings multiples, projected cash flows, recent sales prices
and other pertinent information, and may reflect discounts taken for the illiquid nature of certain
investments held. The estimated fair value of this investment is based on the most recent valuation
provided by the external investment manager and is recorded at NAV as a practical expedient.
15
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
The following tables set forth the Medical Center’s financial assets at September 30, 2012 and 2011 that
are accounted for at fair value on a recurring basis:
Fair value measurement at reporting date
Quoted prices
in active
Significant
markets for
other
Significant
identical
observable
unobservable
Total
assets
inputs
inputs
September 30,
(Level 1)
(Level 2)
(Level 3)
2012
Cash and cash equivalents
Fixed income:
Intermediate term bonds
International developed bond funds
Domestic equity
International equity
Real asset funds:
Hard asset funds
Natural resources index funds
Real estate investment funds (1)
Limited partnership (2)
$
Total
Funds held in trust by others:
Perpetual trust (3)
Cash equivalents
Total
Total
$
188,100
—
—
188,100
—
—
6,435,588
6,031,391
2,108,680
1,886,880
—
—
—
—
—
—
2,108,680
1,886,880
6,435,588
6,031,391
611,676
—
—
—
—
598,457
734,746
—
—
—
261,326
4,816,827
611,676
598,457
996,072
4,816,827
13,266,755
5,328,763
5,078,153
23,673,671
—
1,329,911
—
—
4,129,362
—
4,129,362
1,329,911
1,329,911
—
4,129,362
5,459,273
14,596,666
5,328,763
9,207,515
29,132,944
(1)
Included in level 3, the investment is illiquid until ten-year lock up ends August 31, 2021. Also has
unfunded commitments of $438,674 through February 28, 2013.
(2)
Consists of two limited partnerships investing in hedge funds designed to reduce overall portfolio
risk. One has quarterly redemptions subject to 25% of the fund’s assets on a given redemption date.
In addition to the calendar year-end full redemption option, investors may redeem up to 25% of
shares held January 1st on March 31st, June 30th, or September 30th upon 100 days notice. The
other has redemptions allowed at quarter-end of rolling 3-year anniversary, with 95 days notice.
After initial 3-year lock-up, which ends June 2014, investors may convert to the 2-year share class.
16
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(3)
Five illiquid perpetual trusts, which the Medical Center has partial noncontrolling ownership in.
Fair value measurement at reporting date
Quoted prices
in active
Significant
markets for
other
Significant
identical
observable
unobservable
Total
assets
inputs
inputs
September 30,
(Level 1)
(Level 2)
(Level 3)
2011
Cash and cash equivalents
Fixed income:
Intermediate term bonds
International developed bonds
Domestic equity
International equity
Real asset funds:
Hard asset funds
Natural resources index funds
Real estate investment funds (1)
Limited partnership (2)
$
Total
Funds held in trust by others:
Perpetual trust (3)
Cash equivalents
Total
Total
$
92,499
—
—
92,499
—
—
5,828,873
5,048,778
2,267,655
1,730,564
—
—
—
—
—
—
2,267,655
1,730,564
5,828,873
5,048,778
712,150
—
—
—
—
999,995
—
—
—
—
99,500
4,549,411
712,150
999,995
99,500
4,549,411
11,682,300
4,998,214
4,648,911
21,329,425
—
1,329,911
—
—
3,694,529
—
3,694,529
1,329,911
1,329,911
—
3,694,529
5,024,440
13,012,211
4,998,214
8,343,440
26,353,865
(1)
Illiquid until ten-year lock up ends August 31, 2021. Also has unfunded commitments of $600,500
through February 28, 2013.
(2)
Consists of three limited partnerships investing in hedge funds designed to reduce overall portfolio
risk. One has quarterly redemptions subject to 25% of the fund’s assets on a given redemption date.
In addition to the calendar year-end full redemption option, investors may redeem up to 25% of
shares held January 1st on March 31st, June 30th, or September 30th upon 100 days notice. One has
redemptions allowed at quarter-end of rolling 3-year anniversary, with 95 days notice. After initial
3-year lock-up, which ends June 2014, investors may convert to the 2-year share class. The last had
quarterly redemptions with 5% held up to a year.
(3)
Five illiquid perpetual trusts, which the Medical Center has partial noncontrolling ownership in.
17
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
The following table presents additional information about investments measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the years ended September 30, 2012 and
2011:
Fair value measurements using significant
unobservable inputs
Limited
partnerships
and
Perpetual
real assets
trust
Total
Fair value at October 1, 2010
Transfer from unrestricted net assets
Net realized and change in net unrealized
gains and losses
$
Fair value at September 30, 2011
Purchases
Sales
Net realized and change in net unrealized
gains and losses
Fair value at September 30, 2012
$
1,961,005
3,099,499
3,889,175
—
5,850,180
3,099,499
(411,593)
(194,646)
(606,239)
4,648,911
3,694,529
8,343,440
1,861,826
(1,616,153)
—
—
1,861,826
(1,616,153)
183,569
434,833
618,402
5,078,153
4,129,362
9,207,515
There were no significant transfers between the levels of the fair value hierarchy during the years ended
September 30, 2012 and 2011. The Medical Center invests in various investment securities. Investment
securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk
associated with certain investment securities, it is at least reasonably possible that changes in the value of
investment securities will occur in the near term and those changes could materially affect the amounts
reported in the financial statements.
18
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
Investment income on investments and assets limited or restricted as to use are comprised of the following:
September 30
2012
2011
284,534
60,645
220,421
243,305
Total investment income included in excess
of revenues over expenses
345,179
463,726
Change in net unrealized gains (losses) on investments
546,279
(318,350)
346,031
9,609
361,679
667,761
355,640
1,029,440
2,022,397
(1,791,070)
434,833
(194,646)
434,833
(194,646)
3,704,328
(810,900)
Unrestricted:
Dividends and interest income
Net realized gains on sales of investments
$
Temporarily restricted:
Dividends and interest income
Net realized gains on sale of investments
Change in net unrealized gains (losses) on investments
Permanently restricted:
Change in market value of perpetual trusts
$
Investment income included in other operating revenue for the years ended September 30, 2012 and 2011
was $10,904 and $14,897, respectively.
Funds Held in Trust by Others
Funds held in trust by others represent funds that are held and administered by outside trustees. The
Medical Center has funds held by trust relating to the Tax Exempt Revenue Bonds – Series 1998 (note 6)
and donor established perpetual trusts. The Medical Center receives a specific portion of the return on the
underlying assets of the perpetual trusts. The investment income is recorded as unrestricted investment
income in nonoperating gains (losses).
19
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(4)
Property, Plant and Equipment
The following is a summary of land, building, equipment and construction in progress as of September 30:
September 30
Useful lives
Land and land improvements
Buildings and building improvements
Equipment
3 – 25
3 – 40
1 – 40
$
Accumulated depreciation and amortization
Construction in progress
Property, plant and
equipment, net
$
2012
2011
784,101
47,519,663
46,446,291
784,101
46,603,362
44,317,840
94,750,055
91,705,303
(68,620,278)
459,791
(63,960,323)
29,988
26,589,568
27,774,968
Depreciation expense on property, plant and equipment for the years ended September 30, 2012 and 2011
was $4,023,798 and $4,231,097, respectively. Amortization expense on capital lease facilities and
equipment for years ended September 30, 2012 and 2011 was $716,816 and $1,015,897, respectively.
During the year ended September 30, 2012 there were fixed assets disposals with a book value of $86,092
and accumulated depreciation of $80,659. During the year ended September 30, 2011 there were fully
depreciable fixed assets disposals of $39,804.
The net book value of equipment and facilities under capital leases for the years ended September 30, 2012
and 2011 was $3,515,666 and $3,890,378, respectively.
(5)
Investments in Joint Ventures
The Medical Center participates in two joint ventures. In 2002, the Medical Center entered into a joint
venture with an unrelated third party known as Rhode Island PET Services, LLC (the Company). The
Company is a limited liability company formed under the Rhode Island Limited Liability Act. The Medical
Center purchased five units for a total investment of $25,000. The investment is accounted for using the
cost method.
In 2005, the Medical Center entered into a for-profit joint venture with an unrelated third party to provide
radiation therapy services known as Roger Williams Radiation Therapy (RWRT). RWRT received its
license and commenced operations effective February 2007. RWRT is a limited liability company formed
under the Rhode Island Limited Liability Act.
20
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
The Medical Center’s total investment in the RWRT joint venture is $4,782,000. The investment is
comprised of the right to utilize a building for 30 years with the option to extend for an additional 10 years,
radiation therapy equipment, a 30 year prepaid rent obligation and an estimated value of existing business.
The Medical Center’s contribution represents a 49% equity share in the joint venture and has been
accounted for under the equity method of accounting. The Medical Center is not liable for any obligations
insured by the joint venture nor is it obligated to make any further capital contributions or lend funds to the
joint venture.
The difference between the net book value of the assets utilized in the joint venture and the investment
value assigned was recorded as a deferred gain of $2,684,415. For the years ended September 30, 2012 and
2011, amortization of deferred gain in the amount of $89,480 was recorded.
For the years ended September 30, 2012 and 2011, the Medical Center recognized $621,574 and $492,430
as its share of the financial results of the RWRT joint venture and received distributions totaling $992,250
and $950,330, respectively. Selected financial data of the RWRT joint venture, taken from the
December 31, 2011 financial statements are summarized as follows (dollars in thousands):
December 31
2011
Assets
Shareholders’ equity
Net income
(6)
$
2010
7,315
4,150
1,123
7,980
4,229
775
Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consist of the following:
September 30
Rhode Island Health and Educational Building Corporation
(RIHEBC) Tax Exempt Revenue Bonds –
Series 1998 (Series 1998 Bonds) (a)
Citizens Bank Term Loan (b)
Capital lease obligations (c, d, e, f)
Other debt
Less original issue discount on RIHEBC tax exempt
revenue bonds
$
Less current portion, long-term debt and capital lease
obligations
$
21
2012
2011
11,615,000
1,833,334
1,101,334
—
12,150,000
2,000,000
1,642,157
83,363
(152,578)
(169,659)
14,397,090
15,705,861
1,212,877
1,534,017
13,184,213
14,171,844
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(a)
RIHEBC Revenue Bonds
In December 1998, the Medical Center entered into an agreement with RIHEBC, whereby RIHEBC
authorized the issuance of tax-exempt hospital financing revenue bonds in the amount of
$19,115,000. The proceeds of the Series 1998 Bonds were used to defease (extinguished in fiscal
year 2000) $18,779,000 of previously issued tax-exempt revenue bonds, to fund a debt service
reserve fund and pay associated issuance costs.
The Series 1998 Bonds bear fixed interest rates ranging from 4.70% to 5.50% per year, due in annual
installments through July 2028, and maturing serially from 2012 to 2028. A portion of the Series
1998 Bonds require the establishment of a sinking fund for the purpose of mandatory redemption of
the Series 1998 Bonds. In addition, the sinking fund will be used to redeem the remaining bonds at
various maturity dates.
The Series 1998 Bonds are collateralized by a first mortgage on the Medical Center’s real estate and
certain tangible personal property. The bond agreements provide, among other things that the
Medical Center deposit funds with a designated trustee to provide for future payments of interest and
principal. The Medical Center is also required to establish a property reserve fund with the trustee to
assure that adequate funds are on hand to maintain the condition of the Medical Center’s property.
The Series 1998 Bonds Master Trust Indenture provides for, among other requirements, the
maintenance of a minimum debt service coverage ratio (DSC) of 1.10 and limitations on additional
indebtedness. Management believes the Medical Center is in compliance with required covenants as
of September 30, 2012.
The Medical Center redeemed $2,325,000 in bond principal on August 1, 2008. The redemption was
required due to the utilization of the building by the for profit RWRT joint venture.
(b)
Citizens Bank Term Loan
On September 26, 2008, the Medical Center entered into a Term Loan Agreement with Citizens
Bank. The loan was taken to replace the tax exempt revenue bonds redeemed on August 1, 2008. The
amount of term loan is $2,500,000. The term is 10 years with a 15 year amortization period. The loan
contains a fixed interest rate of 4.6%. The loan is collateralized by an interest in certain marketable
securities held in investments by the Medical Center. Management believes the Medical Center is in
compliance with required covenants as of September 30, 2012.
The Medical Center entered into an interest rate swap agreement with Citizens Bank. The interest
rate swap agreement notional amount amortizes at the same rate as the related debt principal. The
interest rate swap agreement provides for the Medical Center to pay a fixed interest rate of 4.6% in
exchange for Citizens Bank paying a variable rate equal to one month USD – LIBOR on the notional
amount. The interest rate swap is included in other liabilities on the balance sheet and is valued at
$308,801 and $320,000 at September 30, 2012 and 2011, respectively. The activity is recorded in the
non–operating section of the statement of operations excess of revenues over expenses. The swap
fair value is based predominantly on observable inputs that are corroborated by market data. It is
categorized as a Level 2 for purposes of valuation disclosure under FASB ASC Subtopic 820-10.
22
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(c)
Phillips Master Lease Agreement
On October 27, 2005, the Medical Center entered into a Master Lease Agreement with Phillips
Medical Capital, LLC for radiology equipment. The amount of the lease was $1,484,507. The term
of the agreement is for five years from the equipment installation date at an average interest rate of
6.9%. Effective February 17, 2007 the master lease was amended to include financing in the amount
of $999,370 for additional radiology equipment. The term of the agreement is for five years from the
equipment installation date at an average interest rate of 6.3%. At the end of the lease, the Medical
Center may purchase the equipment for one dollar. Accordingly, this lease has been recorded as a
capital lease and has been paid in full as of September 30, 2012.
(d)
Pantheon Lease Agreement
Effective April 2008, the master lease was amended to include financing in the amount of
$2,000,000 for the construction of a new cancer center facility including medical and office
equipment. The term of the agreement is for sixty-six months at the average interest rate of 5.3%. At
the end of the lease, the Medical Center may purchase the facility and equipment for one dollar.
Accordingly, this lease has been recorded as a capital lease.
Effective December 2009, the master lease was amended to include financing in the amount of
$1,000,000 for equipment. The term of the agreement is five years at the average interest rate of
5.5%. At the end of the lease, the Medical Center may purchase the equipment for one dollar.
Accordingly, this lease has been recorded as a capital lease.
Effective March 2010, the master lease was amended to include financing in the amount of $380,000
for the purchase of a chiller. The term of the agreement is five years at the average interest rate of
6.1%. At the end of the lease, the Medical Center may purchase the equipment for one dollar.
Accordingly, this lease has been recorded as a capital lease.
(e)
Olympus Master Lease Agreement
Effective April 2011, the Medical Center entered into a Lease Agreement with Olympus America,
Inc. for various pieces of hardware and software pertaining to the Endoworks Image Manager
System. The amount of the lease was $68,967. The term of the agreement is for three years from the
equipment installation date at an average interest rate of 6.0%. At the end of the lease, the Medical
Center may purchase the equipment for one dollar. Accordingly, this lease has been recorded as a
capital lease.
(f)
Cisco Lease Agreement
Effective November 2011, the Medical Center entered into a Lease Agreement with Cisco Systems
for various pieces of IS hardware. The amount of the lease was $342,104. The term of the agreement
is for five and a half years from the equipment installation date at a fixed interest rate of 3%. At the
end of the lease, the Medical Center may purchase the equipment for one dollar. Accordingly, this
lease has been recorded as a capital lease.
23
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
Aggregate maturities and payments of long-term debt and capital lease obligations during the next
five years and thereafter are as follows:
Year:
2013
2014
2015
2016
2017
Thereafter
Long-term
obligations
Capital lease
obligations
$
632,572
658,844
685,162
715,785
750,718
9,852,675
580,305
329,006
67,204
69,238
55,581
—
$
13,295,756
1,101,334
Interest paid on long-term debt and capital lease obligations was $925,760 and $1,039,043 for the
years ended September 30, 2012 and 2011, respectively.
Debt obligations are reported in the consolidated balance sheet at principal value less unamortized
discount, which totaled $11,462,422 at September 30, 2012. The fair value of these obligations at
September 30, 2012, as estimated based on quoted market prices for related bonds totaled
$13,479,926.
(7)
Line of Credit Borrowings
The Medical Center has a collateralized line of credit with a maximum borrowing line of $11,600,000 that
is renewable on an annual basis. The line of credit is collateralized by gross receipts, accounts receivable,
insurance policies, insurance proceeds, and other instruments evidencing an interest now owned or
acquired by borrower. There was no outstanding balance against the line as of September 30, 2012 and
2011. The line of credit is payable upon demand.
24
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(8)
Commitments
The Medical Center leases various equipment under non–cancelable operating lease agreements expiring
through 2017. Future minimum payments by year under non–cancelable operating leases with terms of
one year or more consist of the following:
Amount
Year:
2013
2014
2015
2016
2017 and thereafter
$
687,187
634,459
546,883
306,480
14,926
$
2,189,935
Rental expense, including rentals under leases with terms of less than one year, for the years ended
September 30, 2012 and 2011 were $916,858 and $1,160,103, respectively.
The Medical Center has additional lease commitments that are based on procedures performed. They are
non–cancelable agreements but the future dollar commitments of the Medical Center are not quantifiable
as they are volume driven.
(9)
Disproportionate Share Program and Charity Care
The Medical Center is a participant in the State of Rhode Island’s Disproportionate Share Program, which
was established in 1995 to assist hospitals that provide a disproportionate amount of uncompensated care.
Under the program, Rhode Island hospitals, including the Medical Center receive federal and state
Medicaid funds as additional reimbursement for treating a disproportionate share of low-income patients.
Payments to the Medical Center under the Disproportionate Share Program of approximately $5,584,000
and $8,467,000 for the years ended September 30, 2012 and 2011, respectively, are included in net patient
service revenues in the accompanying statements of operations.
The Medical Center estimates the cost of providing charity care by calculating a ratio of cost to gross
charges and then multiplying that ratio by the gross uncompensated charges associated with providing care
to charity patients. For the years ended September 30, 2012 and 2011, the Medical Center recorded
approximately $3,732,981 and $2,961,531 in charity care costs, respectively.
(10) License Fee
The State of Rhode Island assesses a license fee to all Rhode Island hospitals based on each hospital’s
gross patient service revenue. The 2012 fee is based on 2010 gross patient service revenue. The 2011 fee is
based on 2009 gross patient revenue. The Medical Center’s license fee expense was $7,058,592 and
$7,402,248 for each of the years ended September 30, 2012 and 2011, respectively.
25
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(11) Pension Plan
The Medical Center has a defined contribution pension plan (the Plan) which covers substantially all
employees of the Medical Center. Employees are fully vested immediately upon becoming eligible to
participate in the Plan. The amount of each employer contribution is discretionary and determined by the
Board of Trustees. As of September 30, 2012 and 2011, accrued expenses include pension plan
contributions payable of $1,760,555 and $1,846,649, respectively. Pension expense was approximately
$855,000 and $1,015,000 for the years ended September 30, 2012 and 2011, respectively.
(12) Concentration of Credit Risk
Financial instruments that potentially subject the Medical Center to concentration of credit risk consist of
patient accounts receivable and certain investments. Investments, which include government and agency
securities, stocks and corporate bonds, are not concentrated in any corporation or industry or with any
single counterparty.
The Medical Center receives a significant portion of its payments for services rendered from a limited
number of government and commercial third-party payors, including Medicare, Medicaid, and Managed
Care Payers (Blue Cross of Rhode Island and United Healthcare). Revenue from self pay and third-party
payors are as follows:
2012
Medicare
Managed Care
Medicaid
Self pay
Other
2011
45%
29
14
5
7
46%
28
13
5
8
100%
100%
The Medical Center maintains several bank accounts at one institution, which are insured by the Federal
Deposit Insurance Corporate (FDIC) up to $250,000. At September 30, 2012, the Medical Center had cash
balances of $11,266,086 in excess of the insured limits at such institutions.
The Medical Center has not experienced any losses in such amounts, and evaluates the credit worthiness of
the financial institutions with which it conducts business. Management believes the Medical Center is not
exposed to any significant credit risk with respect to its cash balances.
(13) Endowments
The Medical Center’s endowment consists of 117 funds established for a variety of purposes, including
both donor-restricted endowment funds and funds designated by the Board of Trustees to function as
endowments. Net assets associated with endowment funds, including funds designated by the Medical
Center to function as endowments, are classified and reported based on the existence or absence of
donor-imposed restrictions.
26
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
Endowment net assets consist of the following at September 30, 2012 and 2011:
2012
Donor-restricted endowment funds
Board-designated endowment funds
Total endowment net
assets
Unrestricted
Temporarily
restricted
Permanently
restricted
$
—
5,786,666
13,677,484
—
4,209,522
—
17,887,006
5,786,666
$
5,786,666
13,677,484
4,209,522
23,673,672
Unrestricted
Temporarily
restricted
Permanently
restricted
$
—
5,079,479
12,040,424
—
4,209,522
—
16,249,946
5,079,479
$
5,079,479
12,040,424
4,209,522
21,329,425
Total
2011
Donor-restricted endowment funds
Board-designated endowment funds
Total endowment net
assets
Total
Change in endowment net assets for the year ended September 30, 2012 are as follows:
Endowment net assets,
September 30, 2011
Interest and dividends
Net realized and change in net
unrealized gains and losses
Appropriation of endowment assets
Endowment net assets,
September 30, 2012
$
$
Unrestricted
Temporarily
restricted
Permanently
restricted
5,079,479
101,100
12,040,424
343,283
4,209,522
—
21,329,425
444,383
606,087
—
2,032,006
(738,229)
—
—
2,638,093
(738,229)
5,786,666
13,677,484
4,209,522
23,673,672
27
Total
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
Change in endowment net assets for the year ended September 30, 2011 are as follows:
Endowment net assets,
September 30, 2010
Interest and dividends
Net realized and change in net
unrealized gains
Appropriation of endowment assets
Endowment net assets,
September 30, 2011
(a)
$
$
Unrestricted
Temporarily
restricted
Permanently
restricted
5,105,667
48,852
13,636,190
360,403
4,209,522
—
22,951,379
409,255
(75,040)
—
(1,123,309)
(832,860)
—
—
(1,198,349)
(832,860)
5,079,479
12,040,424
4,209,522
21,329,425
Total
Interpretation of the Relevant Law
The portion of the donor-restricted endowment funds that is not classified as permanently restricted
net assets is classified as temporarily restricted net assets until those amounts are appropriate for
expenditure by the Board of Trustees in a manner consistent with the standard of prudence
prescribed by UPMIFA. In accordance with UPMIFA, the Medical Center considers the following
factors in making a determination to appropriate or accumulated donor-restricted endowment funds:

The duration and preservation of the fund

The purpose of the Medical Center and the donor restricted endowment fund

General economic conditions

The possible effect of inflation and deflation

The expected total return from income and the appreciation of investments

Other resources of the Medical Center

The investment policies of the Medical Center

Funds with Deficiencies
From time to time the fair value of assets associated with individual donor-restricted endowment
funds may fall below the fund’s historic dollar value. There were no deficiencies of this nature
reported in unrestricted net assets as of September 30, 2012 and 2011.
(b)
Return Objectives and Risk Parameters
The Medical Center has adopted investment and spending policies for endowment assets that attempt
to provide a predictable stream of funding to the Medical Center and programs supported by its
endowment while seeking to maintain the purchasing power of the endowment assets, including both
donor-restricted and board designated funds. Under this policy, as approved by the Medical Center
28
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
Board of Trustees the endowment assets are invested in a manner that is intended to produce results
that exceed the total return of a benchmark composed of 12.5% S&P 500, 2.5% Dividend achievers
select, 9% Russell 1000 Growth, 3% Russell 2000, 19% MSCI AEFE, 7% MSCI Emerging, 10%
Barclays Cap Agg, 8% Citi WGBi, 20% HFR Fund of Funds, 6% S&P Natural Resources, and 3%
FTSE EPRA/NAREIT. The Medical Center expects its endowment funds, over a full market cycle,
to provide an average annual real rate of return of approximately 5% plus inflation annually. Actual
returns in any given year or period of years may vary from this amount.
(c)
Strategies Employed for Achieving Objectives
To satisfy its long-term rate-of-return objective, the Medical Center relies on a total return strategy in
which investment returns are achieved through both capital appreciation (realized and unrealized)
and current yield (interest and dividends). The Medical Center targets a diversified asset allocation
that places emphasis on investments in domestic, international and emerging market equities, fixed
income, hedge funds, real assets and alternate equities to achieve its long-term return objectives
within prudent risk constraints.
(d)
Spending Policy and How the Investment Objectives Relate to Spending Policy
The Medical Center uses a spending policy designed to preserve the value of the endowment in real
terms and to generate a predictable stream of income to support spending. The Medical Center
manages investments in accordance with policies established by the Board of Trustees. Investment
earnings are allocated to the endowment net assets based upon the amount of the endowment
balances included in both the temporarily and permanently restricted net assets. The portion of the
donor–restricted endowment funds that represents the cumulative earnings less spending out of the
fund is classified as temporarily restricted net assets.
29
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(14) Restricted Net Assets
Restricted net assets are available for the following purposes:
September 30
Temporarily restricted:
Accumulated net realized and unrealized gains on
permanently restricted donations subject to spending
policy – general operations
Special purpose funds
Research
Permanently restricted:
Healthcare services
Free bed
Interest in perpetual trusts
2012
2011
$
13,677,484
751,027
1,781,549
12,040,424
931,512
1,586,432
$
16,210,060
14,558,368
$
3,788,570
420,952
4,129,362
3,788,570
420,952
3,694,529
$
8,338,884
7,904,051
(15) Functional Expenses
Total operating expenses for the Medical Center by function are as follows for the years ended:
September 30
Healthcare services
General and administrative
Direct research
30
2012
2011
$
124,988,377
41,169,952
5,658,882
115,469,201
42,664,166
5,429,274
$
171,817,211
163,562,641
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(16) Related-Party Transactions
The Medical Center has made advances to or paid expenses on behalf of several affiliated organizations.
Amounts outstanding due from (to) consisted of the following:
September 30
2012
SJ Energy
Realty
Elmhurst
EHA
Rosebank
POB
RWMA
CCHP
CCHP Foundation
SJHSRI
$
Less current portion
Noncurrent portion
$
2011
80,907
124,405
1,254,864
349,123
108,797
35,491
577,478
(1,119,652)
9,817
157,553
(22,167)
211,840
1,386,789
349,123
458,807
52,975
664,408
75,433
—
(9,787)
1,578,783
3,167,421
(326,970)
675,319
1,905,753
2,492,102
The Medical Center leases certain office and medical facilities from Realty under terms of various lease
agreements that expire through 2014. For the years ended September 30, 2012 and 2011, the Medical
Center was charged $661,116 annually for rent expense. As of September 30, 2012, no rent payments are
owed to Realty.
The Medical Center provides Realty with maintenance services and charged Realty $1,598,807 and
$1,644,856 for the years ended September 30, 2012 and 2011, respectively. As of September 30, 2012,
$124,405 in maintenance services is owed to the Medical Center.
The Medical Center provided services to Elmhurst including administrative, personnel, human resource
services, and data processing. The fees for these services total $201,684 for the year ended September 30,
2011. These services are no longer provided in by the Medical Center for the year ended September 30,
2012.
CCHP provided services to RWMC including administrative, information support, accounting and finance,
business office, purchasing and legal. Fees for these services, as well as shared expenses, such as
insurance, are allocated to the Medical Center and SJHSRI equally. The fees for services total $10,161,761
and $7,160,169 for the year ended September 30, 2012 and 2011, respectively.
The advances to and amounts owed to SJ Energy, CCHP, SJHSRI, RWMA, Elmhurst, Rosebank, EHA,
CCHP Foundation, Realty and POB are non–interest bearing.
31
(Continued)
ROGER WILLIAMS MEDICAL CENTER
(Formerly known as Roger Williams Hospital)
Notes to Financial Statements
September 30, 2012 and 2011
(17) Contingencies
The Medical Center is subject to complaints, claims, and litigation that have arisen in the normal course of
business. In addition, the Medical Center is subject to investigations by various federal and state
government agencies to assure compliance with applicable laws, some of which are subject to different
interpretations. Recently, governmental review of compliance with these laws and regulations has
increased, resulting in fines and penalties for noncompliance by particular healthcare providers.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to
interpretation. The Medical Center believes that it is in compliance with these laws and regulations.
32