ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
(A Component Unit of County of
Alameda, California)
Independent Auditor’s Report,
Management’s Discussion and Analysis, and
Basic Financial Statements
For the Years Ended June 30, 2015 and 2014
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Table of Contents
Independent Auditor’s Report....................................................................................................................... 1
Management’s Discussion and Analysis (Unaudited) .................................................................................. 4
Basic Financial Statements:
Statements of Net Position ................................................................................................................... 18
Statements of Revenues, Expenses, and Changes in Net Position ....................................................... 20
Statements of Cash Flows .................................................................................................................... 21
Statements of Fiduciary Net Position ................................................................................................... 23
Statements of Changes in Fiduciary Net Position ................................................................................ 24
Notes to the Financial Statements ........................................................................................................ 25
Required Supplementary Information:
Alameda County Employees’ Retirement Association:
Schedule of Proportionate Share of the Net Pension Liability ...................................................... 66
Schedule of Contributions.............................................................................................................. 66
Alameda Health System Defined Benefit Plan:
Schedule of Changes in Net Pension Liability and Related Ratios ............................................... 67
Schedule of Contributions.............................................................................................................. 67
Alameda Hospital Defined Benefit Plan:
Schedule of Changes in Net Pension Liability and Related Ratios ............................................... 68
Schedule of Contributions.............................................................................................................. 68
Certified
Public
Accountants
Sacramento
Walnut Creek
Oakland
Los Angeles
Century City
Independent Auditor’s Report
Newport Beach
San Diego
Board of Trustees
Alameda Health System
Oakland, California
Report on the Financial Statements
We have audited the accompanying financial statements of the business type activity, the discretely
presented component unit, and the pension trust fund of the Alameda Health System (Health System), a
component unit of the County of Alameda, California (County), as of and for the years ended June 30, 2015
and 2014, and the related notes to the financial statements, which collectively comprise the Health System’s
basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions 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 and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the 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 financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions.
Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA 94596
1
www.mgocpa.com
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the business type activity, the discretely presented component unit, and
pension trust fund of the Health System as of June 30, 2015 and 2014, and the respective changes in
financial position and, where applicable, cash flows thereof for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
Emphasis of Matters
As discussed in Note 1 to the financial statements, the Health System acquired San Leandro Hospital as of
October 31, 2013 and Alameda Hospital as of May 1, 2014.
As discussed in Note 18 to the financial statements, the Health System has experienced reduced liquidity
throughout the year ended June 30, 2014, though improved its position during the year ended June 30, 2015.
Management of the Health System is in negotiations with the County to restructure its Working Capital
Loan to alleviate the liquidity issue. The ultimate outcome of this matter cannot presently be determined
and, accordingly, no adjustments have been made in the financial statements.
As discussed in Notes 2, 11 and 16 to the financial statements, the Health system implemented
Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial
Reporting for Pensions – an Amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension
Transition for Contributions Made Subsequent to the Measurement Date – an Amendment of GASB
Statement No. 68, effective July 1, 2014 for two of its defined benefit pension plans and July 1, 2013 for
another of its defined benefit pension plans. The implementation of these statements resulted in a
restatement of net position as of July 1, 2014 and 2013 in the amount of $153.5 million and $0.5 million,
respectively.
As discussed in Notes 6, 8 and 16 to the financial statements, the Health System recognized its obligation
to the County of Alameda related to the Pension Obligation Bonds issued in 1995 and 1996. The beginning
net position at July 1, 2013, was restated in the amount of $70.7 million.
Our opinions are not modified with respect to these matters.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that management’s
discussion and analysis on pages 4 through 17 Schedule of Proportionate Share of the Net Pension Liability,
Schedules of Contributions, and Schedules of Changes in Net Pension Liability and Related Ratios on pages
66 through 68 be presented to supplement the financial statements. Such information, although not a part
of the basic financial statements, is required by the Governmental Accounting Standards Board who
considers it to be an essential part of basic financial reporting for placing the financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to the
required supplementary information in accordance with auditing standards generally accepted in the United
States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management’s responses to our inquiries,
the basic financial statements, and other knowledge we obtained during our audits of the basic financial
statements. We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
2
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated November
24, 2015 on our consideration of the Health System’s internal control over financial reporting and on our
tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and
other matters for the year ended June 30, 2015. The purpose of that report is to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing, and not to
provide an opinion on internal control over financial reporting or on compliance. That report is an integral
part of an audit performed in accordance with Government Auditing Standards in considering the Health
System’s internal control over financial reporting and compliance.
Walnut Creek, California
November 24, 2015
3
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Introduction
The management’s discussion and analysis is intended to serve as a narrative overview and analysis of the
financial performance for Alameda Health System – A Public Hospital Authority (Health System) for the
fiscal years ended June 30, 2015 and 2014. This overview serves as an introduction to the audited financial
statements, which can be found on pages 18-65 of this report. It should be read in conjunction with the
more detailed information contained within the accompanying financial statements.
The annual report consists of the Health System’s management’s discussion and analysis, basic financial
statements, notes to those statements and required supplementary information. The basic financial
statements include the Statements of Net Position, Statements of Revenues, Expenses, and Changes in Net
Position, Statements of Cash Flows, Statements of Fiduciary Net Position and Statements of Changes in
Fiduciary Net Position. Together, they provide an indication of the Health System’s financial health.
The Statements of Net Position include all of the Health System’s assets and liabilities utilizing the
economic resources measurement focus and accrual basis of accounting. It also provides information as to
which components of net position are categorized as net investment in capital assets, restricted or
unrestricted for general purposes.
The Statements of Revenues, Expenses, and Changes in Net Position report all of the revenues and expenses
that have contributed to the change in net position during the fiscal year. It includes all of the Health
System’s operating and non-operating transactions.
The Statements of Cash Flows present information about the cash receipts and cash payments of the Health
System during the most recent fiscal year. These statements show the effects on financial position of cash
provided by and used in operating, investing, and noncapital and capital and related financing activities.
When used with related disclosures and information in the other financial statements, the information in the
statement of cash flows helps readers assess the Health System’s ability to generate cash flows, its ability
to meet its obligations as they come due, and its needs for external financing.
The basic financial statements also include the financial position and activity of the Alameda County
Healthcare Foundation as a discretely presented component unit. The Health System is the plan
administrator of a terminated defined benefit pension plan acquired along with the acquisition of Alameda
Hospital. Pension trust fund statements are presented related to the investment account and its activity.
Notes to the financial statements provide additional information that is essential to the full understanding
of the data provided in the Health System’s financial statements.
4
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Condensed Financial Statement Information
Following is a presentation of certain summary financial information derived from the basic financial
statements.
Table I
Comparative Statements of Net Position
June 30,
2015
Current assets
Non-current assets
Restricted cash - Capital Fund
Capital assets, net
Total noncurrent assets
Total assets
$
254,692
(amounts in thousands)
June 30,
June 30,
Change in Change in
2014
2013
2015/2014 2014/2013
(Restated) (Restated)
$ 337,215 $ 315,882 $
(82,523) $
21,333
23,446
78,445
101,891
356,583
23,378
87,011
110,389
447,604
23,250
67,212
90,462
406,344
Deferred Outflows of Resources
113,890
273
-
Current liabilities
Non-current liabilities
Long term obligations, net
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
169,981
190,261
179,295
(20,280)
10,966
71,729
525,322
597,051
767,032
72,732
282,885
355,617
545,878
73,695
223,905
297,600
476,895
(1,003)
242,437
241,434
221,154
(963)
58,980
58,017
68,983
17,226
90
-
Deferred Inflows of Resources
Net position:
Net investment in capital assets
Restricted for capital projects
Unrestricted Deficit
Total net position
76,396
84,000
63,278
23,421
23,378
23,250
(157,079)
(413,602)
(205,469)
$ (313,785) $ (98,091) $ (70,551) $
68
(8,566)
(8,498)
(91,021)
113,617
17,136
(7,604)
43
(208,133)
(215,694) $
128
19,799
19,927
41,260
273
90
20,722
128
(48,390)
(27,540)
Financial Analysis – Comparative Statements of Net Position
Please refer to the Table I – Comparative Statements of Net Position above.
Assets - 2015
Total assets decreased by $91.0 million or 20.3% to $356.6 million at June 30, 2015 from June 30, 2014.
Current assets decreased $82.5 million from June 30, 2014 as a result of the following reasons:
 Cash decreased by $16.7 million primarily due to a concerted effort to work with Alameda County
on reducing the Health System’s accounts payable and working capital loan. Additional information
regarding the Working Capital Loan is included in the Liquidity section on page 16.
 Net patient accounts receivable increased by $6.9 million or 6.2% from the balance at June 30, 2014.
A delay in claims processing for services to Medi-Cal patients requiring state approval of billing
numbers for service components of Alameda Hospital (AH) and San Leandro Hospital (SLH) was
a contributing factor for this increase.
5
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014

The due from third party payors, including the State of California, decreased by $10.6 million. The
Health System has recognized the reduction in prior years’ State supplemental revenues in the
amount of $43.1 million associated with revised cost data impacting receivables previously
considered collectible. Additionally, several supplemental revenue receivables decreased due to
programs reducing as individuals converted to coverage within the Affordable Care Act (ACA).
Noncurrent assets decreased $8.5 million from June 30, 2014 as a result of the following reason:
 Net capital assets decreased by $8.6 million due to construction in progress acquired with Alameda
Hospital and San Leandro Hospital being completed and placed into service and depreciated back
to the applicable in-service dates.
Deferred Outflows of Resources - 2015
Total deferred outflows of resources increased by $113.6 million to $113.9 million at June 30, 2015 from
June 30, 2014.
 Pension contributions made after the measurement date increased by $113.7 million as
Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial
Reporting for Pensions (GASB 68) and GASB Statement No. 71, Pension Transition for
Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No.
68 (GASB 71) provisions were implemented as of July 1, 2014, for the Health Systems position in
a cost sharing defined benefit plan and single employer defined benefit plan, and as of July 1, 2013
for the Health Systems position in a closed single employer defined benefit plan.
Liabilities - 2015
Total liabilities increased by $221.2 million or 40.5% to $767.0 million at June 30, 2015 from
June 30, 2014.
Current liabilities decreased by $20.3 million from June 30, 2014 as a result of the following reasons:
 Trade payables and accrued expenses decreased by $19.4 million due to a concerted effort to reduce
vendor outstanding balances.
 Due to third party payors increased $4.5 million for additional reserves for potential program
overpayments.
Noncurrent liabilities increased by $241.4 million from June 30, 2014 for the following reasons:
 Pension obligations increased by $283.8 million due to the Health System recognizing its’ share of
the Alameda County Employee Retirement net pension liability in accordance with GASB 68.
Prior to the implementation of GASB 68, the Health System had reported pension related
obligations of $25.7 million. This amount was reported in the pension and other postemployment
benefit obligation and was eliminated as result of the implementation of GASB 68, off-setting the
increase of net pension liability.
 The Health System has determined that it is legally obligated for its’ share of Pension Obligation
Bonds issued by Alameda County in prior years that are associated with pension funding. This
obligation is recognized within a restatement of fiscal year 2014 information in the amount of $70.7
million. The balance did not change from fiscal year 2014 to 2015.
Deferred Inflows of Resources - 2015
Total deferred inflows of resources increased by $17.1 million to $17.2 million at June 30, 2015 from June
30, 2014.
 Differences in expected and actual activities, such as investment earnings, increased by $16.1
million as GASB 68 was implemented as of July 1, 2014.
6
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Financial Analysis – Comparative Statements of Net Position – 2014
Please refer to the Table I – Comparative Statements of Net Position on page 5.
Assets - 2014
Total assets increased by $41.3 million or 10.2% to $447.6 million at June 30, 2014 from the prior year.
Current assets’ increase of $21.3 million from June 30, 2013 includes the following reasons:
 Cash decreased by $19.3 million as a result of Alameda Hospital (AH) and San Leandro Hospital
(SLH) acquisition activities, investment in technology, and operational expenditures. See Liquidity
section for additional information.
 Patient accounts receivable increased by $47.0 million or 74.0% from the balance at June 30, 2013.
Of this increase, $27.2 million represented patient accounts receivable from AH and SLH, and
$21.1 million resulted from Soarian Financials system implementation issues that caused delays in
the billing process.
 Due from third-parties payors increased by $14.8 million due to $6.9 million for AH and SLH
Medi-Cal activity and $6.3 million for Medi-Cal newly eligible enrollees under the Affordable Care
Act (ACA).
 Due from State of California decreased by $35.7 million due to the timing of receipts of
reimbursements under the California Section 1115 Medi-Cal Waiver (Waiver).
Noncurrent assets’ increase of $19.9 million from June 30, 2013 includes the following reason:
 Net capital assets increased by $19.8 million due to capital purchases of $24.9 million, which
$10.4 million related to AH and SLH acquisitions.
Deferred Outflows of Resources - 2014
Total deferred outflows of resources increased by $0.3 million to $0.3 million at June 30, 2014 from June
30, 2013.
 Pension contributions made after the measurement date increased by $273 thousand as GASB 68
and GASB 71 provisions were implemented as of July 1, 2013 for the Health Systems position in a
closed single employer defined benefit plan.
Liabilities - 2014
Total liabilities increased by $69.0 million to $545.9 million at June 30, 2014 from the prior year.
Current liabilities’ increase of $11.0 million from June 30, 2013 includes the following reasons:
 Payroll related liabilities increased by $10.6 million due to the SLH acquisition.
Noncurrent liabilities’ increase of $58.0 million from June 30, 2013 includes the following reasons:
 The working capital loan due to the County of Alameda (County) increased by $48.1 million due
to the timing of payments. See Liquidity section for additional discussion.
Deferred Inflows of Resources - 2014
Total deferred inflows of resources increased by $0.1 million to $0.1 million at June 30, 2014 from June
30, 2013.
 Differences in expected and actual activities, such as investment earnings, increased by $90
thousand as GASB 68 was implemented as of July 1, 2013.
7
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Total Net Position
Total net position is the difference between assets, deferred outflows of resources, liabilities, and deferred
inflows of resources as reported in the Comparative Net Position table listed below. Total net position
(restated) decreased by $215.7 million at June 30, 2015 and decreased by $27.5 million at June 30, 2014
over the prior years.
Table II
Comparative Statements of Revenues, Expenses, and Changes in Net Position
(amounts in thousands)
June 30,
2015
Revenues
Patient service revenues, net
Other operating revenues
Total revenues
Operating Expenses
Salaries and benefits
Physician contract services and
purchased services
Materials and supplies
Depreciation and amortization
Other operating costs
Total operating expenses
Operating income/(loss)
Nonoperating expenses, net
Income/(loss) before extraordinary item
Captial contributions
Extraordinary item
Change in net position
Change in accounting principle
Net position, beginning of the year
Net position, end of the year
$
583,855
194,574
778,429
June 30,
2014
(Restated)
June 30,
2013
(Restated)
$
$
425,462
240,271
665,733
369,922
246,874
616,796
Change in
2015/2014
$
Change in
2014/2013
158,393 $
(45,697)
112,696
55,540
(6,603)
48,937
558,237
447,633
401,190
110,604
46,443
146,587
72,658
15,361
47,714
840,557
140,643
56,249
12,005
48,541
705,071
99,999
48,060
6,882
41,605
597,736
5,944
16,409
3,356
(827)
135,486
40,644
8,189
5,123
6,936
107,335
(62,128)
(102)
(39,338)
(637)
(22,790)
535
(58,398)
(425)
(62,230)
(62,230)
(153,464)
(98,091)
$ (313,785) $
(39,975)
12,435
(27,540)
(71,201)
650
(98,091) $
19,060
(212)
18,848
(22,255)
2
(12,435)
18,850
(34,690)
(71,201)
(82,263)
(18,200)
(98,741)
(70,551) $ (215,694) $
(58,823)
(2)
12,435
(46,390)
18,850
(27,540)
Financial Analysis –
Comparative Statements of Revenues, Expenses, and Changes in Net Position - 2015
Please refer to the Table II – Comparative Statements of Revenues, Expenses, and Changes in Net Position
above.
The first component of the overall change in the Health System’s net position is the Operating Income/
(Loss) or the difference between total operating revenues and the total operating expenses. The operating
loss for fiscal year 2015 was $62.1 million compared to the operating loss of $39.3 million for fiscal year
2014.
8
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Operating Revenue - 2015
Total operating revenue, composed of net patient services revenue and other operating revenue, increased
by $112.7 million to $778.4 million for fiscal year 2015 over the prior fiscal year due to the following
reasons:
 Net Patient Services Revenue increased by $158.4 million. $92.6 million can be attributed to a full
year of operations for Alameda Hospital and San Leandro Hospital. The remaining $65.8 million
increase was from increased coverage for newly eligible Medi-Cal patients under ACA, and a
positive shift from Health Program of Alameda County (HPAC) to Medi-Cal as well as
improvement in revenue cycle processes that increase our net revenue realization.
 Other Operating Revenue decreased by $45.7 million due to HPAC members becoming eligible for
Affordable Care Act coverage or Medi-Cal.
Operating Expenses - 2015
Total operating expenses increased by $135.5 million to $840.6 million for the year ending June 30, 2015
over the prior fiscal year.
Salaries and benefits increase of $110.6 million for fiscal year 2015 over fiscal year 2014 due to the
following:
 Full year effect of the acquisition of SLH and AH, as well as salary increases in union agreements,
and higher registry utilization.
 An additional $7.5 million of pension expense was recognized in accordance with GASB 68.
All other expenses increased by $24.9 million for fiscal year 2015 over fiscal year 2014 due to the
following:
 Full year effect of the acquisition of SLH and AH.
 Physician contract services and purchased services increased by $5.9 million due to additional
consultant services for new initiatives related to revenue cycle improvement and coverage for key
vacant management positions.
 Materials and supplies expense increased by $16.4 million and again is primarily due to the full
year effect of SLH and AH expenditures.
 Other operating revenue decreased $6.6 million due to decreased HPAC revenue of $21.7 million,
which was offset by $16.0 million relating to the SLH acquisition and additional sales tax revenue.
Financial Analysis – Comparative Statements of Revenues, Expenses, and Changes in Net Position 2014
Please refer to the Table II – Comparative Statements of Revenues, Expenses, and Changes in Net Position
on page 8.
The first component of the overall change in the Health System’s net position is the Operating Income/
(Loss) or the difference between total operating revenues and the total operating expenses. The operating
loss for fiscal year 2014 was $39.3 million compared to the operating income of $19.1 million for fiscal
year 2013.
9
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Operating Revenue - 2014
Total operating revenue, composed of net patient services revenue and other operating revenue, increased
by $48.9 million to $665.7 million for fiscal year 2014 over the prior fiscal year include the following
reasons:
 Net Patient Services Revenue increased by $55.5 million. The AH and SLH acquisitions
contributed $43.1 million for fiscal year 2014. The remaining $12.4 million increase was from
improved supplemental funding, Medi-Cal reimbursement for newly eligible Medi-Cal patients
under ACA, and a positive shift from Health Program of Alameda County (HPAC) to Medi-Cal.
 Other operating revenue decreased $6.6 million due to decreased HPAC revenue of $21.7 million,
which was offset by $16.0 million relating to the SLH acquisition and additional sales tax revenue.
Operating Expenses - 2014
Total operating expenses increased by $107.3 million to $705.1 million for the year ending June 30, 2014
over the prior fiscal year.
Salaries and benefits increase of $46.4 million for fiscal year 2014 over fiscal year 2013 include the
following reasons:
 Additional positions added related to new initiatives, SLH acquisition, salary increases in union
agreements, and higher registry utilization.
 Higher health and welfare benefits related to increased full-time equivalent (FTEs) and inflation on
premiums.
 SLH’s salary and benefits represent $31.7 million.
All other expenses increase of $60.9 million for fiscal year 2014 over fiscal year 2013 include the following
reasons:
 Overall, AH and SLH expense accounted for $39.1 million or 64.2% of the increase between years.
 Physician contract services and purchased services increased by $40.6 million due to additional
consultant services for new initiatives and coverage for key vacant management positions. AH and
SLH expenditures total $9.7 million. In addition, AH employees were leased from the City of
Alameda Health Care District for $11.0 million from May 1, 2014 through June 30, 2014, which is
reported under Purchased Services.
 Materials and supplies expense increased by $8.2 million which was due to higher utilization of
prostheses and blood products for orthopedic and other surgery services. AH and SLH expenditures
total $4.9 million.
 Depreciation and amortization increased by $5.1 million from capitalization of information
technology projects, such as Electronic Health Record (EHR), Soarian Clinicals and Soarian
Financials, and other expansion activities.
 Other operating costs increased $6.9 million primarily in General and Administrative expense from
acquisition related expenditures.
Extraordinary Item – 2014
During the year ended June 30, 2014, the Health System acquired SLH and AH. The acquisitions resulted
in transfers of net position of $12.4 million for SLH and $35 thousand for AH. See Note 17 to the financial
statements for details.
10
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Volume and Utilization
Payor Mix
Please refer to Table III – Payor Mix below.
Payor Mix - 2015
The Health System saw a shift in Payor Mix during fiscal year 2015. The increases in Medicare and
Commercial Insurance were the result of the affiliations with SLH and AH, both of which have larger
proportions of these covered populations. The continued decrease in HPAC County Programs was expected
as a result of the ACA, which shifted previously uninsured populations to Medi-Cal and other coverage
providers.
Payor Mix - 2014
The most significant change in Payor Mix during fiscal year 2014 was an increase of 5.1% in Medicare and
4.3% in Medi-Cal patients. The increases in Medicare (5.1%) and Commercial Insurance (1.9%) were the
result of the affiliations with SLH and AH, both of which have larger proportions of these covered
populations. The decrease of 8.1% in HPAC County Programs was expected as a result of the ACA, which
shifted payors to Medi-Cal and other service providers.
Table III – Payor Mix
Medi-Cal
HPAC - County Programs
Medicare
Self pay - Other
Commercial Insurance
Total
June 30,
2015
52.6%
8.7%
25.4%
3.4%
9.9%
100.0%
Percent of Gross Charges
Change in Change in
June 30,
June 30,
%
%
2014
2013
2015/2014 2014/2013
48.1%
43.8%
4.5%
4.3%
18.8%
26.9%
(10.1)%
(8.1)%
19.1%
14.0%
6.3%
5.1%
7.4%
10.6%
(4.0)%
(3.2)%
6.6%
4.7%
3.3%
1.9%
100.0%
100.0%
Inpatient Volume
Please refer to Table IV – Average Daily Census, Table V – Patient Days, and Table VI – Average Length
of Stay on pages 12 and 13.
Inpatient Volume - 2015
Total inpatient census and patient days in fiscal year 2015 increased compared to fiscal year 2014 primarily
due to the full year effect of SLH and AH. Patient days at the original campuses were consistent with the
prior year.
11
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Inpatient Volume - 2014
Total inpatient census and patient days in fiscal year 2014 increased compared to fiscal year 2013. Due to
the acquisition of SLH and AH in fiscal year 2014, there were changes in service level census and patient
days when compared to fiscal year 2013. These changes are described below.
 Skilled Nursing & SubAcute census and patient days increased by 30 patients (10,913 patient days).
The average length of stay decreased by 24.3 days. AH’s Waters Edge and South Shore skilled
nursing facilities contributed 11,423 patient days in the year. This increase is offset by the decrease
of 510 patient days in Fairmont, which resulted from service disruptions when the fire sprinkler
replacement project was underway in July and August 2013.
 Medical – Surgical census and patient days increased by 20 patients (7,421 patient days) due to the
addition of both SLH and AH. SLH contributed 7,164 medical-surgical patient days and AH
contributed 498 medical-surgical patient days.
 Acute Rehabilitation census and patient days decreased by 4 patients (1,552 patient days) due to
fewer admissions.
 Step down care and intensive care units’ census combined increased by 7 patients (2,345 patient
days). SLH contributed 451 patient days and AH contributed 1,062 additional patient days over
fiscal 2013.
Table IV – Average Daily Census
Skilled Nursing & SubAcute
Medical - Surgical
Psychiatry
Acute Rehabiliation
Maternity/Gynecology
Step Down Unit
Intensive Care Unit
Level 2 Nursery
Total Average Daily Census
June 30,
2015
268
118
68
16
10
34
27
3
544
June 30,
2014
131
100
69
16
11
21
19
4
371
June 30,
2013
101
80
68
20
11
16
17
3
316
Change in Change in
Census
Census
2015/2014 2014/2013
137
30
18
20
(1)
1
(4)
(1)
13
5
8
2
(1)
1
173
55
Table V – Patient Days
Skilled Nursing & SubAcute
Medical - Surgical
Psychiatry
Acute Rehabiliation
Maternity/Gynecology
Step Down Unit
Intensive Care Unit
Level 2 Nursery
Total Patient Days
June 30,
2015
97,909
42,925
24,992
5,884
3,487
12,314
9,710
1,145
198,366
June 30,
2014
47,753
36,500
25,006
5,822
3,862
7,494
7,053
1,299
134,789
12
June 30,
2013
36,840
29,079
24,978
7,374
3,948
6,001
6,201
1,139
115,560
Change in Change in
Pt Days
Pt Days
2015/2014 2014/2013
50,156
10,913
6,425
7,421
(14)
28
62
(1,552)
(375)
(86)
4,820
1,493
2,657
852
(154)
160
63,577
19,229
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Table VI – Average Length of Stay (ALOS)
Skilled Nursing & SubAcute
Medical - Surgical
Psychiatry
Acute Rehabiliation
Maternity/Gynecology
Step Down Unit
Intensive Care Unit
Level 2 Nursery
Total Average Length of Stay
June 30,
2015
218.1
3.6
8.1
15.9
2.5
5.8
18.9
3.8
June 30,
2014
218.1
4.1
8.4
15.5
2.5
6.5
6.4
4.2
June 30,
2013
242.4
4.0
8.4
16.0
2.6
6.9
6.4
3.7
9.8
8.1
7.9
Change in Change in
ALOS
ALOS
2015/2014 2014/2013
(24.3)
(0.5)
0.1
(0.3)
0.4
(0.5)
(0.1)
(0.7)
(0.4)
12.5
(0.4)
0.5
1.7
0.2
Outpatient Volume
Please refer to Table VII – Outpatient Visits on page 14.
Outpatient Volumes - 2015
Overall total clinic visits increased by 35,209 or 11.6% over fiscal year 2014. While all areas were adversely
affected by the implementation of the financial modules of the EHR and the impact of freedom of choice
provided by the ACA during fiscal year 2014, visits throughout increased as processes were refined.
 Highland visits increased by 22,870 or 13.7%. The increase is the result of opening the Highland
Care Pavilion on June 1, 2014.
 Eastmont visits increased by 879 or 1.3%.
 Winton visits increased 1,055 or 3.6%.
 Newark visits decreased by 346 or 1.3%.
 Alameda visits increased by 9,712 or 659.3%, which represents a full year of activity.
 Fairmont visits increased by 1,039 or 9.9%.
Total emergency room (ER) visits increased by 30,167 or 26.2% primarily due to the full year effect of
SLH and AH emergency departments. John George Psychiatric Emergency Room visits increased 1,593
or 12.0%.
Outpatient Volumes - 2014
Visit volume decreased at the Highland, Eastmont, Newark, and Fairmont clinics partially offset by an
increase in visit volumes at Winton. Overall total visits decreased by 6,853 or 2.2% over fiscal year 2013.
All areas were adversely affected by the implementation of the financial modules of the EHR and the impact
of freedom of choice provided by the ACA.
 Highland visits decreased by 2,270 or 1.3%.
 Eastmont visits decreased by 5,004 or 6.7%.
 Winton visits increased 2,189 or 8.2%. The increase is the result of adding two exam rooms during
last fiscal year.
 Newark visits decreased by 1,019 or 3.8%.
 Alameda clinics contributed 1,473 visits during fiscal 2014.
 Fairmont visits decreased by 2,222 or 17.4%.
13
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
Total emergency room (ER) visits increased by 20,218 or 21.3% due mostly to the addition of SLH and
AH emergency departments, and increased visits at John George Psychiatric Emergency Room.
 A decrease of 5,414 visits (6.4%) from fiscal year 2013 in Highland Emergency Room and Trauma
is the result of adding the same day clinic on campus for urgent care visits.
 John George Psychiatric Emergency Room visits increased 2,868 (27.6%) over fiscal year 2013
due to a combination of factors including the adoption of the Kaizen approach to improve patient
screening and treatment times and community outreach efforts.
Table VII
Outpatient Visits
Clinics
Highland
Eastmont
Winton
Newark
Alameda
Fairmont
Total Clinic Visits
June 30,
2015
June 30,
2014
June 30,
2013
Change in
Visits
2015/2014
Change in
Visits
2014/2013
190,208
71,094
30,086
25,537
11,185
11,576
339,686
167,338
70,215
29,031
25,883
1,473
10,537
304,477
169,608
75,219
26,842
26,902
12,759
311,330
22,870
879
1,055
(346)
9,712
1,039
35,209
(2,270)
(5,004)
2,189
(1,019)
1,473
(2,222)
(6,853)
80,038
32,692
17,549
14,861
145,140
78,941
19,897
2,867
13,268
114,973
84,355
10,400
94,755
1,097
12,795
14,682
1,593
30,167
(5,414)
19,897
2,867
2,868
20,218
Emergency Room (ER)
Highland ER and Trauma
San Leandro ER
Alameda ER
John George Psych ER
Total Emergency Visits
Capital Asset and Debt Administration
Capital Assets
Capital assets recorded by the Health System consist primarily of leasehold improvements and equipment
purchased to provide patient care services across each of the facilities. A large part of the capital assets used
by the Health System, land, hospital facilities, and other equipment, are leased from the County for one
dollar annually. The leased facilities include the Highland campus, Fairmont campus, John George campus
and the ambulatory clinics. The Health System does own the land and building for the Newark ambulatory
clinic, which was purchased in fiscal year 2010 for approximately $1.2 million. As part of the acquisitions
of SLH and AH, the Health System received capital assets totaling $12.4 million from SLH and $6.0 million
from AH. Refer to Notes 1 and 5 within the basic financial statements for more detail on the Health System’s
relationship with the County and for components of capital assets, respectively.
The Health System continues to make capital investments in facility upgrades and equipment related to the
replacement of the Health System’s Acute Patient Tower (ATR Project). The ATR Project is being
undertaken to bring the Health System into compliance with the State of California’s seismic safety laws.
14
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
The costs related to the construction of the building will be borne by the County. The Health System is
responsible for funding internal moves and renovations prior to the beginning of facility demolition. The
acute tower replacement project is anticipated to be complete by year 2017.
Debt Administration
The Health System uses the treasury function of the County to support funding for working capital
requirements through a working capital loan from the County. In addition, the Health System received
funding from the County’s 1997 Certificates of Participation (COPS) issuance to provide for certain capital
improvements. The Health System is repaying the County for its portion of the proceeds from the COPS
debt issuance. The Health System has determined that it is legally obligated for its’ share of Pension
Obligation Bonds issued by Alameda County in prior years that are associated with pension funding. This
obligation is recognized within a restatement of fiscal year 2014 beginning net position. Refer to Notes 6
and 8 within the Basic Financial Statements for more detail on the Health System’s loan with the County
and the long term obligations under the COPS and Pension Obligation bond issuance, respectively.
Currently Known Facts, Decisions, or Conditions
Electronic Health Records
The Health System will continue to invest in the implementation and expansion of its EHR information
systems over the next two years. Under the American Reinvestment and Recovery Act, federal funding is
available to both Medicare and Medicaid hospitals in the form of incentive payments for adopting,
implementing or upgrading EHR technology and the Health System plans to take advantage of these
incentive payments to build and acquire the necessary information systems infrastructure and technology.
Legislative Impact on the Health System Operating Environment
The Affordable Care Act (ACA) or “Obamacare” is a United States federal statute signed into law by
President Barack Obama on March 23, 2010. The ACA was enacted with the goals of increasing the quality
and affordability of health insurance, lowering the uninsured rate by expanding public and private insurance
coverage, and reducing the costs of healthcare for individuals and the government. It introduced a number
of mechanisms including mandates, subsidies, and insurance exchanges meant to increase coverage and
affordability. The law also requires insurance companies to cover all applicants within new minimum
standards and offer the same rates regardless of pre-existing conditions or sex. Additional reforms aimed
to reduce costs and improve healthcare outcomes by shifting the system towards quality over quantity
through increased competition, regulation, and incentives to streamline the delivery of healthcare. In 2011
the Congressional Budget Office projected that the ACA would lower both future deficits and Medicare
spending. The ACA includes numerous provisions that take effect between 2010 and 2020.
The ACA has two primary mechanisms for increasing insurance coverage: expanding Medicaid eligibility
to include individuals within 138% of the federal poverty level (FPL), and creating state-based insurance
exchanges where individuals and small business can buy health insurance plans; those individuals with
incomes between 100% and 400% of the FPL will be eligible for subsidies to do so.
Significant reforms, most of which took effect on January 1, 2014, include:
 Health insurance exchanges operate as a new avenue by which individuals and small businesses in
every state can compare policies and buy insurance (with a government subsidy if eligible). In
addition, the law established four tiers of coverage: bronze, silver, gold, and platinum. All
categories offer the same set of essential health benefits. What the categories specify is the division
of premiums and out-of-pocket costs: bronze plans will have the lowest monthly premiums and
15
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014



highest out-of-pocket costs, and vice versa for platinum plans. The percentages of health care costs
that plans are expected to cover through premiums (as opposed to out-of-pocket costs) are, on
average: 60% (bronze), 70% (silver), 80% (gold), and 90% (platinum).
Low-income individuals and families whose incomes are between 100% and 400% of the federal
poverty level will receive federal subsidies on a sliding scale if they purchase insurance via an
exchange. Those from 133% to 150% of the poverty level will be subsidized such that their
premium costs will be 3% to 4% of income.
Medicaid eligibility expanded to include individuals and families with incomes up to 133% of the
federal poverty level, including adults without disabilities and without dependent children. The law
also provides for a 5% “income disregard”, making the effective income eligibility limit for
Medicaid 138% of the poverty level.
US citizens and legal residents will be required to have and maintain health insurance, or pay a fine
starting at $95 per person in 2014, increasing to $695 in 2016.
Additionally, as part of the renewed Waiver, Centers for Medicare & Medicaid Services authorized
California to invest savings generated through the Demonstration to achieve critical objectives, such as
improved quality of care and better care coordination through safety net providers. Over 5 years up to
$6.6 billion in federal funds will be available from the Delivery System Reform Incentive Pool (DSRIP)
Program, which is part of a $15.3 billion safety net care pool. Many key concepts underlying federal health
care reform will be tested, evaluated, and refined in California. As a result of participation in the DSRIP,
the Health System will receive $34.8 million for fiscal year 2015.
The Health System is currently reviewing the potential Waiver programs that will be apply to fiscal year
2016. The State of California has submitted their Waiver Program applications to the Center for Medicare
and Medicaid; approvals are pending.
Liquidity
The Health System relies on short term borrowing from the County to fund weekly cash flow to meet payroll
and vendor payments. The Working Capital Loan is a revolving line of credit that sweeps the daily cash
receipts from the Health System to pay down the loan balance and offset the ongoing borrowing used to
cover short-term liquidity. The Health System is currently engaged in an interim agreement with county
and is in negotiations with the County to complete a permanent loan agreement by December 31, 2015. At
June 30, 2015 the Health System had a net negative balance (NNB) of $137.2 million and was below the
current agreement’s NNB ceiling of $195.0 million as well as the of $150.0 million level agreed to during
interim negotiations with the county.



Financial Performance – The Health System did not meet fiscal year 2015 budget targets.
Timing of Conversion of Net Revenue to Cash Receipts – The Health System converted to Soarian
Financials for the management, billing, and collection of patient revenue. This implementation
delayed billing and corresponding cash receipts during the fiscal year 2014. In addition, the
acquisition of SLH and AH required new provider numbers for Medicare and Medi-Cal for these
locations, which resulted in delay of patient billing for several months. The Health System initiated
a Revenue Cycle Improvement Project during fiscal year 2015 and has achieved substantial
improvement in the areas of claims processing and service authorizations.
Expansion of Services – The Health System is focused on its mission of providing value to the
community. The addition of community clinics, SLH and AH, was designed to expand access and
to position the Health System to meet the requirements of healthcare reform. These activities were
funded from restricted and operating cash flow.
16
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Management Discussion and Analysis (Unaudited)
For the Years Ended June 30, 2015 and 2014
San Leandro Hospital Acquisition
On July 30, 2013, a donation and transfer agreement was signed between the Health System, Sutter Health,
a California nonprofit public benefit corporation, and Eden Medical Center, a California nonprofit public
benefit corporation (collectively known as “SUTTER”) to donate the business and all the assets owned by
SUTTER and used exclusively in connection with the operation of SLH. SLH is located at 13855 East 14th
Street, San Leandro, California. The transfer was completed on October 31, 2013.
The Health System intends to continue to operate SLH as an acute care hospital with 36 acute staffed beds.
During the transition period after October 31, 2014, cash flows at SLH were slowed by billing claim delays
related to establishing new Medicare and Medi-Cal identification numbers. This situation was resolved
during fiscal year 2015.
Alameda Hospital Acquisition
The acquisition of AH under an agreement with the City of Alameda Health Care District was completed
on May 1, 2014. The Health System intends to continue to operate AH with 64 acute staffed beds, 35 subacute staffed beds, 146 skilled nursing staffed beds, and clinics. During the transition period after May 1,
2014, AH had experienced reduced cash flow due to the timelines required by Medicare for acceptance of
the provider number transfer. This situation was resolved during fiscal year 2015.
Contacting the Health System’s Financial Management
This financial report is designed to provide a general overview of the Health System’s finances. Questions
concerning any of the information provided in this report or requests for additional financial information
should be addressed to the Chief Financial Officer, Alameda Health System, 1411 East 31st Street, Oakland,
California 94602.
17
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statements of Net Position
June 30, 2015 and 2014
(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Patient accounts receivable, net
Due from third party payors
Contributions receivable
Grants receivable
Due from County of Alameda
Due from State of California
Supplies
Prepaid expense
Other receivables
$
Total current assets
Business type activity
Component unit
Health System
2015
2014
Healthcare Foundation
2015
2014
13,752
20
117,496
46,735
793
13,531
50,159
9,708
1,182
1,316
$
30,461
43
110,603
108,521
976
14,034
58,679
8,656
2,429
2,814
$
8,010
2,656
20
280
$
1,154
130
27
-
254,692
337,216
10,966
1,311
23,446
23,378
-
-
12,433
66,012
26,005
61,006
11
16
78,445
87,011
11
16
Total noncurrent assets
101,891
110,389
11
16
Total assets
356,583
447,605
10,977
1,327
19,723
75,579
35
18,553
113,890
229
44
273
-
-
Noncurrent assets:
Restricted cash equivalents - Capital Fund
Capital assets:
Nondepreciable
Depreciable capital assets, net
Capital assets, net
Deferred Outflows of Resources
Pension contributions made after the measurement date
Changes in pension assumptions
Differences between expected and actual experience - pension
Differences between expected and actual investment earnings - pension
Total deferred outflows of resources
Total assets and deferred outflows of resources
$
470,473
$
447,878
$
10,977
$
1,327
(Continued)
See accompanying notes to financial statements.
18
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statements of Net Position
June 30, 2015 and 2014
(amounts in thousands)
Liabilities
Current liabilities:
Accounts payable and accrued expenses
Accrued compensation
Due to third party payors
Due to County of Alameda
Due to patients - trust accounts
Other liabilities
Current portion of accrued compensated absences
Current portion of self-insurance liability
Current maturities of long term obligations
$
Total current liabilities
Business type activity
Component unit
Health System
2015
2014
Healthcare Foundation
2015
2014
48,498
20,951
78,802
1,306
45
13,510
5,866
1,003
$
67,882
24,849
74,247
2,189
43
43
14,484
5,562
962
$
39
184
-
$
63
70
-
169,981
190,261
223
133
160,664
12,051
292,591
34,595
25,421
71,729
193,161
9,758
712
58,795
20,459
72,732
-
-
Total noncurrent liabilities
597,051
355,617
-
-
Total liabilities
767,032
545,878
223
133
16,113
68
1,045
17,226
90
90
-
-
11
10,701
42
16
821
357
Noncurrent liabilities:
Loan from County of Alameda
Accrued compensated absences, due in more than one year
Net Pension Liability
Pension and other postemployment benefits obligations
Self-insurance liability, due in more than one year
Long term obligations, net of current maturities
Deferred Inflows of Resources
Differences expected and actual actual experience - pension
Differences between expected and actual investment earnings - pension
Differences in proportion - pension
Total deferred inflows of resources
Net position
Net investment in capital assets
Restricted for capital projects
Restricted for health programs
Unrestricted (deficit)
76,396
23,421
(413,602)
Total net position
84,000
23,378
(205,468)
(313,785)
Total liabilities, deferred inflows of resources, and net position
$
470,473
(98,090)
$
See accompanying notes to financial statements.
19
447,878
10,754
$
10,977
1,194
$
1,327
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statements of Revenues, Expenses, and Changes in Net Position
For the Year Ended June 30, 2015 and 2014
(amounts in thousands)
Operating revenues:
Patient service revenues, net
Other operating revenues
$
Total operating revenues
Business type activity
Component unit
Health System
2015
2014
Healthcare Foundation
2015
2014
583,855
194,574
$
425,462
240,271
$
11,875
$
2,523
778,429
665,733
11,875
2,523
558,237
73,209
73,378
72,658
25,622
15,361
17,079
1,243
3,770
447,633
61,625
79,018
56,249
21,294
12,005
14,818
8,566
3,863
5
652
1,005
653
5
586
898
190
Total operating expenses
840,557
705,071
2,315
1,679
Operating income (loss)
(62,128)
(39,338)
9,560
844
Nonoperating revenues (expenses):
Interest and investment income
Interest expense
Other nonoperating revenue
139
(571)
330
35
(733)
61
-
-
(102)
(637)
-
-
(62,230)
(39,975)
9,560
844
-
-
Operating expenses:
Salaries and benefits
Physician contract services
Purchased services
Materials and supplies
Facilities
Depreciation and amortization
General and administrative
Fundraising
Outside medical services
Grant related program expenses
Total net nonoperating revenues (expenses)
Income (loss) before extraordinary item
Extraordinary gain for hospital acquisitions
-
Change in net position
12,435
(62,230)
(27,540)
9,560
844
Net postion, as previously reported
Change in accounting principles
(98,091)
(153,464)
650
(71,201)
1,194
-
350
-
Net position, beginning of the year, as restated
(251,555)
(70,551)
1,194
350
(98,091)
$ 10,754
Net position, end of the year
$
(313,785)
$
See accompanying notes to financial statements.
20
$
1,194
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statements of Cash Flows
For the Years Ended June 30, 2015 and 2014
(amounts in thousands)
Cash flows from operating activities:
Cash received from and on behalf of patients
Cash received from contributors and grantors
Cash received from tax collections
Cash paid to suppliers and contractors
Cash paid to employees for services
$
Net cash provided by (used in) operating activities
Cash flows from noncapital financing activities:
Receipt of working capital loan from County
Repayment of working capital loan from County
Interest payments on working capital loan from County
Receipt of rental income
Cash and cash equivalents received from AHD Acqusition
Net cash provided by (used in) noncapital
financing activities
Cash flows from capital and related financing activities:
Purchase and construction of facilities and equipment
Repayment of long term obligation
Interest payments on long term obligations
Capital contribution
Net cash used in capital and related financing activities
Cash flows from investing activities:
Interest and investments income
Net cash provided by investing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Business type activity
Component unit
Health System
2015
2014
Healthcare Foundation
2015
2014
746,039
3,910
98,676
(278,338)
(546,552)
$
$
$
8,968
(1,490)
(621)
$
2,356
(1,089)
(533)
23,735
(53,990)
6,857
734
624,479
(656,976)
(461)
288
-
624,479
(576,360)
(557)
61
1,664
-
-
(32,670)
49,287
-
-
(6,795)
(962)
(110)
-
(13,418)
(923)
(176)
-
(1)
-
-
(7,867)
(14,517)
(1)
-
139
35
139
35
(16,663)
53,882
Cash and cash equivalents, end of year
539,372
3,677
95,072
(246,177)
(445,934)
37,219
-
(19,185)
73,066
$
53,881
$
-
-
6,856
1,154
734
420
8,010
$
1,154
(Continued)
See accompanying notes to financial statements.
21
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statement of Cash Flows (Continued)
For the Year Ended June 30, 2015 and 2014
(amounts in thousands)
Cash and cash equivalents:
Unrestricted
Restricted cash
Restricted cash - Capital Fund
Cash and cash equivalents
Reconciliation of operating income (loss)
to net cash provided by (used in) operating activities:
Operating income (loss)
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation
Interest income
Changes in:
Patient accounts receivable, net
Due from third party payors
Contributions receivable, net
Grants receivable
Due from County of Alameda
Due from State of California
Supplies
Prepaid expenses
Other receivables
Deferred outflows of resources
Accounts payable and accrued expenses
Accrued compensation
Due to third party payors
Due to County of Alameda
Due to patients - trust accounts
Accrued compensated absences
Other liabilities
Self-insurance liability
Net pension liability
Pension and other postemployment benefits obligations
Deferred inflows of resources
Net cash provided by (used in) operating activities
Supplemental discosures of non-cash transactions
Equity transfer - acquisition of Alameda and San Leandro Hospitals
Patient accounts receivable, net
Due from third party payors
Other receivables
Supplies
Prepaid expense
Capital assets
Accounts payable and accrued expenses
Current portion of accrued compensated absences
Accrued compensation
Due to third party payors
Net pension liability beginning balance
Business type activity
Component unit
Health System
2015
2014
Healthcare Foundation
2015
2014
$
13,752
20
23,446
$
30,461
43
23,378
$
8,010
-
$
1,154
-
$
37,218
$
53,882
$
8,010
$
1,154
$
(62,128)
$
(39,338)
$
9,560
$
844
15,361
-
12,005
-
(6,893)
61,786
183
503
8,520
(1,052)
1,247
1,540
(113,617)
(19,384)
(3,898)
4,555
(883)
2
1,319
(43)
5,266
138,415
(24,200)
17,136
(35,646)
(65,891)
(184)
(6,890)
86,834
(3,254)
(773)
(1,095)
(273)
(11,628)
4,357
(4,712)
409
(29)
2,749
(56)
195
9,140
90
5
-
5
-
(2,526)
7
(280)
91
-
(106)
(11)
2
-
$
23,735
$
(53,990)
$
6,857
$
734
$
(153,464)
$
11,377
17
713
1,295
346
18,386
(13,981)
(3,458)
(1,385)
(2,538)
$
-
$
-
See accompanying notes to financial statements.
22
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statements of Fiduciary Net Position
June 30, 2015 and 2014
(amounts in thousands)
Pension Trust Fund
2015
2014
Assets
Cash equivalents
Investments:
Mutual funds
$
Total assets
Liabilities
Payables
Fiduciary Net Position
$
See accompanying notes to financial statements.
23
31
$
34
1,685
1,616
1,716
1,650
-
-
1,716
$
1,650
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Statements of Changes in Fiduciary Net Position
For the Years Ended June 30, 2015 and 2014
(amounts in thousands)
Pension Trust
2015
2014
Additions
Contributions:
Employer
$
Investment income
Less: Investment expense
Net investment income
Total Additions
Deductions
Benefit payments to participants and beneficiaries
Administrative expenses
Total Deductions
Change in net position
Net position, beginning of the year
214
231
(32)
47
199
261
266
178
17
309
16
195
325
$ 1,716
See accompanying notes to financial statements.
24
67
73
(26)
66
1,650
Net position, end of the year
$
(59)
1,709
$ 1,650
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
1. ORGANIZATION AND REPORTING ENTITY
Alameda Health System (Health System) is a Public Hospital Authority created originally under the
name of Alameda County Medical Center (Medical Center) on July 1, 1998 pursuant to California
Health and Safety Code Section 101850. The governance, management, administration, and control of
healthcare facilities were transferred from the County of Alameda (County) to the Medical Center in
1998. The Medical Center started doing business as the Health System on January 1, 2013. The Health
System is reflected in the County’s comprehensive annual financial report as a discretely presented
component unit.
The Health System provides a continuum of acute and long-term care to residents of the County. In
addition to offering general acute care, skilled nursing and rehabilitative care, the Health System
provides an adult day health center, and a trauma center. The Health System is currently staffed for 289
acute, 69 acute psychiatric, and 325 sub-acute, skilled nursing and rehab beds.
The Health System is governed by a thirteen-member board of trustees (Trustees), twelve members of
which have been appointed by a majority vote of the Board of Supervisors of the County. Trustees are
appointed for three-year terms and can be reappointed for up to three consecutive complete terms. The
remaining position on the Board of Trustees is filled by a representative of the Medical Staff of the
Health System, which is also appointed by the Board of Supervisors.
Under the terms of the transfer arrangement (Master Contract) between the County and the Health
System, certain operating assets, liabilities, and the net position of the healthcare operations were
transferred from the County to the Health System. The Health System leases land, hospital facilities,
and other equipment from the County for one dollar annually. Leased facilities include Fairmont
Hospital, Highland Hospital, John George Hospital, and community ambulatory care clinics. The
County has the authority to terminate any or all of the transfer agreements with or without cause.
During the year ended June 30, 2014, the Health System completed the acquisitions of the San Leandro
Hospital (SLH) and Alameda Hospital (AH). The Health System has continued to operate SLH as an
acute care hospital with 36 acute staffed beds, and AH with 64 acute staffed beds, 35 sub-acute staffed
beds, 146 skilled nursing staffed beds, and clinics. SLH is located at 13855 East 14th Street, San
Leandro, California. AH is located at 2070 Clinton Ave, Alameda, California.
As part of the acquisition of Alameda Hospital in fiscal year 2014, the Health System assumed
responsibility of the Alameda Hospital Pension Plan, a defined benefit pension plan. The plan is
reported as pension trust fund as the Health System serves as the plan’s administrator and has
managerial responsibility over the plan activities including the approval for benefit payments to
participants and beneficiaries. The assets of the pension plan are held in trust and cannot be used to
support the Health System’s own programs.
The Alameda Health System Foundation (Foundation) is a discretely presented component unit of the
Health System and is included in these financial statements. The Foundation’s mission is to raise funds
and generate community support for the Health System. The Articles of Incorporation and Bylaws of
the Foundation provide that the Health System approve the Foundation’s board members and that upon
dissolution, the Foundation’s remaining assets would be distributed to the Health System. The
Foundation is organized as an exempt entity under Section 501(c)(3) of the Internal Revenue Code.
Complete financial statements of the Foundation can be obtained from the Foundation, 350 Frank H.
Ogawa Plaza, Suite 900, Oakland, California 94612.
25
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The basic financial statements provide information about the Health System’s Enterprise Fund, the
Foundation, a discretely presented component unit, and Pension Trust Fund. Separate statements for
each fund category – proprietary, discretely presented component unit and fiduciary – are presented.
Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported
in the financial statements, and relates to the timing of measurements made, regardless of the
measurement focus applied. The basic financial statements are reported using the economic resources
measurement focus and accrual basis of accounting; wherein, revenues are recognized when earned and
expenses are recognized when incurred, regardless of the timing of cash flows.
The Enterprise Fund, a proprietary fund, distinguishes operating revenues and expenses from
nonoperating items. Operating revenues are defined as transactions deemed by management to be
ongoing or central to the provision of healthcare services. Operating revenues are derived from direct
patient care, monthly premium payments received for patients enrolled in managed care programs, and
other programs and revenues from the sale of other goods and services. Revenue derived from interest
income and income from rents are classified as non-operating in the accompanying Statements of
Revenues, Expenses and Changes in Net Position. Consistent with the treatment in the accompanying
Statements of Cash Flows, all expenses, with the exception of interest expense, are treated as operating
expenses in the accompanying Statements of Revenues, Expenses and Changes in Net Position.
The Pension Trust Fund, a fiduciary fund, is used to account for assets held by the Health System as a
trustee to pay retiree pension benefits. The assets of the Trust cannot be used to support the Health
System’s programs.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Health System considers cash held in bank accounts
and short-term investments with original maturities of three months or less to be cash and cash
equivalents. This would include cash deposited with the County as part of the Alameda County
Investment Pool.
Restricted Cash
Restricted cash includes cash held on behalf of patients, patient trust accounts, and cash held that is
restricted for certain programs or capital improvements. Patient trust accounts are held by the Health
System in an agency capacity for patients and a corresponding liability is included in the accompanying
statements of net position. The transactions in these accounts do not represent transactions of the Health
System and are not included in the accompanying Statements of Revenues, Expenses, and Changes in
Net Position.
Investments
The investment held in trust for participants of the Alameda Hospital Pension Plan are managed by the
Health System through U.S. Bank under a trust agreement. Investments are reported as fair value.
Patient Accounts Receivable
The Health System provides care to patients without requiring collateral or other security. Patient
charges not covered by a third-party payer are billed directly to the patient if it is determined that the
patient has the ability to pay. A provision for uncollectible accounts is recognized based on
management’s estimate of amounts that ultimately may be uncollectible. Additionally, third-party
contractual adjustments are accrued on an estimated basis in the period the related services are rendered.
Patient accounts receivable are reported net of allowances for contractual adjustments and bad debts of
$480.2 million at June 30, 2015 and $583.7 million at June 30, 2014.
26
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Supplies Inventory
Inventory balances consist of operating supplies and pharmaceuticals and are recorded at cost and
adjusted with periodic counts.
Capital Assets
The Health System defines capital assets as assets with an individual cost of $5,000 or greater and an
estimated useful life in excess of one year. Capital assets are stated at cost when purchased or
constructed, or for donated property, at the asset’s estimated fair value at the time the donated property
is received. Depreciation is provided using the straight-line method over the assets’ estimated useful
lives.
Useful lives by property classification are as follows:
Asset Class
Land improvements
Building improvements
Equipment
Estimated Useful Life (In Years)
20
35
10
Compensated Absences
Accumulated unpaid vacation and sick leave are recorded as a liability when future payments for such
compensated absences have been earned by employees. Benefits for which an employer is liable and
that are directly associated with payments to be made for compensated absences or termination
obligations are also accrued with the related liability. Employees earn either vacation time or paid time
off (PTO) depending on the employees’ bargaining unit and accrual rates, which vary based on length
of employment. Employees represented by Service Employees International Union (SEIU), Alameda
County Management Employees Association (ACMEA), and unrepresented management are permitted
to accumulate up to 1.5 times their annual PTO accrual rate and may cash out up to 50% of the annual
accrual rate per year. Nursing employees are permitted to accumulate up to twice their annual vacation
accrual rate and may cash out up to two weeks per year.
Risk Management
The Health System is exposed to various risks of loss from torts; medical malpractice theft of, damage
to, and destruction of assets; business interruption; errors and omissions; employee illnesses; natural
disasters; and employee, health, dental, and accident benefits. Commercial insurance coverage is
purchased for claims arising from such matters. The Health System is self-insured for general liability,
medical malpractice, workers’ compensation, and unemployment claims. The self-insurance programs
are administered through a third-party administrator, and estimated losses are accounted for on the
accrual basis.
Net Position
Net Position is classified in three components:
 Net investment in Capital Assets - represents the difference between the net book value of capital
assets and the outstanding balances of debt that are attributable to the acquisition, construction, or
improvement of those assets.
 Restricted - represents the portion of cash and investments that are externally restricted for capital
projects and restricted grant funds.
 Unrestricted - represents the portion of net position that does not meet the definition of net
investment in capital assets and restricted.
27
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
When both restricted and unrestricted net position is equally available, restricted resources are depleted
first before unrestricted resources are used.
As of June 30, 2015 and 2014, the Foundation’s restricted net position of $10,701 and $821,
respectively, represent assets restricted by donors for specific purposes.
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party
payors, including the State of California (State), and others for services rendered, including estimated
retroactive adjustments under reimbursement agreements with third-party payors. Retroactive
adjustments are accrued on an estimated basis in the period the related services are rendered and
adjusted in future periods, as final settlements are determined.
Charity Care
The Health System provides care without charge or at amounts less than its established rates to patients
who meet certain criteria under its charity care policy. Accumulated costs for services provided to those
patients are recorded as unreimbursed charges for services that are fully discounted. The cost associated
with providing services to these patients that are not reimbursed is considered charity care cost.
Net Pension Liability and Related Balances
Alameda County Employees’ Retirement Association (ACERA) Plan
ACERA is a cost-sharing multiple-employer plan and, accordingly, only the Health System’s
proportionate share of the net pension liability and related balances is reported in the accompanying
financial statements For purposes of measuring the net pension liability, deferred outflows and inflows
of resources related to pensions and pension expense for the ACERA plan, information about the
fiduciary net position and additions to/deductions from the fiduciary net position have been determined
on the same basis as they are reported by the ACERA. For this purpose, benefit payments (including
refunds of employee contributions) are recognized when currently due and payable in accordance with
the benefit terms. ACERA audited financial statements are publicly available reports that can be
obtained at ACERA website (www.acera.org). Reported results pertain to liability and asset
information within the following defined timeframes:
Valuation Date (VD) – December 31, 2013
Measurement Date (MD) – December 31, 2014
Measurement Period (MP) - January 1, 2014 to December 31, 2014
28
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Alameda Health System Defined Benefit (AHS DB) Plan and Alameda Hospital Pension Plan (AH
Plan)
For purposes of measuring the net pension liability, deferred outflows and inflows of resources related
to pensions and pension expense for the AHS DB and AH plans, information about the fiduciary net
position and additions to/deductions from the fiduciary net position have been determined by the Health
System and its actuary. For this purpose, benefit payments (including refunds of employee
contributions) are recognized when currently due and payable in accordance with the benefit terms.
The AHS DB plan had no investments at June 30, 2015 (measurement date). The investments of AH
pension plan are valued at fair value and reported in a pension trust fund. The AHS DB and AH do not
have separately issued financial statements. Reported results included in the Health System’s financial
statements pertain to information within the following defined timeframes:
AHS DB Plan:
Valuation Date (VD) – January 1, 2015
Measurement Date (MD) – June 30, 2015
Measurement Period (MP) – January 1, 2015 to June 30, 2015
AH Plan:
Valuation Date (VD) – July 1, 2014
Measurement Date (MD) – June 30, 2015
Measurement Period (MP) - July 1, 2014 to June 30, 2015
Valuation Date (VD) – July 1, 2013
Measurement Date (MD) – June 30, 2014
Measurement Period (MP) - July 1, 2013 to June 30, 2014
Deferred Inflows/Outflows of Resources
In addition to assets, the statement of financial position will sometimes report a separate section for
deferred outflows of resources. This separate financial statement element represents a consumption of
net position that applies to a future period(s) and so will not be recognized as an outflow of resources
(expense/expenditure) until then.
In addition to liabilities, the statement of financial position will sometimes report a separate section for
deferred inflows of resources. This separate financial statement element represents an acquisition of
net position that applies to a future period(s) and so will not be recognized as an inflow of resources
(revenue/contra expense) until that time.
The Health System has deferred outflows and inflows of resources related to the net pension liability.
Actuarial gains and losses, changes in actuarial assumptions, and projected vs. actual investment
earnings identified during the measurement period are deferred and amortized as a component of
pension expense in future periods. Gains and losses arise due to unexpected differences in participant
demographics (e.g., salary increases, termination rates, retirement rates). In addition, contributions
made after the measurement date are reported as deferred outflows of resources until the next
measurement period. See Note 11 for further discussion on these deferrals related to the net pension
liability.
29
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Estimates also affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
New accounting pronouncements
In June 2012, GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions
(“GASB 68”), which is effective for financial statements for periods beginning after June 15, 2014.
This statement replaces the requirements of GASB Statement No. 27, Accounting for Pensions by State
and Local Governmental Employers and GASB Statement No. 50, Pension Disclosures, as they relate
to governments that provide pensions through pension plans administered as trusts or similar
arrangements that meet certain criteria. GASB 68 requires governments providing defined benefit
pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and
to more comprehensively and comparably measure the annual costs of pension benefits. This statement
also enhances accountability and transparency through revised and new note disclosures and required
supplementary information. The Health System implemented GASB 68 as of July 1, 2014, for the
ACERA Plan and the AHS DB Plan and July 1, 2013, for the AH Plan. See Note 11 for required
disclosures.
In November 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made
Subsequent to the Measurement Date—an amendment of GASB Statement No. 68 (“GASB 71”), which
is effective for financial statements for periods beginning after June 15, 2014. GASB 71 requires a state
or local government employer (or nonemployer contributing entity in a special funding situation) to
recognize a net pension liability measured as of a date (the measurement date) no earlier than the end
of its prior fiscal year. If a state or local government employer or nonemployer contributing entity
makes a contribution to a defined benefit pension plan between the measurement date of the reported
net pension liability and the end of the government’s reporting period, GASB 68 requires that the
government recognize its contribution as a deferred outflow of resources. The Health System
implemented GASB 71 as of July 1, 2014, for the ACERA Plan and the AHS DB Plan and July 1, 2013,
for the AH Plan. See Note 11 for required disclosures.
3. CASH AND INVESTMENTS
The composition of cash and investments held at June 30, 2015 and 2014, in the enterprise, discretely
presented component unit and pension trust funds were as follows:
2015
Cash and cash equivalents:
Cash on hand
Deposits with bank
Cash with Alameda County Investment Pool
Money Market Funds
Investments:
Mutual Funds
$
$
Enterprise Fund
Discretely Presented Component Unit - Foundation
Pension Trust Fund
$
$
30
44
21,738
23,446
31
1,685
46,944
37,218
8,010
1,716
46,944
2014
$
$
$
$
31
31,627
23,378
34
1,616
56,686
53,882
1,154
1,650
56,686
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
3. CASH AND INVESTMENTS (CONTINUED)
Deposits – Custodial Credit Risk
Custodial credit risk for deposits is the risk that in the event of a bank failure, the Health System’s
deposits may not be returned to it. The custodial credit risk for investments is the risk that, in the event
of the failure of the counterparty to a transaction, an organization will not be able to recover the value
of its investment that is in the possession of another party. The Health System does not have a policy
for custodial credit risk on deposits or investments. Under the California Government Code, a financial
institution is required to secure deposits in excess of federally insured amounts made by state or local
governmental units by pledging securities held in the form of an undivided collateral pool. The market
value of the pledged securities in the collateral pool must equal at least 110% of the total amount
deposited by the public agencies. The collateral is held by the pledging financial institution’s trust
department and is considered held in the Health System’s name.
The Health System had cash on deposit in banks of $21.7 million at June 30, 2015 and $31.2 million at
June 30, 2014, that was covered by depository insurance or collateralized by the pledging financial
institution. The carrying value at June 30, 2015 and 2014, was $13.8 million and $30.5 million,
respectively.
The Foundation had cash on deposit in banks of $8.0 million at June 30, 2015 and $1.2 million at
June 30, 2014, of which $7.7 million at June 30, 2015 and $0.5 million at June 30, 2014 that was not
covered by federal depository insurance.
The Health System maintains its Unrestricted Cash and Restricted Cash – Capital Fund in the Alameda
County Investment Pool (Pool). Income earned or losses arising from pooled investments are allocated
quarterly based on Pool participants’ average cash balances. The Health System considers its pooled
deposits held with the County to be demand deposits and therefore cash and cash equivalents for
financial reporting purposes. The Health System’s deposits in the Pool were $23.4 million as of
June 30, 2015 and $38.1 million as of June 30, 2014. As of June 30, 2015 and 2014, the total amount
invested by all public agencies in the Pool was approximately $3.7 billion and $3.4 billion with a
weighted average maturity of 466 days and 535 days, respectively. The Pool is unrated. The County’s
Treasury Oversight Committee has responsibility for the pool. The pool consists of U.S. government
and agency securities, commercial paper, mutual funds, and the local agency investment fund as
authorized by State statutes and the County’s investment policy. For further information regarding the
County’s Pool (such as interest rate, credit and concentration of credit risks), contact the County
Treasury, Alameda County, 1221 Oak Street, Oakland, California, 94612.
Pension Trust Fund Assets
The investment objective of the Pension Trust (Trust) is to achieve consistent long-term growth for the
Trust and to maximize income consistent with the preservation of capital for the sole and exclusive
purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses
of administering the Trust.
The Health System’s Board of Trustees establishes the general investment policy and guidelines for the
Trust and its investment manager. The current guidelines do not provide for limitations on investments.
The trust has delegated the selection and management of investments to its investment manager.
31
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
3. CASH AND INVESTMENTS (CONTINUED)
Interest rate risk
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an
investment. The Trust’s investment policies mitigate exposure to changes in interest rates by requiring
that the assets of the Trust be invested in accordance with the following asset allocation guidelines:
Asset Class
Cash
Fixed Income
Equity
Minimum
0%
35%
40%
Maximum
20%
55%
60%
The Trust does not have a policy for investment maturity restrictions.
A summary of investments by type of investments and by segmented time distribution as of June 30,
2015 and 2013 is as follows (amounts in thousands):
2015
2014
Asset Class
Fair Value
Years to
Maturity:
Less than 1 year
Mutual Funds
$1,685
$1,685
Fair Value
Years to
Maturity:
Less than 1 year
$1,616
$1,616
Credit Risk
Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its
obligations. The Trust does not for credit risk on investments. The investments held in the Trust at
June 30, 2015 and 2014, are not rated.
Concentration of Credit Risk
Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s
investment in a single issuer. The Trust’s does not have a policy on concentration of credit risk.
The following a listing of issuers with which the Trust investments are greater than 5%:
Pension Trust Fund
% of Total Investment Portfolio
2015
2014
Institution
Dodge & Cox
PIMCO
Vanguard
T Rowe Price
Columbia Management Investment Advisors, LLC
Harbor
Loomis Sayles Capital Income Funds (Natixis)
32
22.7%
24.8%
8.1%
7.0%
8.4%
7.5%
N/A
18.0%
17.1%
15.5%
10.5%
8.0%
5.5%
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
3. CASH AND INVESTMENTS (CONTINUED)
Custodial Credit Risk – Investments
For investments, custodial credit risk is the risk that in the event of a failure of the counterparty, the
Trust may not be able to recover the value of its investments. The exposure to the Trust is limited as
the Trust’s investments are in the custody of a third-party custodian that is separate from the
counterparty.
4. DUE FROM STATE OF CALIFORNIA
Due from State of California consists of the following components as of June 30, 2015 and 2014:
(amounts in thousands)
2015
2014
Components of the Medi-Cal Waiver:
Delivery System Reform Incentive Payments (DSRIP)
Managed Care for the SPD
America Recovery and Reinvestment Act (ARRA) incentive programs
Sales tax
Other State supplemental programs
Total Due from State of California
33
$ 15,000
9,501
2,158
18,500
5,000
$ 50,159
$ 24,581
9,200
3,689
18,183
3,025
$ 58,678
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
5. CAPITAL ASSETS
Changes in capital assets for the fiscal years ended June 30, 2015 and 2014 are as follows:
(amounts in thousands)
Balance
July 1, 2014
Capital assets, not being depreciated:
Assets not placed in service
Land
$
Total capital assets, not being depreciated
16,984
9,021
Additions
$
1,284
-
Retirements
$
Transfers
-
$ (14,856)
-
Balance
June 30, 2015
$
3,412
9,021
26,005
1,284
-
(14,856)
12,433
806
45,521
128,747
11
2,517
2,983
(2,883)
4,552
10,304
817
52,590
139,151
175,074
5,511
(2,883)
14,856
192,558
Less accumulated depreciation for:
Land improvements
Building and leasehold improvements
Equipment
(725)
(30,631)
(82,712)
(19)
(1,838)
(13,504)
2,883
-
(744)
(32,469)
(93,333)
Total accumulated depreciation
(114,068)
(15,361)
2,883
-
(126,546)
61,006
(9,850)
-
14,856
66,012
Capital assets, being depreciated:
Land improvements
Building and leasehold improvements
Equipment
Total capital assets, being depreciated
Total capital assets, being depreciated, net
Capital assets, net
$
87,011
$
Balance
July 1, 2013
Capital assets, not being depreciated:
Assets not placed in service
Land
Total capital assets, not being depreciated
$
Capital assets, being depreciated:
Land improvements
Building and leasehold improvements
Equipment
Total capital assets, being depreciated
Less accumulated depreciation for:
Land improvements
Building and leasehold improvements
Equipment
Total accumulated depreciation
Total capital assets, being depreciated, net
Capital assets, net
$
16,819
751
17,570
(8,566)
Additions
$
6,774
8,270
15,044
$
-
Retirements
$
-
$
-
$
78,445
Transfers
Balance
June 30, 2014
$
$
(6,609)
(6,609)
16,984
9,021
26,005
806
42,416
108,483
151,705
3,105
13,655
16,760
-
6,609
6,609
806
45,521
128,747
175,074
(713)
(29,020)
(72,330)
(102,063)
(12)
(1,611)
(10,382)
(12,005)
-
-
(725)
(30,631)
(82,712)
(114,068)
49,642
4,755
-
6,609
61,006
67,212
34
$
19,799
$
-
$
-
$
87,011
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
6. RELATED PARTY TRANSACTIONS
Transactions with the County
Working Capital Loan - The Health System receives certain services from the County under the terms
of the Master Contract. The Health System uses the County’s Consolidated Treasury function to fund
weekly cash flow to meet payroll and vendor payments. The Working Capital Loan is a revolving line
of credit that sweeps the daily cash receipts from the Health System to pay down the loan balance and
offset the ongoing borrowing used to cover short-term liquidity. The County Board of Supervisors on
August 10, 2004, passed a resolution to limit the Working Capital Loan to $200.0 million and
established a schedule for repayment of the principal through fiscal year 2018. The amortization
schedule requires a payment of $15.0 million in fiscal year 2014 and $20.0 million for the remaining
years of the loan through fiscal year 2018.
The Health System complied with the debt reduction targets through fiscal year 2013, but was out of
compliance at June 30, 2014. The Health System and the County signed an interim agreement, which
was effective from October 28, 2014 through February 27, 2015. The interim agreement was extended
through December 31, 2015, and negotiations on a permanent agreement are underway. The purpose
of the Interim Agreement is to allow the Health System and the County time to develop a longer term
agreement on repayment of the Health System’s obligation to the County’s Consolidated Treasury.
Under this agreement, the Health System’s net obligation cannot exceed $195.0 million. The net
obligation or the net negative cash balance is defined as the gross working capital loan balance minus
the Restricted Cash – Capital Fund. At June 30, 2015 the net obligation was $137.2 million and was
below the current ceiling described in the interim agreement of $195.0 million.
The interest expense paid, the gross and net working capital loan balances, and target net working
capital loan balance at the end of the fiscal year were as follows:
Total interest paid on working capital loans
Total gross working capital loan balance
Net working capital loan balance (Net of Restricted
Cash – Capital fund)
Net working capital loan balance required by the
Debt Restructure Agreement
(amounts in thousands)
June 30, 2015
June 30, 2014
$
461
$
557
160,664
193,161
137,218
169,784
195,000
110,000
Medical Service Reimbursements - The Health System is reimbursed by the County at a negotiated
annual amount for care of the County’s medically indigent patients and additional amounts under other
supplemental programs. The County reimbursed the Health System $39.7 million during fiscal year
2015 and $82.0 million during fiscal year 2014 for these services, which is included in other operating
revenue. In addition, the County reimbursed the Health System $28.7 million and $26.3 million for
fiscal years 2015 and 2014, respectively, for behavioral health services which were included in net
patient service revenues.
Long Term Obligations - The Health System received funding of $14.3 million from the County’s 1997
Certificates of Participation (COPS) issuance to provide for certain capital improvements in 1997. The
Health System is repaying the County for their portion of the proceeds from debt issuance. The balance
outstanding was $2.0 million and $3.0 million at June 30, 2015 and 2014, respectively. The total
interest paid to the County for the year ended June 30, 2015 was $0.1 million and $0.2 million for the
year ended June 30, 2014. Information on the COPS is separately provided in Note 8.
35
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Pension Obligation Bond Commitments - The County issued pension obligation bonds in 1995 and
1996 and contributed the net bond proceeds to the pension plan. A portion of the obligation is
attributable to the participation of the Health System’s employees in the Alameda County Employees’
Retirement Association (ACERA) and allows ACERA to provide pension obligation bond credits to
the Health System, thus reducing contributions otherwise payable to ACERA over time. The
outstanding bonds are recorded by the County and have not been reflected in the Health System’s
financial statements in prior years. In recognizing the Health Systems’ legal obligation for the allocated
share of the debt, the amount due to the County related to the pension obligation bonds has been
recognized within the financial statements and included as a fiscal year 2014 restatement. Information
on the pension obligation bonds is separately provided in Note 8.
Other County Services - Other County departments provide the Health System with certain services,
such as sheriffs, motor pool, laboratory testing, tele-communications, building repairs and maintenance.
The Health System also leases a number of buildings from the County. As of June 30, 2015 and 2014,
the Health System’s total charges for County provided services and related outstanding payables were
as follows:
(amounts in thousands)
June 30, 2015
June 30, 2014
Charges for County provided services
$
5,227
$
5,280
Total outstanding payables to County
1,306
2,189
Transactions with Officers
The Health System forgave loans in the amount of $30 thousand for two executives of the Health
System in exchange for their continued employment during fiscal year 2015. The Health System
entered into one new loan in the amount of $50 thousand for an executive in fiscal year 2015. Total
employee loans outstanding at June 30, 2015 and 2014, were $110,000 and $90,000 respectively.
Transactions with the Foundation
The Health System is the beneficiary of fundraising activities of the Foundation. The Foundation is
reimbursed for certain operational costs under the terms of a contract. The outstanding payable balances
due to the Foundation at year end and the total contract expenses for the fiscal years were as follows:
(amounts in thousands)
June 30, 2015
June 30, 2014
$
280
$
$
782
$
1,371
Outstanding payable to Foundation
Contract expense paid to Foundation
In addition to fundraising, the Foundation provides grants to the Health System to fund certain
programs. The funding amounts and outstanding receivable balances due from the Foundation at year
end were as follows:
(amounts in thousands)
June 30, 2015
June 30, 2014
Program funding
$
$167
$
130
Outstanding receivable
$
184
$
70
36
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Two board members of the Foundation have vendor relationships with the Health System. The Health
System paid for real estate advisory services through June 30, 2014 to a business operated by a
Foundation board member and received vending machine receipts from a business operated by a
Foundation board member. The total paid and received from these two businesses were as follows:
(amounts in thousands)
June 30, 2015
June 30, 2014
Advisory services
$
$
45
Vending machine receipts
$
45
$
48
7. DUE TO THIRD PARTY PAYORS
Due to Third Party Payors consists of the following components as of June 30, 2015 and 2014:
(amounts in thousands)
2015
2014
$
66,818 $
58,537
2,100
12,535
582
9,884
2,593
$
78,802 $
74,247
Medi-Cal settlement reserves
DSRIP reserve
Medicare audit reserves
Other payables to miscellaneous third parties
Total Due to Third Party Payors
37
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
8. LONG TERM OBLIGATIONS
The following table summarizes the activity related to long term obligations during the years ended
June 30, 2015 and 2014:
Balance
July 1,
2014
(Restated)
Long term obligations:
COPS due to County
Pension Obligation Bonds due to County
$
Long term obligations
Other noncurrent liabilities:
Accrued compensated absences
Self insurance liability
Net pension liability
Postemployment benefits
Loan from County of Alameda
Total noncurrent liabilities
$
3,011
70,683
(amounts in thousands)
Additional
Obligations
Retirements
Balance
and Net
and Net
June 30,
Increases
Decreases
2015
Amounts
Due Within
One Year
$
$
-
$
(962)
-
$
2,049
70,683
1,003
12,681
73,694
-
(962)
72,732
13,684
24,242
26,021
154,176
33,113
193,162
29,975
9,838
138,415
1,482
-
(27,682)
(4,876)
(32,498)
26,535
30,983
292,591
34,595
160,664
12,051
5,866
-
504,408
$
179,710
$
(66,018)
$
618,100
$
31,601
(amounts in thousands)
Balance
July 1,
2013
(Restated)
Long term obligations:
COPS due to County
Pension Obligation Bonds due to County
$
Long term obligations
Other noncurrent liabilities:
Accrued compensated absences
Self insurance liability
Net pension liability
Pension and other postemployment benefits
Loan from County of Alameda
Total noncurrent liabilities
$
3,934
70,683
Additional
Obligations
and Net
Increases
Retirements
and Net
Decreases
$
$
-
(923)
-
Balance
June 30,
2014
$
3,011
70,683
Amounts
Due Within
One Year
$
962
-
74,617
-
(923)
73,694
962
18,035
26,077
517
49,655
145,042
29,114
3,616
195
45,739
48,120
(22,907)
(3,672)
(36,599)
-
24,242
26,021
712
58,795
193,162
14,484
5,562
-
313,943
$
126,784
$
(64,101)
$
376,626
$
21,008
On December 1, 1997, the Alameda County Public Facilities Corporation issued COPS to advance
refund two outstanding COPS, one of which originally related to hospital capital projects. The Health
System is repaying the County for its portion of the obligation over ten years ending in fiscal year 2017
at an annual interest rate of 4.22%.
38
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
8. LONG TERM OBLIGATIONS (CONTINUED)
Debt service requirements for the long-term obligation are as follows:
Fiscal Year
Ending
June 30
(amounts in thousands)
Repayment to County
Repayment to County
1997 COPS Issuance
Pension Obligation Bonds
Principal
Interest
Total
Principal
Interest
Total
2016
$
2017
2018
2019
2020
2021-2025
1,003
1,046
-
$
76
33
-
$
1,079
1,079
-
$ 12,681
13,252
13,848
7,726
7,726
15,450
$
-
$ 12,681
13,252
13,848
7,726
7,726
15,450
Total
2,049
$
109
$
2,158
$ 70,683
$
-
$ 70,683
$
The Health System is a member of Alameda County Employee Retirement and in prior years, Alameda
County issued bonds to provide for the funding of pension obligations. It has been determined that
Alameda Health System is legally obligated for the assigned share of the bond debt. As such, the Health
System is recognizing that debt and is reporting within these financial statements, the restatement of
fiscal year 2014 to reflect a long term debt of $70.7 million.
9. OPERATING REVENUES
Net Patient Service Revenues
Net patient service revenues are reported at the estimated net realizable amounts from patients, thirdparty payors, and others for services rendered, including estimated adjustments (contractual
allowances) under reimbursement agreements with third-party payors and the uncollectible portion of
patient service revenues.
Net patient service revenue includes patient revenues from federal and state third-party reimbursement
programs, supplemental revenues related to the California Section 1115 Medi-Cal Waiver (Waiver)
and other supplemental programs. These revenues are based, in part, on cost reimbursement principles
and are subject to audit and retroactive adjustments by the respective third party fiscal intermediaries.
As a result, there is at least a reasonable possibility that recorded estimates will change by a material
amount in the near term. Differences between final settlements with third-party payors and the estimate
originally recorded are included in operations in the year in which the settlement amounts become
known.
Net patient service revenues are calculated as follows:
(amounts in thousands)
June 30, 2015
June 30, 2014
Gross patient service revenues
Other program revenue
Contractual allowances
Bad debt provision
$
2,339,615
102,988
(1,818,636)
(40,112)
Net patient service revenues
$
583,855
39
$ 1,695,020
135,704
(1,310,553)
(94,709)
$
425,462
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
9. OPERATING REVENUES (CONTINUED)
Other Operating Revenues
The following is a breakdown of other operating revenues for the fiscal years 2015 and 2014:
(amounts in thousands)
2015
2014
Components of the Medi-Cal Waiver:
LIHP/HPAC
DSRIP
ARRA incentive programs
Medical service reimbursements from County
Other State supplemental programs
Parcel tax
Sales tax revenue
Other miscellaneous programs
Total other operating revenues
$
$
34,041
34,847
(1,089)
5,662
821
5,245
98,993
16,054
194,574
$
$
75,838
30,252
2,463
6,211
509
955
96,094
27,949
240,271
State of California Medi-Cal programs
California’s Medi-Cal Hospital/Uninsured Care Demonstration Project (Demonstration) is a system for
paying selected hospitals for hospital care provided to Medi-Cal and uninsured patients initiated in
fiscal year 2006. The Demonstration was negotiated between the State of California’s Department of
Health Services and the federal Centers for Medicare and Medicaid Services (CMS) in 2005, and covers
the period from July 1, 2005 to August 31, 2010 and was extended through October 31, 2010. The
implementing State legislation (S.B. 1100) was enacted by the Legislature in September 2005. The
five-year Demonstration affects payments for 23 public hospitals, identified as Designated Public
Hospitals (DPH), and private and non-designated public safety net hospitals that serve large numbers
of Medi-Cal patients. The Medicaid Demonstration restructures inpatient hospital fee-for-service (FFS)
payments and Disproportionate Share Hospital (DSH) payments, as well as the financing method by
which the State draws down federal matching funds. Under the Demonstration, payments for the public
hospitals are comprised of: 1) FFS cost-based reimbursement for inpatient hospital services (exclusive
of physician component); 2) DSH payments; and 3) distribution from a newly created pool of federal
funding for uninsured care, known as the Safety Net Care Pool (SNCP). The nonfederal share of these
three types of payments will be provided by the public hospitals rather than the State, primarily through
certified public expenditures (CPE) whereby the hospital would expend its local funding for services
to draw down the federal financial participation (FFP).
For the inpatient hospital cost-based reimbursement, each hospital will provide its own CPE and
receives the entire resulting federal match. For the DSH and SNCP distributions, the CPEs of all the
public hospitals will be used in the aggregate to draw down the federal match.
The Demonstration authorized the State to create a Health Care Coverage Initiative in ten selected
counties during fiscal year 2008 through fiscal year 2010 (with an extension to October 31, 2010) to
expand health care coverage for eligible low-income, uninsured individuals using a $180 million annual
allotment of federal funds from the SNCP. Selected counties certify their public expenditures to claim
federal funding to reimburse their health care services costs. The selected counties also will receive
federal reimbursement for administrative costs associated with the implementation and ongoing
administration of the coverage initiative programs. This funding is separate from the SNCP funding
that is available. Senate Bill 1448, passed in July 2006, implements the Health Care Coverage Initiative.
The Health System receives a portion of the funding through Alameda County.
40
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
9. OPERATING REVENUES (CONTINUED)
Effective November 1, 2010, CMS and the State agreed on the standard terms and conditions of the
5-year renewal of the Waiver officially called the California Bridge to Reform Demonstration. The
funds available through the Waiver will help California prepare for health care reform through
investments in our safety net delivery system and expansion of coverage for adults between 0% and
200% of the Federal Poverty Level (FPL). The Waiver established the Low Income Health Program,
which provides Federal matching funding for enrollees.
Low Income Health Program (LIHP) and Health Program of Alameda County (HPAC)
In Alameda County, the LIHP is the Health Plan for Alameda County (HPAC) and augments the
California Medical Services Program (CMSP) for the medically indigent. The Health System contracts
with the County to provide necessary services to individuals enrolled in HPAC which is the umbrella
title for what is a two component program:
1) Medicaid Coverage Expansion (MCE) covers adults with family incomes at or below 133% FPL.
These enrollees, originally covered by HPAC, were converted to Medi-Cal beneficiaries effective
January 1, 2014. The majority of the beneficiaries were enrolled in Managed Medi-Cal programs
sponsored by the Alameda Alliance and Anthem Blue Cross. Beneficiaries had the option of
accepting assignment into managed Medi-Cal plans or choosing to be covered by the State under
the FFP Medi-Cal plan. After the first year of coverage, it is the responsibility of the beneficiaries
to re-enroll in the program.
2) Health Care Coverage Initiative (HCCI) covers adults with family incomes between 134% and
200% FPL. These enrollees, originally covered by HPAC, are eligible to purchase insurance
coverage through the Exchange and are eligible for subsidies to assist in paying their premiums. In
California the Exchange is called Covered California.
Delivery System Reform Incentive Pool (DSRIP)
Additionally, as part of the renewed 1115 Waiver, CMS authorized California to invest savings
generated through the Demonstration to achieve critical objectives, such as improved quality of care
and better care coordination through safety net providers. Over 5 years, up to $6.6 billion in federal
funds will be available from a DSRIP, part of a $15.3 billion safety net care pool. Many key concepts
underlying federal health care reform will be tested, evaluated, and refined in California. As a result of
participation in the DSRIP, the Health System received $34.8 million in fiscal year 2015 and $30.3
million in fiscal year 2014.
Supplemental Funding – Seniors and Persons with Disabilities (SPD)
Effective October 19, 2010, SB 208 allows the State’s Department of Health Care Services to
implement changes to the federal Waiver that expired on October 31, 2010. SB 208 implements
provisions of the Waiver for specified uninsured adults that are not otherwise eligible for Medicare or
Medi-Cal. SB 208 allows the State to implement additional goals of the Waiver to improve health care
delivery systems and health care outcomes for SPD. This is accomplished by transferring the
responsibility for the provision of care from the Medi-Cal FFS program to health plans under the
managed Medi-Cal program.
41
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
9. OPERATING REVENUES (CONTINUED)
Senate Bill 208 (Chapter 714, Statutes of 2010) provided for the possibility of a voluntary
Intergovernmental Transfer (IGT) program relating to Medi-Cal managed care services provided by
DPHs. The purpose of the IGT program is to provide funding to preserve and strengthen the
availability and quality of services provided by DPHs and their affiliated public providers, to the extent
permitted by law. This IGT program consists of two IGT agreements to provide a portion of the
nonfederal share of risk-based payments to managed care health plans as described in Welfare and
Institutions Code, Sections 14182.15(d)(1) and 14182.15(d)(2).
IGTs provide the ability for the DPHs to receive matching federal funds to increase reimbursement for
care to the SPD population. The Health System recognized additional reimbursement of $9.4 million
for fiscal year 2015 and $10.1 million for fiscal year 2014.
Supplemental Funding – Newly Eligible Medi-Cal Patients under the Affordable Care Act (ACA)
Effective January 1, 2014, certain portions of the ACA provided Medi-Cal coverage for patients
previously covered by HPAC in Alameda County. The majority of these beneficiaries were enrolled in
either the Alameda Alliance or Anthem Blue Cross managed Medi-Cal plans. Due to payment
mechanisms between the State and the Health Plans (capitation), an opportunity to receive supplemental
funding similar to current rate range and SPD programs was made available to the designated public
hospitals. In fiscal year 2015, the Health System received additional supplemental funding in the
amount of $7.0 million.
Sales Tax Revenue
The State collects and remits to the Health System Measure A – Essential Health Services Tax. Measure
A was approved by the voters of the County in 2004. Starting in 2005 funds were provided for
emergency medical, hospital inpatient, outpatient, public health, mental health and abuse services to
indigent, low-income, and uninsured residents of the County. Measure AA was passed by the voters of
the County in June 2014 to extend the Essential Health Services Tax through June 30, 2034. The total
tax revenues remitted to the Health System and included in other operating revenues were $99.0 million
for fiscal year 2015 and $96.1 million for fiscal year 2014.
Other Miscellaneous Operating Revenue
The Health System receives various grant funding for administration of certain medical programs,
including funding under Medi-Cal Administrative Activities (MAA) to reimburse certain costs of
administering the Medi-Cal program. Grant revenues of $3.7 million and $3.9 million were included in
other miscellaneous operating revenues for fiscal year 2015 and 2014, respectively.
In addition, other miscellaneous operating revenues in fiscal year 2014 include cash support of
$14.0 million from Sutter Health, $1.0 million the City of San Leandro, and $1.0 million from the
County to support operations of SLH. See note 17 for discussion.
42
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
10. CHARITY CARE
The Health System provides services to patients who are financially screened and qualified to receive
charity care under the guidelines of AB 774. The Health System records the amount of unreimbursed
costs for services and supplies for patients who qualify for the charity care program and county
programs. The following table summarizes the estimated cost of charity care:
(amounts in thousands)
June 30, 2015
June 30, 2014
$
1,778
$
4,434
0.2%
0.6%
Charity care cost
Percent of operating expenses
In addition to the direct cost of charity care, the Health System recognizes the unreimbursed costs of
care provided to medically indigent patients covered by HPAC as contractual allowances. The
following table summarizes the estimated HPAC unreimbursed cost:
(amounts in thousands)
June 30, 2015
June 30, 2014
$
11,160
$
59,995
1.3%
8.2%
HPAC unreimbursed cost
Percent of operating expenses
11. RETIREMENT PLANS
The Health System participates in three defined benefit pension plans. The table below is summary of
net pension liabilities and related balances as of and for the year ended June 30, 2015 and 2014. Further
detail describing each plan follows the summary table below.
2015
Net Pension Liability
Deferred Outflows of Resources
Deferred Inflows of Resources
Pension Expense
ACERA
$ 292,061
113,622
(17,060)
55,868
(amounts in thousands)
AHS DB Plan
AH Plan
$
45
$
485
268
(166)
45
68
Total
$ 292,591
113,890
(17,226)
55,981
ACERA
$ 198,700
N/A
(amounts in thousands)
AHS DB Plan
AH Plan
$
$
712
273
90
N/A
78
Total
$ 199,412
273
90
78
2014
Net Pension Liability
Deferred Outflows of Resources
Deferred Inflows of Resources
Pension Expense
N/A - Amounts not valued for FY 2014. GASB 68 was implemented as of July 1, 2013 for these plans.
43
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Alameda County Employees’ Retirement Association (ACERA)
Plan Description
The Health System participates in the cost-sharing multiple-employer employee benefit plans of
ACERA. ACERA began operations on January 1, 1948, and is governed by the California Constitution,
and state and federal laws, including but not limited to the County Employees Retirement Law of 1937
(1937 Act), beginning at California Government Code Section 31450 et. seq., Public Employees’
Pension Reform Act (PEPRA) and the bylaws and policies adopted by the Board of Retirement.
ACERA provides service and disability retirement benefits, annual cost-of-living adjustments (COLA)
and death benefits to plan members and beneficiaries. ACERA also provides other non-health
postemployment benefits, such as supplemental COLA and a lump sum death benefit.
The 1937 Act provides the authority for the establishment of ACERA benefit provisions. In most cases
where the law provides options concerning the allowance of credit for service, the offering of benefits,
or the modification of benefit levels, the law generally requires approval of the employers’ governing
board for the option to take effect. Separately, in 1984 the Alameda County Board of Supervisors and
the Board of Retirement approved the adoption of Article 5.5 of the 1937 Act. This adoption permitted
the establishment of a Supplemental Retirees Benefit Reserve (SRBR) for ACERA.
Article 5.5 of the 1937 Act provides for the systematic funding of the SRBR and stipulates that it be
used only for the benefit of retired members and beneficiaries. The law grants discretionary authority
over the use of the SRBR funds to the Board of Retirement. Supplemental benefits currently provided
through the SRBR include supplemental COLA, supplemental retired member death benefits, active
death equity benefit and the retiree monthly medical allowance, vision, dental, and Medicare Part B
coverage. The payment of supplemental benefits from the SRBR is subject to available funding and
must be periodically re-authorized by the Board of Retirement. SRBR benefits are not vested. In 2006
the Board of Retirement approved the allocation of SRBR funds to Postemployment Medical Benefits
and Other Pension Benefits. These two programs provide the supplemental benefits described above.
Employers participating in ACERA include County of Alameda (General and Safety), First 5 Alameda
County, Housing Authority of the County of Alameda, Alameda Health System, Livermore Area
Recreation and Park District (LARPD), Superior Court of California—County of Alameda, and
Alameda County Office of Education. The Health System’s employees are classified as general
members. All full-time employees of participating employers who are appointed to permanent
positions are statutorily required to become members of ACERA, with the exception of Health System
employees of Alameda Hospital and San Leandro Hospital unless they are subject to an existing
Memorandum of Understanding. Effective October 31, 2013, all newly hired unrepresented employees
of any Health System facility are prohibited from membership.
Any new member who becomes a member on or after January 1, 2013 is placed into Tier 4 and is
subject to the provisions of PEPRA, California Government Code 7522 et seq. and Assembly Bill (AB)
197.
General members enrolled in Tiers 1, 2, or 3 are eligible to retire once they attain the age of 70
regardless of service or at age 50 with five or more years of retirement service credit and a total of 10
years of qualifying membership. A non-Tier 4 General member with 30 years of service is eligible to
retire regardless of age. General members enrolled in Tier 4 are eligible to retire once they have attained
the age of 52 and have acquired five years of retirement service credit, or at age 70 regardless of service.
The retirement benefit the member will receive is based upon age at retirement, final average
compensation, years of retirement service credit and retirement plan and tier.
44
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
ACERA provides an annual cost-of-living benefit to all retirees. The cost-of-living adjustment, based
upon the Consumer Price Index for the San Francisco-Oakland-San Jose Area (with 1982-84 as the
base period), is capped at 3.0% for General Tiers 1 and 3 and Safety Tier 1, and at 2.0% for General
Tiers 2 and 4 and Safety Tiers 2, 2C, 2D, and 4.
Additional information regarding benefit tiers, eligibility requirements and benefits are described in
ACERA comprehensive annual financial report (CAFR). The CAFR for December 31, 2014, may be
obtained by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California, 94612.
Contributions
Member and employer contribution rates are based on recommendations made by an independent
actuary and adopted by the Board of Retirement. These rates are based on membership type (General
and Safety) and tier (Tiers 1, 2, 3, and 4). Active members are required by statute to contribute toward
pension plan benefits. Participating employers are required by statute to contribute the necessary
amounts to fund estimated benefits not otherwise funded by member contributions or expected
investment earnings.
Participating agencies contribute to the retirement plan based upon actuarially determined contribution
rates adopted by the ACERA Board of Retirement. Employer contribution rates are adopted annually
based upon recommendations received from ACERA’s actuary after the completion of the annual
actuarial valuation. The average employer contribution rate as of December 31, 2013 and 2014 (based
on the December 31, 2012 and December 31, 2013 valuations for the second half of 2013/2014 and the
first half of 2014/2015, respectively) was 24.04% of compensation.
Members are required to make contributions to ACERA regardless of the retirement plan or tier in
which they are included. The average member contribution rate as of December 31, 2013 for 2014
(based on the December 31, 2012 and December 31, 2013 valuations for the second half of 2013/2014
and the first half of 2014/2015, respectively) was 8.99% of compensation.
Actuarial Methods and Assumptions Used to Determine Total Pension Liability
For the measurement period ending December 31, 2014 (the measurement date), the total pension
liability was determined by rolling forward the December 31, 2013, total pension liability. The actuarial
assumptions used to develop the December 31, 2013 total pension liability are the same assumptions
used in the December 31, 2013, funding valuations for ACERA, while the actuarial assumptions used
to develop the December 31, 2014 total pension liability are based on the assumptions adopted by the
Retirement Board for use in the December 31, 2014, funding valuation. These assumptions were
applied to all periods included in the measurement:
Valuation Date
December 31, 2014
Actuarial Cost Method
December 31, 2013
Entry Age Normal
Entry Age Normal
Discount Rate
7.60%
7.80%
Inflation
3.25%
3.50%
Actuarial Assumptions:
45
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Valuation Date
December 31, 2014
December 31, 2013
Salary Increases
General: 4.15% to 7.45% and
Safety: 4.45% to 10.45%,
vary by service, including
inflation
General: 4.60% to 7.20% and
Safety: 4.70% to 10.20%,
vary by service, including
inflation
Investment Rate of Return
7.60% net of pension plan
investment, expenses,
including Inflation
7.80%, net of pension plan
investment expense,
including inflation
Mortality Rate Table
RP-2000 Combined Healthy
Mortality Table projected
with Scale BB to 2020,
adjusted for future mortality
improvements based on a
review of the mortality
experience in the December
1, 2010 - November 30, 2013
Actuarial Experience Study.
RP-2000 Combined Healthy
Mortality Table adjusted for
future mortality
improvements based on a
review of the mortality
experience in the December
1, 2007 - November 30, 2010
Actuarial Experience Study.
Post Retirement Benefit
Increase
3.00% of Tier 1 and Tier 3
retirement income
3.00% of Tier 1 and Tier 3
retirement income
2.00% of Tier 2 and Tier 4
retirement income
2.00% of Tier 2 and Tier 4
retirement income
Non-OPEB - Payable when
the current allowance from
the Pension Plan drops below
85% of the original Pension
Plan benefit indexed with
CPI. Benefits are assumed to
increase by the difference
between inflation and the
cost-of-living benefit
guaranteed in the Pension
Plan, subject to other
limitations.
Non-OPEB - Payable when
the current allowance from
the Pension Plan drops below
85% of the original Pension
Plan benefit indexed with
CPI. Benefits are assumed to
increase by the difference
between inflation and the
cost-of-living benefit
guaranteed in the Pension
Plan, subject to other
limitations.
Discount Rate
The discount rate used to measure the total pension liability as of December 31, 2014 was 7.60% and
7.80% as of December 31, 2013. In order to reflect the provisions of Article 5.5 of the 1937 Act, future
allocations of 50% excess earnings to the Supplemental Retiree Benefit Reserve (SRBR) have been
treated as an additional outflow against the plan’s fiduciary net position in the Governmental
Accounting Standards Board (GASB) crossover test. It is estimated that the additional outflow would
average approximately 0.75% of assets over time, based on the results of the actuary’s stochastic
modeling of the 50% allocation of future excess earnings to the SRBR.
46
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
The projection of cash flows used to determine the discount rate assumes plan member contributions
will be made at the current member contribution rates, and that employer contributions will be made at
rates equal to the actuarially determined contributions rates plus additional future contributions that
would follow from the allocation of excess earnings to the SRBR. Projected employer contributions
that are intended to fund the service cost for the future plan members and their beneficiaries, as well as
projected contributions from future plan members, are not included. Based on those assumptions, the
pension plan’s fiduciary net position was projected to be available to make all projected future benefit
payments for the current plan members. Therefore, the long-term expected rate of return on pension
plan investments was applied to all periods of projected benefit payments to determine the total pension
liability as of December 31, 2014 and 2013.
Pension Plan Fiduciary Net Position
The net pension liability was measured as of December 31, 2014 and 2013. Plan fiduciary net position
was valued as of the measurement date while the total pension liability was determined based upon
rolling forward the total pension liability from actuarial valuations as of December 31, 2013 and 2012,
respectively.
The total pension liability and fiduciary net position include liabilities and assets for non-health
postemployment benefits (Non-OPEB). The assets for Non-OPEB are held in the SRBR to pay nonvested Supplemental COLA and the retired death benefit. The liability and assets associated with the
Other Postemployment Benefits (postemployment health related benefits) (OPEB) component of the
SRBR have been excluded from the total pension liability and the fiduciary net position reported above.
Detailed information about pension plan fiduciary net position is available in the separately issued
ACERA financial report.
Sensitivity of the Net Pension Liability to Changes in the Discount Rate
The following presents the Net Pension Liability of ACERA as of December 31, 2014, which is
allocated to all employers, calculated using the discount rate of 7.60%, as well as what ACERA’s Net
Pension Liability would be if it were calculated using a discount rate that is 1-percentage-point lower
(6.60%) or 1-percentage-point higher (8.60%) than the current rate.
(amounts in thousands)
Plan's Net Pension Liability
Discount Rate 1% (6.60%)
Current Discount
Rate (7.60%)
Discount Rate +
1% (8.60%)
$ 479,015
$ 292,062
$ 135,657
47
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Recognition of Gains and Losses
Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position
are recognized in pension expense systematically over time.
The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The
remaining amounts are categorized as deferred outflows and deferred inflows of resources related to
pensions and are to be recognized in future pension expense.
The amortization period differs depending on the source of the gain or loss:
Difference between projected
and actual earnings
5 year straight-line amortization
All other amounts
Straight-line amortization over the average
expected remaining service lives of all
members that are provided with benefits
(active, inactive and retired) as of the
beginning of the measurement period
The average of the expected service lives of all employees is determined by:
• Calculating each active employee’s expected remaining service life as the present value of $1 per
year of future service at zero percent interest.
•
Setting the remaining service life to zero for each nonactive or retired member.
• Dividing the sum of the above amounts by the total number of active employee, nonactive and
retired members.
The average of the expected service lives of all employees that are provided with pensions through
ACERA, which is 5.68 years determined as of December 31, 2013 (the beginning of the measurement
period ending December 31, 2014).
Pension Expense and Deferred Outflows and Deferred Inflows
As of the beginning of the measurement period (December 31, 2013), the net pension liability/ (asset)
for the plan is $198.7 million (The net pension liability of the risk pool as of December 31, 2013 is $1.3
billion).
For the measurement period ended December 31, 2014 (the measurement date), the Health System’s
incurred a pension expense of $56 thousand for the plan (the pension expense for the risk pool for the
measurement period is $289 thousand).
48
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
As of December 31, 2014, the Health System reports other amounts for the plan as deferred outflows
and deferred inflows of resources related to pensions as follows:
(amounts in thousands)
Deferred Outflows
of Resources
Pension contributions subequent to
the measurement date
$
Difference between Expected
and Actual Experience
19,723
Deferred Inflows
of Resources
$
-
-
16,015
Changes of Assumptions
75,396
-
Net Difference between Projected
and Actual Earnings on Pension
Plan Investments
18,503
-
-
1,045
Adjustment due to Differences
in Proportions
Total
$
113,622
$
17,060
The amounts above are net of outflows and inflows recognized in the 2014 measurement period
expense.
Amounts reported as deferred outflows and deferred inflows of resources related to pensions, other than
the employer-specific item, will be recognized in future pension expense as follows:
Deferred
Outflows/(Inflows)
of Resources
$
17,091
17,091
17,091
17,091
8,475
-
Measurement Period
Ended December 31
2015
2016
2017
2018
2019
Thereafter
49
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Fiscal Year 2014 Pension Disclosures
Funding Policy
The Health System is required by statute to contribute the amounts necessary to finance the estimated
benefits accruing to their employees. Covered employees are required by statute to contribute toward
their pensions. Member contribution rates are based on their age at the date of entry and the actuarially
calculated benefits, and are between 6.38% and 11.27% of their annual covered salary. The Health
System’s annual required contribution (ARC), the transfer of the excess earnings from the pension to
the SRBR trust, and its contributions for fiscal years 2013 and 2014 are as follows:
Plan Fiscal
Year Ended
June 30,
2013
2014
Annual
Required
Contribution
(ARC)
$
$
32,532
36,599
(amounts in thousands)
Contribution Before
Contribution After
Transfer of Excess
Excess Investment
Transfer of Excess
Investment Earnings Earnings Transferred Investment Earnings
to SRBR
to SRBR
to SRBR
$
$
32,532
36,599
$
$
-
$
$
32,532
36,599
Contribution
as a
Percentage of
ARC
100%
100%
The Health System has historically made 100% of the ARC to ACERA. However, as part of the plan
agreement, 50% of excess investment earnings are transferred from the Defined Benefit Pension Plan
to the Supplemental Retiree Benefit Reserve (SRBR). In fiscal year 2008 (not included in table above),
there were excess earnings that were transferred to the SRBR. This transfer of excess investment
earnings in fiscal year 2008 resulted in a net pension obligation carry forward in subsequent years
including fiscal year ended June 30, 2013. Refer to table below for carry forward obligation balance.
Since fiscal year 2008, ACERA has not made any excess investment earnings transfers. For fiscal years
ended June 30, 2014 and 2013, the employees’ contributions to the plan for the same period were $15.3
million and $14.8 million, respectively.
The following table shows the Health System’s annual pension cost for the years ended June 30, 2014
and 2013 and changes in the net pension obligation:
(amounts in thousands)
June 30, 2014
June 30, 2013
$
36,599
$
32,532
644
659
(850)
(848)
36,393
32,343
(36,599)
(32,532)
(206)
(189)
8,263
8,452
$
8,057
$
8,263
Annual required contribution
Interest expense on net pension obligation
Adjustment to annual required contribution
Annual pension cost
Contributions made
Increase in net pension obligation
Net pension obligation - beginning of year
Net pension obligation - end of year
The balance of the net pension obligation at June 30, 2014, was reduced to $0 as a result of the
implementation of GASB 68. The effect is captured as a component of the adjustment to beginning net
position described in Note 15.
50
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Alameda Health System Defined Benefit Plan
Plan Description
The Health System established the Alameda Health System Defined Benefit (AHS DB) Plan, singleemployer defined benefit plan. The AHS DB plan was established on December 1, 2012, and opened
to participants after the enactment of AB 1008 on September 13, 2013. The AHS DB plan is
administered through a Retirement Plan Committee appointed by the Health System’s Board of
Trustees.
The AHS DB plan provides service retirement benefits, annual cost-of-living adjustments (COLA) and
death benefits to plan members and beneficiaries.
The Health Plan’s Board of Trustees provides the authority for the establishment of AHS DB plan
benefit provisions, and the Health System is the Trustee. Employees eligible to participate in the plan
must elect to do so, be hired on or after September 12, 2013 and completed twelve months of eligible
service, and be regularly scheduled to work full time or hired at 0.5 or greater FTE part-time status. A
participant vests 100% upon completion of 5 years of vesting service, or while an employee, the
participant dies or is disabled. Normal retirement age is 65.
As of January 1, 2015 (census date) the following employees were covered by the benefit terms:
Inactive employees or beneficiaries currently receiving benefits
0
Inactive employees entitle to but not yet receiving benefits
0
Active employees
18
Contributions
Employer contribution rates are based on recommendations made by an independent actuary and
adopted by the Health System’s Board of Trustees. These rates are based on membership. The Health
System contributes to the retirement plan based upon actuarially determined contribution rates adopted
by the Board of Trustees Employer contribution rates are adopted annually based upon
recommendations received from the Health System’s actuary after the completion of the annual
actuarial valuation. The employer contribution rate as of June 30, 2015 (based on the January 1, 2015
valuation) was 7.47% of compensation.
If it is determined that the necessary employer contribution percentage for a plan year exceeds 7.5% of
total Compensation of Participants for such plan year, then the Health System may limit the nonelective employer contribution to the AHS Defined Contribution Plan (AHS DC Plan) on a dollar-for
dollar basis up to 2.5% of compensation in order to contribute to this plan. If the necessary Employer
contribution percentage for a plan year exceeds 10.0% of total compensation of participants for such
plan year, then the participant will be required to make a contribution in an amount equal to one half of
the funding percentage in excess of 10.0% as determined by the Health System. This contribution will
be taken from the participant’s mandatory 5% contribution to the AHS DC plan. The annual employee
contribution percentage is capped at 5.0% per year. If a participant who has a zero vested percentage
in his or her accrued benefit has a separation from service, the participant will receive distribution of
his or her employee contributions to the Plan (plus interest at the rate determined under the Plan).
51
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Actuarial Methods and Assumptions Used to Determine Total Pension Liability
For the measurement period ending June 30, 2015 (the measurement date), the total pension liability
was determined by rolling forward the January 1, 2015, actuarial accrued liability. The actuarial
assumptions used to develop the June 30, 2015 total pension liability are the same assumptions used in
the January 1, 2015 funding valuation for the AHS DB plan. These assumptions were applied to all
periods included in the measurement:
Valuation Date
January 1, 2015
Actuarial Cost Method
Entry Age Normal
Actuarial Assumptions:
Discount Rate
6.50%
Inflation
3.00%
Salary Increases
3.50% for 3 years, then 4.0% as an ultimate
rare beginning in year 4
Investment Rate of Return
6.50%
Mortality Rate Table
RP-2014 Total Dataset Mortality
Table for Males or Females, as
appropriate,
with
generational
adjustments
for
mortality
improvements based on MP-2014
scale.
Post Retirement Benefit Increase
3.00%, including inflation
Discount Rate
The discount rate is the single rate that reflects (1) the long-term expected rate of return on pension
plan investments that are expected to be used to finance the payment of benefits, to the extent that the
pension plan’s fiduciary net position is projected to be sufficient to make projected benefit payments
and pension plan assets are expected to be invested using a strategy to achieve that return, and (2) a
yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating
of AA/Aa or higher (or equivalent quality on another scale), to the extent that the conditions for use of
the long-term expected rate of return are not met.
The projected cash flows into and out of the pension plan are assumed to be contributions to the pension
plan, benefit payments, pension plan administrative expense, and pension plan investment earnings.
These projected cash flows are used to project the pension plan’s fiduciary net position at the beginning
of each period. The pension plan’s projected fiduciary net position at the beginning of each period is
compared to the amount of benefit payments projected to occur in that period. It is assumed that the
pension plan’s fiduciary net position is expected to always be invested using a strategy to achieve the
long-term expected rate of return on pension plan investments.
52
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
The following assumptions are reflected in the following projection of the plan’s fiduciary net position:
1)
2)
3)
4)
5)
Total covered-employee payroll increases 3.50% per year through 2017, 4.00% afterward.
Employer contributions is assumed to be 7.50% of the covered projected payroll.
Employees do not contribute toward the pension.
Cash flow projections are as the January 1, 2015 valuation date.
Benefit payments are projected as required by paragraphs 24 and 25 of Statement 68, as
applicable.
6) The plan’s administrative expenses are assumed to be paid by the Health System.
7) The long-term expected rate of return on pension plan investments is 6.50%.
As of the measurement date, there is no crossover year such that the projected assets are not sufficient
to pay the benefits under the plan. Therefore, the discount rate is set equal to the long-term expected
rate of return on pension plan investments of 6.50%.
Pension Plan Fiduciary Net Position
The components of the net pension liability of the plan as of June 30, 2015 are as follows:
Total Pension Liability
Less: Plan Fiduciary Net Position
Net Pension Liability
(amounts in
thousands)
6/30/2015
$
45
$
45
The total and net pension liability and plan fiduciary net position were measured as of June 30, 2015.
The net pension liability was measured as of June 30, 2015. Plan fiduciary net position was valued as
of the measurement date while the total pension liability was determined based upon rolling forward
the actuarial accrued liability from actuarial valuation as of January 1, 2015.
Sensitivity of the Net Pension Liability to Changes in the Discount Rate
The following presents the Net Pension Liability of the AHS DB plan as of June 30, 2015, which is
calculated using the discount rate of 6.50%, as well as what the AHS DB plan’s Net Pension Liability
would be if it were calculated using a discount rate that is 1-percentage-point lower (5.50%) or 1percentage-point higher (7.50%) than the current rate.
(in thousands)
Plan's Net Pension Liability
Discount Rate 1% (5.50%)
Current Discount
Rate (6.50%)
Discount Rate +
1% (7.50%)
$ 54
$ 45
$ 38
53
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Recognition of Gains and Losses
Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position
are recognized in pension expense systematically over time.
The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The
remaining amounts are categorized as deferred outflows and deferred inflows of resources related to
pensions and are to be recognized in future pension expense.
The amortization period differs depending on the source of the gain or loss:
Difference between projected
and actual earnings
5 year straight-line amortization
All other amounts
Straight-line amortization over the average
expected remaining service lives of all
members that are provided with benefits
(active, inactive and retired) as of the
beginning of the measurement period
The valuation dated January 1, 2015, was the first actuarial valuation of the Plan. No participants were
eligible prior to July 1, 2014, thus there are no deferred gains or losses to be reported as of June 30,
2015.
Pension Expense and Deferred Outflows and Deferred Inflows
As of the beginning of the measurement period (January 1, 2015), the net pension liability/ (asset) for
the plan is $0.
For the measurement period ended June 30, 2015 (the measurement date), the Health System’s incurred
a pension expense of $45 for the plan.
As of June 30, 2015, the Health System reports had no amounts related to the AHS DB plan to report
as deferred outflows and deferred inflows of resources.
Alameda Hospital Defined Benefit Plan
Plan Description
The Health System assumed trustee responsibility over the Alameda Hospital Defined Benefit Plan
(AH Plan), single-employer defined benefit plan, through its acquisition of Alameda Hospital in fiscal
year 2014. The AH plan was established on August 1, 2002, and closed to new participants hired after
December 31, 2004. The AH Plan is administered through a Retirement Plan Committee appointed by
the Health System’s Board of Trustees.
The AH Plan provides service retirement benefits, annual cost-of-living adjustments (COLA), disability
and death benefits to plan members and beneficiaries.
54
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
The Health Plan’s Board of Trustees provides the authority for the establishment of AH Plan benefit
provisions, and the Health System is the Trustee. Eligible employees are limited to those that were
employed by the City of Alameda Hospital District on or before December 31, 2004, and completed
one year of service during which 1,000 or more hours of service are credited. No new entrants are
allowed after December 31, 2004. Normal retirement age is 65.
The following employees were covered by the benefit terms:
Inactive employees or beneficiaries currently receiving benefits
Inactive employees entitle to but not yet receiving benefits
Active employees
July 1,
2013
2014
1
1
45
46
59
56
Contributions
Employer contribution rates are based on recommendations made by an independent actuary and
adopted by the Health System’s Board of Trustees. These rates are based on membership. The Health
System contributes to the retirement plan based upon actuarially determined contribution rates adopted
by the Board of Trustees. Employer contribution rates are adopted annually based upon
recommendations received from the Health System’s actuary after the completion of the annual
actuarial valuation. The actuarially determined employer contributions as of June 30, 2015 (based on
the July 1, 2013 valuation) and June 30, 2014 (based on the July 1, 2012 valuation were $115 and $76,
respectively.
The Health System is expected to contribute the projected contributions needed to fully fund the plan’s
existing underfunding over a period of ten years. After that 10-year period, the only contributions
expected are those to cover expenses paid from the plan.
Actuarial Methods and Assumptions Used to Determine Total Pension Liability
For the measurement periods ended June 30, 2015 and June 30, 2014 (the measurement dates), the total
pension liabilities was determined by rolling forward the June 30, 2014 and 2013, actuarial accrued
liabilities from the valuation date to the measurement date. The actuarial assumptions used to develop
the June 30, 2015 total pension liability are the same assumptions used in the June 30, 2014funding
valuation for the AH Plan, while the actuarial assumptions used to develop the June 30, 2014 total
pension liability were based on the new assumptions1 adopted by the Health System’s Board of Trustees
for use in the June 30, 2014 funding valuation. The actuarial assumptions used to develop the June 30,
2013 total pension liability were the same assumptions used in the June 30, 2012 funding valuation.
These assumptions were applied to all periods included in the measurement:
Measurement Date
June 30, 2015
June 30, 2014
June 30, 2013
Valuation Date
June 30, 2014
June 30, 2013
June 30, 2012
Actuarial Cost Method
Entry Age Normal
Entry Age Normal
Entry Age Normal
Discount Rate
6.00%
6.00%
6.00%
Inflation
2.50%
2.50%
2.50%
Salary Increases
N/A since the plan is frozen
N/A since the plan is frozen
N/A since the plan is frozen
Investment Rate of
Return
6.00% compounded
annually for all purposes
6.00% compounded
annually for all purposes
6.00% compounded
annually for all purposes
Actuarial Assumptions:
55
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Measurement Date
June 30, 2015
June 30, 2014
June 30, 2013
Valuation Date
June 30, 2014
June 30, 2013
June 30, 2012
Lump Sum Interest Rate
4.50%
4.50%
5.00%
Mortality Rate Table
For Lump: Sum Conversion:
PPA Lump Sum Mortality
Table as of the valuation
date
For Lump: Sum
Conversion: PPA Lump
Sum Mortality Table as of
the valuation date
For Lump: Sum
Conversion: PPA Lump
Sum Mortality Table as of
the valuation date
For all other purposes: The
IRS 2013 Static Mortality
Table, which is the RP-2000
Mortality Table for
annuitant and non-annuitants
projected for mortality
improvement by Scale AA.
For annuitants, mortality is
improved through 2020. For
non-annuitants, mortality is
improved through 2028. No
white or blue-collar
adjustments are made
For all other purposes: The
IRS 2013 Static Mortality
Table, which is the RP2000 Mortality Table for
annuitant and nonannuitants projected for
mortality improvement by
Scale AA. For annuitants,
mortality is improved
through 2020. For nonannuitants, mortality is
improved through 2028. No
white or blue-collar
adjustments are made
For all other purposes: The
IRS 2013 Static Mortality
Table, which is the RP2000 Mortality Table for
annuitant and nonannuitants projected for
mortality improvement by
Scale AA. For annuitants,
mortality is improved
through 2020. For nonannuitants, mortality is
improved through 2028. No
white or blue-collar
adjustments are made
N/A
N/A
N/A
Post Retirement Benefit
Increase
1
Changes in Assumptions and Methods since the Last Actuarial Valuation
The following assumptions have been changed since the prior valuation:
 Decrement timing was changed from beginning of year to middle of year
 The interest rate used to determine lump sum payments was lowered from 5.00% to 4.50%
 The expected form of payment for vested terminated participants was changed from a deferred life annuity to an
immediate lump sum
Discount Rate
The discount rate is the single rate that reflects (1) the long-term expected rate of return on pension
plan investments that are expected to be used to finance the payment of benefits, to the extent that the
pension plan’s fiduciary net position is projected to be sufficient to make projected benefit payments
and pension plan assets are expected to be invested using a strategy to achieve that return, and (2) a
yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating
of AA/Aa or higher (or equivalent quality on another scale), to the extent that the conditions for use of
the long-term expected rate of return are not met.
The projected cash flows into and out of the pension plan are assumed to be contributions to the pension
plan, benefit payments, pension plan administrative expense, and pension plan investment earnings.
These projected cash flows are used to project the pension plan’s fiduciary net position at the beginning
of each period. The pension plan’s projected fiduciary net position at the beginning of each period is
compared to the amount of benefit payments projected to occur in that period. It is assumed that the
pension plan’s fiduciary net position is expected to always be invested using a strategy to achieve the
long-term expected rate of return on pension plan investments.
56
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
The following assumptions are reflected in the following projection of the plan’s fiduciary net position:
1) Cash flow projections are as the July 1, 2014 and 2013 valuation dates
2) The Health System will contribute the projected contributions needed to fully fund the plan’s
existing underfunding over a period of nine years. After that 9-year period, the only
contributions expected are those to cover expenses paid from the plan.
3) Benefit payments are projected as required by paragraphs 24 and 25 of Statement 68, as
applicable.
4) The plan’s administrative expenses, which were $16 for the fiscal year ended June 30, 2015
and 2014, respectively are assumed to increase by 2.5% per year.
5) Contributions, benefit payments, and pension plan administrative expenses occur halfway
through the year for purposes of projecting pension plan investment earnings.
6) The long-term expected rate of return on pension plan investments is 6.00%.
As of the measurement date, there is no crossover year such that the projected assets are not sufficient
to pay the benefits under the plan. Therefore, the discount rate is set equal to the long-term expected
rate of return on pension plan investments of 6.00%.
Pension Plan Fiduciary Net Position
The components of the net pension liability of the plan as of June 30, 2015, 2014, and 2013 are as
follows:
(dollars in thousands)
Total Pension Liability
Less: Plan Fiduciary Net Position
Net Pension Liability
$
$
6/30/2015
2,201
(1,716)
485
$
$
6/30/2014
2,362
(1,650)
712
$
$
6/30/2013
2,226
(1,709)
517
The total and net pension liability and plan fiduciary net position were measured as of June 30, 2015.
The net pension liability was measured as of June 30, 2015, 2014 and 2013. Plan fiduciary net position
was valued as of the measurement date while the total pension liability was determined based upon
rolling forward the total pension liability from actuarial valuations as of June 30, 2014, 2013 and 2012,
respectively.
Sensitivity of the Net Pension Liability to Changes in the Discount Rate
The following presents the Net Pension Liability of the AH Plan as of June 30, 2014, which is calculated
using the discount rate of 6.50%, as well as what the AH Plan’s Net Pension Liability would be if it
were calculated using a discount rate that is 1-percentage-point lower (5.00%) or 1-percentage-point
higher (7.00%) than the current rate.
Measurement
Date
Discount Rate - 1%
(5.00%)
Current Discount Rate
(6.00%)
Discount Rate + 1%
(7.00%)
Plan's Net Pension Liability
June 30, 2015
$ 534
$ 485
$ 443
Plan's Net Pension Liability
June 30, 2014
$ 827
$ 712
$ 611
(in thousands)
57
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
Recognition of Gains and Losses
Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position
are recognized in pension expense systematically over time.
The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The
remaining amounts are categorized as deferred outflows and deferred inflows of resources related to
pensions and are to be recognized in future pension expense.
The amortization period differs depending on the source of the gain or loss:
Difference between projected
and actual earnings
5 year straight-line amortization
All other amounts
Straight-line amortization over the average
expected remaining service lives of all
members that are provided with benefits
(active, inactive and retired) as of the
beginning of the measurement period
The average of the expected service lives of all employees that are provided with pensions through AH
Plan, which is 5.52 and 5.89 years determined as of July 1, 2014 and July 1, 2013 (the beginning of the
measurement periods ending June 30, 2015 and 2014, respectively).
Pension Expense and Deferred Outflows and Deferred Inflows
As of the beginning of the measurement periods (July 1, 2014 and 2013), the net pension liabilities/
(assets) for the plan are $712 and $517, respectively.
For the measurement periods ended June 30, 2015 and 2014 (the measurement dates), the Health
System’s incurred a pension expense of $68 and $78, respectively, for the plan.
As of June 30, 2015, the Health System reports other amounts for the plan as deferred outflows and
deferred inflows of resources related to pensions as follows:
2015
Deferred
Deferred
Outflows of
Inflows of
Resources
Resources
Difference between Expected and
Actual Experience
$
Changes of Assumptions
Net Difference between Projected
and Actual Earnings on Pension
Plan Investments
Adjustment due to Differences in
Proportions
Total
$
35
183
$
98
50
68
268
166
58
$
2014
Deferred
Outflows of
Resources
$
44
229
Deferred
Inflows of
Resources
$
-
-
$
273
90
$
90
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
11. RETIREMENT PLANS (CONTINUED)
The amounts above are net of outflows and inflows recognized in the 2015 and 2014 measurement
period expenses.
Amounts reported as deferred outflows and deferred inflows of resources related to pensions, other than
the employer-specific item, will be recognized in future pension expense as follows:
Measurement Period
Ended June 30:
2016
2017
2018
2019
2020
Thereafter
Deferred
Outflows/
(Inflows) of
Resources
$
24
24
24
40
(10)
-
12. POSTEMPLOYMENT MEDICAL BENEFITS
Plan Description
The Health System participates in a cost-sharing multiple-employer medical benefits program
administered by ACERA for retired members and their eligible dependents. The medical benefits
program is not a benefit entitlement program and benefits are subject to modification and/or deletion
by the ACERA Board of Retirement. Annually, based on the recommendation of the Board of
Retirement, the Board of Supervisors designates a portion of the County’s and Health System’s
contribution to retirement towards medical premiums of retirees.
The Health System arranges health insurance coverage for employees, negotiating coverage levels and
premium rates annually with several carriers. Employees who meet certain eligibility conditions and
make the required contributions may continue coverage in those same health plans after retirement until
they become Medicare eligible. Currently, the Health System uses a single blended rate for budgeting
and setting premium and contribution rates for both active employees and non-Medicare eligible
retirees. The Health System funds the premiums for employees while ACERA funds the premiums for
retirees. ACERA establishes the amount of the Monthly Medical Allowance (MMA). The MMA has
been set at $522 per month in 2015 and 2014 for employees who retire with a minimum 20 years of
service.
As the underlying cost for non-Medicare eligible retirees is higher than the blended average of actives
and non-Medicare eligible retirees, there is an implicit subsidy inherent in the cost allocation process.
Governmental Accounting Standards Board (GASB) Statement Number 45, Accounting and Financial
Reporting by Employers for Postemployment Benefits Other Than Pensions (Statement No. 45) requires
employers using a blended rate for active and non-Medicare eligible retirees to recognize the implicit
subsidy liability.
59
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
12. POSTEMPLOYMENT MEDICAL BENEFITS (CONTINUED)
Funding Policy
Retired employees from the Health System receive a monthly medical allowance toward the cost of
their health insurance from the SRBR. The SRBR is a funded trust that receives fifty percent of the
investment earnings that are in excess of the target investment return of the ACERA pension fund. The
Health System does not make postemployment medical benefit payments directly to retirees and does
not have the ability to fund these benefits. However, the Health System’s pension contribution would
be lower if not for the excess interest transfer to the SRBR. Therefore, it is the Health System’s view
that a portion of the excess investment earnings transferred by ACERA into the SRBR should be
counted as a contribution toward the ARC for the postemployment medical benefits.
The Health System’s postemployment medical benefit cost is calculated based on the ARC, an amount
actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC
represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each
year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed
thirty years.
The Health System’s annual postemployment medical benefit cost and the transfer of the excess
investment earnings from the pension to the SRBR trust for fiscal years 2013 through 2015 is as follows:
Plan Fiscal
Year Ended
June 30,
2013
2014
2015
Annual
Required
Contribution
(ARC)
$
$
$
7,749
8,070
5,639
(amounts in thousands)
Contribution Before
Contribution After
Transfer of Excess
Excess Investment
Transfer of Excess
Investment Earnings Earnings Transferred Investment Earnings
to SRBR
to SRBR
to SRBR
$
$
$
-
$
$
$
-
$
$
$
-
Contribution
as a
Percentage of
ARC
0%
0%
0%
The following table shows the Health System’s postemployment medical benefit cost for the years
ended June 30, 2015 and 2014 and changes in the net OPEB obligation:
(amounts in thousands)
June 30, 2015
June 30, 2014
$
5,639
$
8,070
2,243
1,990
(6,400)
(3,527)
1,482
6,533
1,482
6,533
33,113
26,580
$
34,595
$
33,113
Annual required contribution
Interest expense on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost
Contributions made
Increase in net OPEB obligation
Net OPEB obligation - beginning of year
Net OPEB obligation - end of year
ACERA’s financial statements and required supplementary information are audited annually by
independent auditors. The audit report and December 31, 2013 financial statements may be obtained
by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California, 94612.
60
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
13. OTHER POSTEMPLOYMENT BENEFITS
Plan Description
In addition, the Health System provides other postemployment benefits (OPEB) for retired members
and their beneficiaries through a cost-sharing multiple-employer OPEB administered by ACERA. The
payment of these benefits is subject to available funding and must be periodically reauthorized by the
Board of Retirement. These other benefits include supplemental COLA, retired member death benefit,
and active death equity benefit.
The liability previously expressed as other postemployment benefits in these financial statements has
been consolidated in the presentation of net pension liability for ACERA. See Note 11 for information
regarding the recognition of net pension liability in accordance with GASB 68.
ACERA’s financial statements and required supplementary information are audited annually by
independent auditors. The audit report and December 31, 2014 financial statements may be obtained
by writing to ACERA, 475 14th Street, Suite 1000, Oakland, California, 94612.
14. DEFINED CONTRIBUTION RETIREMENT SAVINGS PLANS
Deferred Compensation Plan – 403(b) Retirement Savings Plan
The Health System provides a retirement savings plan as allowed under the Internal Revenue Code
Section 403(b). The plan allows employees to defer compensation earned. Individual accounts are
maintained for each participant. The plan is administered by Prudential Financial and is governed by
the Health System’s Board of Trustees.
Contributions to the deferred compensation plan are funded through participant contributions.
Participants can elect to reduce their compensation by a specific percentage of their qualified
compensation and make pre-tax or post-tax deferrals. Elective deferrals in any calendar year cannot
exceed the statutory limit for that year and eligible total compensation may be limited. The Health
System does not make matching contributions to the plan. Total employee deferrals into the plan were
$8.2 million for fiscal year 2015 and $5.1 million for the fiscal year ended 2014.
Deferred Compensation Plan – Governmental 457(b) Plan
The Health System provides a non-qualified deferred compensation plan as allowed under the Internal
Revenue Code Section 457(b). The plan allows eligible employees to defer a portion of their salary to
the plan on a pre-tax basis. Individual accounts are maintained for each participant. The deferred
compensation is not available to employees until termination, retirement, death, or an unforeseeable
emergency.
Contributions to the deferred compensation plan are funded through participant contributions.
Participants can elect to reduce their compensation by a specific dollar amount and make pre-tax
deferrals. Elective deferrals in any calendar year cannot exceed the statutory limit for that year and
eligible total compensation may be limited. The Health System does not make any matching
contributions to the plan. Total employee deferrals into the plan were $8.9 million for fiscal year 2015
and $6.7 million for fiscal year 2014.
61
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
15. INSURANCE AND SELF-INSURANCE PLANS
The Health System is exposed to various risks of loss related to torts; medical malpractice; theft of,
damage to, and destruction of assets; errors and omissions; injuries to employees; natural disasters;
unemployment; and health benefits to employees and retirees.
The Health System is self-insured for workers’ compensation liability and partially self-insured for
hospital professional liability. Excess workers’ compensation coverage is provided by the California
State Association of Counties’ Excess Insurance Authority (CSAC), a joint powers authority, the
purpose of which is to develop and fund programs of excess insurance and provide the joint purchase
of coverage from independent third parties for its member entities. CSAC is governed by a Board of
Directors consisting of representatives of its member entities.
The Health System purchased occurrence coverage for general, automobile, directors’ and officers’
liability and claims-made coverage for hospital professional liability from BETA Healthcare Group
(Beta), a joint powers authority that operates insurance programs for certain California hospitals.
The Health System paid an annual premium of $6.1 million to Beta and CSAC for the fiscal year ended
June 30, 2015 and $5.4 million for the fiscal year ended June 30, 2014. The Health System pays
administrative fees to a third-party administrator (TPA) to process claims and reimburses the TPA for
distributions. Claims have not exceeded the Health System’s policy limits in the past three years.
Selected insurance coverage’s for the fiscal years 2015 and 2014 are as follows:
Coverage
Hospital professional (medical malpractice) liability
General liability
Automobile insurance
Director and officers
Excess workers’ compensation
Policy Limit
$ 20,000,000
$ 10,000,000
$ 10,000,000
$ 10,000,000
Statutory limit
Self-Insurance
Retention
$
100,000
$
100,000
$
250
$
25,000
$
2,000,000
Prior to July 1, 2001, the Health System participated in Alameda County’s self-insurance program.
Alameda County has recorded an estimate of the ultimate cost of all Health System workers’
compensation claims and medical malpractice liability claims incurred before July 1, 2001. The Health
System is self-insured for workers’ compensation for claims incurred after July 1, 2001. For medical
malpractice liabilities, all claims made after July 1, 2001 are covered by the Health System’s purchased
claims-made insurance policies with BETA. There are known claims and incidents that may result in
the assertion of additional claims as well as claims from unknown incidents that have already occurred.
The estimated liabilities for workers’ compensation and hospital liability claims and contingencies is
actuarially calculated considering the effects of inflation, recent claim settlement trends, including
frequency and amount of pay-outs, and other economic and social factors. The workers’ compensation
estimate includes allocated loss adjustment expenses, which represent the direct cost associated with
the defense of individual claims as well as unallocated loss adjustment expenses, which represent the
costs to administer all claims to final settlement, which may be years into the future.
62
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
15. INSURANCE AND SELF-INSURANCE PLANS (CONTINUED)
The hospital liability estimate includes allocated loss adjustment expenses, which represent the direct
cost associated with the defense of individual claims for medical malpractice, general liability, and
director & officer liability. Unallocated loss adjustment expenses are not included in the hospital
liability estimate due to the fact that the excess insurance carrier for hospital liability claims provides
all claims administration costs. Both estimates made have been discounted to their present value for
amounts recorded using a rate of 2.0% as of June 30, 2015 and June 30, 2014.
The change in the liability for all self-insurance is as follows:
(amounts in thousands)
Hospital
Workers'
Liability
Compensation
Balance, July 1, 2013
Current year claims and changes in estimate
Settlements
Balance, June 30, 2014
Current year claims and changes in estimate
Settlements
Balance, June 30, 2015
$
$
4,044
(249)
3,795
4,100
7,895
$
$
22,033
3,616
(3,423)
22,226
5,738
(4,572)
23,392
$
$
Total
26,077
3,367
(3,423)
26,021
9,838
(4,572)
31,287
16. RESTATEMENT
The Health System implemented the provisions of Governmental Accounting Standards Board (GASB)
Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68) and GASB Statement
No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an
amendment of GASB Statement No. 68, as of July 1, 2013, for the AH Plan and as a result, the Health
System restated its beginning net position to account for the effect of the net pension liability at July,
1, 2013, in the amount of $517 thousand. As of July 1 2014, the Health System implemented the
provision of GASB 68 for the ACERA plan and as a result, the Health System restated beginning net
position for the effect of the net pension liability at July 1, 2014, in the amount of $153 million.
The Health System re-evaluated its obligation to the County of Alameda related to the Pension
Obligation Bonds issued in 1995 and 1996 and determined that the Health System has a legal obligation
to pay its portion of the Pension Obligation Bonds, thus should report its obligation on the Statement
of Net Position. As a result of this determination, the Health System restated its beginning net position
to account for the effect of obligation at July, 1, 2013, in the amount of $70.7 million.
(amounts in thousands)
2015
2014
st
Net Position at July 1
Effect of implementation of GASB 68
AH Plan
ACERA Plan
Effect of amounts due to the County of
Alameda related to the Health System's
portion of the Pension Obligation Bonds
st
Net Position at July 1 , as restated
63
$ (38,491)
$
650
(528)
(153,464)
(517)
-
(59,073)
(70,684)
$ (251,556)
$ (70,551)
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
16. RESTATEMENT (CONTINUED)
During fiscal year 2015, the Health System identified a pension trust fund not previously reported as
part of the financial reporting entity. The AH Plan has assets in a trust and meets the criteria to be
included in the Health Plan’s financial statements. For fiscal years ended June 30, 2015 and 2014, the
activity of the trust is reported in a pension trust fund as part of the Health Plan’s basic financial
statements. The fiduciary net position at July 1, 2014 and 2013, was $1,650 and $1,709, respectively.
17. EXTRAORDINARY ITEM
On July 30, 2013, a donation and transfer agreement was signed between the Health System, Sutter
Health, a California nonprofit public benefit corporation, and Eden Medical Center, a California
nonprofit public benefit corporation (collectively known as “SUTTER”) to donate the business and all
the assets owned by SUTTER and used exclusively in connection with the operation of San Leandro
Hospital (SLH) to the Health System.
The transfer was completed on October 31, 2013. As part of the donation, the Health System acquired
a net position of $12.4 million, which consisted of property and equipment for SLH, and reported the
gain as an extraordinary item on the statement of revenues, expenses, and changes in net position. It
also received $14 million in cash from Sutter Health on November 1, 2013 per the donation and transfer
agreement. In addition, the City of San Leandro and the County each provided $1 million to the Health
System during fiscal year 2014.
On May 1, 2014, the Health System entered into an agreement with the City of Alameda Health Care
District to acquire Alameda Hospital (AH) with a net position of $34,881, which was reported as an
extraordinary item on the statement of revenues, expenses, and changes in net position.
The Health System provided a $1.5 million line of credit to the City of Alameda Health Care District
with an annual interest rate of 5.25% on July 1, 2013. The entire unpaid principal and interest was due
and payable on July 1, 2014. Under the Joint Powers Agreement, the line of credit was paid in full from
the City of Alameda Health Care District’s assessment and collection of parcel tax revenues in fiscal
year 2015.
18. COMMITMENTS AND CONTINGENCIES
Seismic Retrofitting
Under State of California regulations, by January 2020, Alameda County must upgrade existing
inpatient facilities to be in compliance with laws related to seismic retrofitting. Alameda County in
partnership with the Health System is in the process of making significant capital investments in facility
upgrades to ensure compliance with the seismic safety laws.
Litigation
The Health System is involved in various claims and litigation, as both plaintiff and defendant, arising
in the ordinary course of business. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the Health System’s financial position.
64
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Financial Statements
For the Years Ended June 30, 2015 and 2014
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Regulatory Environment
The health care 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
licensure, accreditation, governmental health care program participation requirements, reimbursement
for patient services, and Medicare and Medi-Cal fraud and abuse. Recently, government activity has
increased with respect to investigations and allegations concerning possible violations of fraud and
abuse statutes and regulations by health care providers. Violations of these laws and regulations could
result in fines and penalties, as well as loss of significant repayment. Patient services revenues
previously recognized are subject to future government review and interpretation.
Acute Tower Replacement
The Health System has committed to begin making payments of $7.0 million annually to the County
beginning on July 1, 2019 in order to pay the annual debt obligation on the Acute Tower currently being
constructed at the Highland Hospital campus.
Liquidity
The Health System relies on short term borrowing from the County to fund weekly cash flow to meet
payroll and vendor payments. As discussed in Note 6, the Health System has a Working Capital Loan
with the County to cover liquidity. The County limits the Working Capital Loan to $150 million under
the current interim agreement and requires the Health System to make annual payments of $15 million
for fiscal year 2014 and $20 million for fiscal years 2015 through 2018. Negotiations are currently
underway to establish a permanent agreement to accommodate the Health Systems working capital
needs.
The Health System complied with the debt reduction targets through fiscal year 2013, but was out of
compliance at June 30, 2014. The Health System and the County signed an Interim Agreement, which
is effective from October 28, 2014 through February 27, 2015. The purpose of the agreement is to allow
the Health System and the County time to develop a longer term agreement on repayment of the Health
System’s obligation to the County’s Consolidated Treasury. Under this agreement the Health System’s
net obligation cannot exceed $195 million.
19. SUBSEQUENT EVENTS
On October 31, 2015, the Section 1115 Medicaid Waiver, originally set to expire on October 31, 2015,
was temporarily extended to December 31, 2015. In addition, the State Department of Health Care
Services and Centers for Medicare & Medicaid Services arrived at a conceptual agreement that outlines
the major components of the waiver renewal, with the details of the renewal currently being
finalized. The conceptual agreement includes the following core elements: (a) Global Payment
Program for services to the uninsured in designated public hospital systems (DPH); (b) Delivery system
transformation and alignment incentive program for DPHs and district/municipal hospitals, known as
PRIME (Public hospital Redesign and Incentives in Medi-Cal); (c) Dental transformation incentive
program; (d) Whole Person Care Pilot program which would be a county-based, voluntary program to
target providing more integrated care for high-risk, vulnerable populations; (e) Independent assessment
of access to care and network adequacy for Medi-Cal managed care beneficiaries; and (f) Independent
studies of uncompensated care and hospital financing. The financial impact of the new Waiver in future
years is not yet known.
65
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Required Supplementary Information
For the Years Ended June 30, 2015 and 2014
ALAMEDA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
SCHEDULE OF PROPORTIONATE SHARE
OF THE NET PENSION LIABILITY
One Fiscal Year
(amounts in thousands)
1
12/31/2014
(amounts in thousands)
Health System's Proportionate of the Net Pension Liability/(Asset)
Health Systems Proportionate Share of the Net Pension Liability/(Asset)
16.77900%
$
292,061
2
Health System's Covered-Employee Payroll
Health System's Proportionate Share of the Net Pension Liability/(Asset) as a
Percentage of its Covered-Employee Payroll
Health System's Proportionate Share of the Fiduciary Net Position as a
Percentage of Health System's Total Pension Liability
Health Systems Proportionate Share of the Aggregate Employer Contributions
$
217,732
134.14%
$
81.06%
39,347
SCHEDULE OF CONTRIBUTIONS
Two Fiscal Years
(amounts in thousands)
Fiscal Year
1
Actuarially Determined Contribution
Contributions in Relation to the Actuarially Determined Contribution
Contribution Deficiency (Excess)
Covered-Employee Payroll
2
2
Contributions as a Percentage of Covered-Employee Payroll
Fiscal Year
1
2014-15
$
39,404
39,404
$
-
2013-14
$
38,199
38,199
$
-
$
$
219,097
214,718
17.98%
1
Historical information is required only for measurement periods for which GASB 68 is applicable.
2
Covered-Employee Payroll represents total payroll of employees that are provided pensions through the pension plan.
66
17.79%
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Required Supplementary Information
For the Years Ended June 30, 2015 and 2014
ALAMEDA HEALTH SYSTEM DEFINED BENEFIT PLAN
SCHEDULE OF CHANGES IN
NET PENSION LIABILITY AND RELATED RATIOS
One Fiscal Year
(amounts in thousands)
2015
TOTAL PENSION LIABILITY
Service cost
Interest on total pension liability
Changes in benefit terms
Difference between expected and actual experience
Changes of assumptions
Benefit payments, including refunds of employee contributions
Net change in total pension liability
Total pension liability - beginning
Total pension liability - ending
PLAN FIDUCIARY NET POSITION
Contribution - Employer
Contribution - Employee
1
$
44
1
45
45
$
$
Net investment income
Benefit payments, including refunds of employee contributions
Net change in fiduciary net position
Plan fiduciary net position - beginning
Plan fiduciary net position - ending
Plan net pension liability - ending
Plan fiduciary net position as a percentage of the total pension liability
Covered-employee payroll
Plan net pension liability as a percentage of covered-employee payroll
45
0.00%
1,151
3.91%
$
$
$
SCHEDULE OF CONTRIBUTIONS
One Fiscal Year
(amounts in thousands)
Fiscal Year
1
2014-15
Actuarially Determined Contribution
Contributions in Relation to the Actuarially Determined Contribution
Contribution Deficiency (Excess)
Covered-Employee Payroll
2
$
$
86
86
-
$
1,151
2
Contributions as a Percentage of Covered-Employee Payroll
7.47%
1
Historical information is required only for measurement periods for which GASB 68 is applicable.
2
Covered-Employee Payroll represents total payroll of employees that are provided pensions through the pension plan.
67
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Required Supplementary Information
For the Years Ended June 30, 2015 and 2014
ALAMEDA HOSPITAL DEFINED BENEFIT PLAN
SCHEDULE OF CHANGES IN
NET PENSION LIABILITY AND RELATED RATIOS
Two Fiscal Years
(amounts in thousands)
2014
TOTAL PENSION LIABILITY
Service cost
Interest on total pension liability
Changes in benefit terms
Difference between expected and actual experience
Changes of assumptions
Benefit payments, including refunds of employee contributions
Net change in total pension liability
Total pension liability - beginning
Total pension liability - e nding
PLAN FIDUCIARY NET POSITION
Contribution - Employer
Contribution - Employee
Net investment income
Benefit payments, including refunds of employee contributions
Administrative expense
Net change in fiduciary net position
Plan fiduciary net position - beginning
Plan fiduciary net position - e nding
Plan net pension liability - ending
Plan fiduciary net position as a percentage of the total pension liability
Covered-employee payroll
Plan net pension liability as a percentage of covered-employee payroll
$
$
$
$
$
1
116
53
276
(309)
136
2,226
2,362
67
199
(309)
(16)
(59)
1,709
1,650
712
69.86%
N/A
N/A
2015
$
1
136
(119)
(178)
(161)
2,362
2,201
$
$
214
47
(178)
(17)
66
1,650
1,716
485
77.96%
N/A
N/A
$
$
SCHEDULE OF CONTRIBUTIONS
Two Fiscal Years
(amounts in thousands)
Fiscal Year
1
Actuarially Determined Contribution
Contributions in Relation to the Actuarially Determined Contribution
Contribution Deficiency (Excess)
1
2013-14
$
115
67
$
48
1
2014-15
$
88
214
(126)
$
Covered-Employee Payroll
N/A
N/A
Contributions as a Percentage of Covered-Employee Payroll
N/A
N/A
Historical information is required only for measurement periods for which GASB 68 is applicable.
68
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
(A Component Unit of
County of Alameda, California)
Report to the Board of Trustees
For the Year Ended June 30, 2015
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
Table of Contents
Page
Transmittal Letter.......................................................................................................................................... 1
Annual Required Communications ............................................................................................................... 3
Current Year Recommendations ................................................................................................................... 6
Status of Prior Year Recommendations ...................................................................................................... 13
Schedule of Uncorrected Misstatements ..................................................................................................... 14
Certified
Public
Accountants
Sacramento
Walnut Creek
Oakland
Los Angeles
Century City
Newport Beach
Board of Trustees
Alameda Health System
Oakland, California
San Diego
In planning and performing our audit of the financial statements of the Alameda Health System (Health
System) as of and for the year ended June 30, 2015, in accordance with auditing standards generally
accepted in the United States of America, we considered the Health System’s internal control over financial
reporting (internal control) as a basis for designing audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose
of expressing an opinion on the effectiveness of the Health System’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the Health System’s internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and
was not designed to identify all deficiencies in internal control that might be material weaknesses and
significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were
not identified. In addition, because of inherent limitations in internal control, including the possibility of
management override of controls, misstatements due to error or fraud may occur and not be detected by
such controls. However, as discussed below, we identified deficiencies in internal control that we consider
to be significant deficiencies.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. We did not identify
any deficiencies in internal control that we consider to be material weaknesses.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with governance.
We consider the deficiencies in internal control, described in the Current Year Recommendations section
as items 2015-001 through 2015-004 to be significant deficiencies. During our audit, we also became aware
of the deficiencies in internal control other than significant deficiencies or material weaknesses, and other
matters that are opportunities for strengthening internal controls and operating efficiency. These
deficiencies are described in the Current Year Recommendation section as item 2015-A.
We have also included in this report a status of the prior year recommendations that should be brought to
your attention as the oversight board. This report does not affect our report dated November 24, 2015, on
the financial statements of the Health System.
The Health System’s responses to the recommendations identified in our audit were not subject to the
auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion
on them. We will review the status of these recommendations during our next audit engagement. We have
already discussed the recommendations with various Health System personnel, and we would be pleased
to discuss them in further detail at your convenience, to perform any additional study of these matters, or
to assist you in implementing these recommendations.
Macias Gini & O’Connell LLP
2121 N. California Blvd., Suite 750
Walnut Creek, CA 94596
1
www.mgocpa.com
We would like to thank Health System management and staff for the courtesy and cooperation extended to
us during the course of our engagement.
The accompanying recommendations and required communications are intended solely for the information
and use of the Board of Trustees, management of the Health System and others within the organization and
are not intended to be and should not be used by anyone other than these specified parties.
Walnut Creek, California
November 24, 2015
2
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
ANNUAL REQUIRED COMMUNCATIONS
We have audited the financial statements of the Alameda Health System (Health System), a component unit
of the County of Alameda, California (County), as of and for the year ended June 30, 2015. Professional
standards require that we provide you with information about our responsibilities under generally accepted
auditing standards, Government Auditing Standards and OMB Circular A-133, as well as certain
information related to the planned scope and timing of our audit. We have communicated such information
in the Annual Audit Plan dated June 30, 2015. Professional standards also require that we communicate to
you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the Health System are described in Note 2 to the financial statements. The
following is a list of accounting policies that were adopted and changes in application of existing policies
were noted:

As described in Notes 2 and 11 to the financial statements, the Health System changed accounting
policies related to its defined benefit pension plans by adopting Governmental Accounting
Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions
(GASB 68), and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent
to the Measurement Date—an amendment of GASB Statement No. 68 in 2015. Accordingly, the
cumulative effect of the accounting change as of the beginning of the year is reported in the
statements of revenues, expenses and changes in net position.

As described in Notes 1, 2 and 3 to the financial statements, the Health System identified a pension
trust fund that should be reported as part of the financial reporting entity. The policy disclosures
most significantly affected were those related to cash and investments and benefit contributions
and payments.

As described in Notes 6 and 8 to the financial statements, the Health System re-evaluated its
obligation to the County of Alameda related to the Pension Obligation Bonds issued in 1995 and
1996 and determined that the Health System has a legal obligation to pay its portion of the Pension
Obligation Bonds, thus should report its obligation on the Statement of Net Position.
We noted no transactions entered into by the Health System during the year for which there is a lack of
authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based
on management’s knowledge and experience about past and current events and assumptions about future
events. Certain accounting estimates are particularly sensitive because of their significance to the financial
statements and because of the possibility that future events affecting them may differ significantly from
those expected. The most sensitive estimates affecting the Health System’s financial statements were:

Allowances for Contractual Adjustments and Bad Debts for Patient Accounts Receivable –
Management’s estimate of allowances for contractual adjustments and bad debts for patient
accounts receivable is based on historical data used to calculate the estimated net realizable value
of patient accounts by financial classification.
3
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
ANNUAL REQUIRED COMMUNCATIONS (CONTINUED)

Third Party Payor Settlements Receivables and Related Allowances and/or Other Liabilities –The
receivables and/or other liabilities related to third party settlements are based on filed cost reports,
tentative settlements, results for prior audits by fiscal intermediaries, and other known factors
affecting the realization of the receivable or liability.

Depreciation estimates for capital assets – Depreciation estimates for capital assets are based on
estimated useful lives for capital assets.

Accrual and disclosure of compensated absences – Accrual of compensated absences is based on
unused vacation, compensatory, and holiday time at year-end.

Self-Insurance Liabilities – The liabilities related to self-insurance programs for medical
malpractice and workers’ compensation are based on the ultimate cost estimated for claims
(reported and unreported) and costs associated with defense to administer all claims to final
settlement. The future estimated costs are discounted at a rate of 2%. The liability for the selfinsured programs is calculated by an actuary.

Net Pension Liability – The net pension liability and related amounts are based on actuarial studies
which consider assumptions adopted by the pension plan.

Other Postemployment Benefit (OPEB) Obligations – OPEB obligations are based on the financial
statements of the Alameda County Employees’ Retirement Association (ACERA) and are allocated
to the Health System based on the Health System’s share of the total annual required contributions
for all employers participating in ACERA.
We evaluated the key factors and assumptions used to develop these accounting estimates in determining
that they are reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to financial
statement users. The most sensitive disclosures affecting the financial statements were Note 9, Operating
Revenues; Note 11, Retirement Plans; Note 12, Postemployment Medical Benefits; Note 15, Insurance and
Self-Insurance; Note 16, Restatement; Note 17, Extraordinary Item related to the acquisitions of San
Leandro and Alameda Hospitals; and Note 18, Commitments and Contingencies. These disclosures and
related financial statement balances are sensitive to significant estimates as described above.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit. However, the completion of our audit was delayed due to the complexity of implementing GASB
68, evaluating management’s methodology of compiling the schedule of expenditures of federal awards in
accordance with federal requirements, and identification and evaluation of the reporting the Alameda
Hospital Pension Trust Fund.
4
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
ANNUAL REQUIRED COMMUNCATIONS (CONTINUED)
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are clearly trivial, and communicate them to the appropriate level of management.
The attached schedule summarizes uncorrected misstatements of the financial statements. Management has
determined that their effects are immaterial, both individually and in the aggregate, to the financial
statements taken as a whole. In addition, none of the misstatements detected as a result of audit procedures
and corrected by management were material, either individually or in the aggregate, to each opinion unit’s
financial statements taken as a whole, except for the pension trust fund identified during our audit which
was not previously reported.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing
matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or
the auditor’s report. We are pleased to report that no such disagreements arose during the course of our
audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated November 24, 2015.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application
of an accounting principle to the Health System’s financial statements or a determination of the type of
auditor’s opinion that may be expressed on those statements, our professional standards require the
consulting accountant to check with us to determine that the consultant has all the relevant facts. To our
knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the Health System’s auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our retention.
Other Matters
We applied certain limited procedures to the management’s discussion and analysis, schedule of
proportionate share of the net pension liability, schedules of contributions, and schedules of changes in net
pension liability and related ratios, which are required supplementary information (RSI) that supplements
the basic financial statements. Our procedures consisted of inquiries of management regarding the methods
of preparing the information and comparing the information for consistency with management’s responses
to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the
basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance
on the RSI.
5
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS
2015-001 Capital Assets Management
(Significant Deficiency)
Criteria
Management is responsible for accurately reporting account balances in the financial statements, which
include consideration of the existence and valuation of capital assets. Capital asset balances should
represent items owned or otherwise required to be reported (such as capital assets acquired through capital
lease or intangible assets required to be capitalized), considering the entity’s capitalization policies, as of
the end of the period. Capital assets and accumulated depreciation and amortization should be reported at
proper amounts and impaired assets should be reduced to the net carrying value of the asset for the amount
of the loss.
For equipment purchased with federal funds, a physical inventory shall be taken at least once every 2 years
and reconciled to the equipment records.
Condition
During our audit of capital assets we evaluated the design of internal controls and noted that the Health
System does not conduct periodic physical inspections of capital assets to determine whether the accounting
records accurately reflect the existence and valuation of capital asset balances reported in the financial
statements. Furthermore, we noted that the Health System does not have a specific policy to evaluate and
properly account for asset impairments to ensure capital replacement plans are appropriate to sustain
operations and remove obsolete balances from the accounting records.
Cause and Effect
Current policies do not include a requirement to conduct inventories or evaluate impairment. The Health
System is at risk of misstating capital asset balances by including assets that may no longer be in its
possession or continuing to depreciate items no longer in service that should be written off as a loss. In
addition, performing periodic evaluations for impairment will assist management in its development of a
capital plan and budget for needed replacements to ensure the impact on operations is minimal.
Recommendation
We recommend that management establish a policy to conduct periodic inventories of capital assets and
reconcile results to the accounting records. Furthermore, we recommend that management establish
policies to evaluate assets for impairment and properly reflect losses timely in the accounting records and
incorporate results in its capital planning process.
Views of Responsible Officials
Management agrees with the finding and a physical asset inventory will be completed by June 30, 2016.
Management will assess the need for additional policies and future inventories in conjunction with the
implementation of a new bar coding system to track and manage assets in real time.
6
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS (CONTINUED)
2015-002 Contracts Management
(Significant Deficiency)
Criteria
A contracting process should be designed to ensure an organization is properly compensated for services
provided and to ensure timely, efficient, and economic procurement, within the guidelines of good business
practices. All purchases and procurements shall be reasonable and necessary (i.e., no unnecessary items or
services shall be purchased).
Condition
During our audit we tested controls over contracts management as part of our consideration of controls
over operating revenues and expenses. We noted the following:
 Operating Revenues – We selected 40 revenue transactions and identified 1 transaction where the
Health System provided services to another provider and billed based on a contract that expired in
2005. For fiscal year 2015, the total billing was $116 thousand and the provider reimbursed the Health
System. In addition, a revised contract has been drafted and is pending approval based on this
observation.
 Operating Expenses – We selected 10 contracts and noted the following:
o For 1 provider contract, the contract terms were entered incorrectly into TractManager, the
Health Systems contracts management system:
•
The effective dates of the contract did not agree to the signed contract. TractManager
has the effective date range of 7/1/07 through 6/30/15 and the effective date range per
the actual signed contract is 7/1/2007 through 9/23/2009.
•
The maximum contract amount recorded in TractManager was $2.5 million, which
exceeded the actual contract of $1.8 million by $700 thousand. The amount paid to
the provider was during fiscal year 2015 was $2.3 million.
o For 1 provider contract, services were provided to the Health System, but the invoice was not
accrued for payment because there were no funds available on the purchase order. The services
were valued at $25 thousand.
We also noted during our inquiries with management that a full review of the contracting process is
currently being conducted to improve the accuracy of billings and payments and to ensure expired contracts
are reviewed and approved for timely renewal.
Cause and Effect
The Health System has experienced significant turn-over in many of its management and leadership
positions, including contracts management, thus the attention to or adequate assessment of existing policies
were not always enforced or reviewed for compliance. By not having adequate policies and oversight over
contracting the Health System is at risk of not being able to collect for services provided or paying for
unauthorized goods or services.
7
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS (CONTINUED)
2015-002 Contracts Management (Continued)
Recommendation
We recommend that management complete its review and update of policies and procedures over the
contract management process.
Views of Responsible Official
Contract policy and procedures were restricted significantly during 2015 and additional resources provided
to this area; however, new processes were not in place the entire fiscal year. A project is under way to
review contracts and ensure that the contract database agrees with contract terms. This should be completed
by June 30, 2016.
2015-003 Information Systems
(Significant Deficiency)
Criteria
An essential part of internal control of the Health System is its information and communication system. A
sound internal control environment includes effective design and implementation of its data processing
system to ensure the quality and efficiency of the financial accounting and reporting process.
Federal Information Security Management Act requires all federal agencies and those receiving federal
awards to perform a risk assessment in accordance with NIST SP 800-53 r4 to protect the integrity, security,
and confidentiality of data.
Condition
During our consideration of general controls over information systems we had the following observations:
1. Lack of Risk Assessment - The Information Technology Department has not performed a
comprehensive risk assessment study in accordance with NIST SP 800-53 r4.
2. Vulnerability Scanning – The Health System does not have a process employed to periodically scan
for system vulnerability and evaluate the configuration, patches, and services for known
vulnerabilities.
3. Data Storage and Portable Media Protection – The Health System does not have policies and
procedures to protect data on electronic storage media, including CDs, USB drives, and tapes.
External data storage media may be employed at various work stations without the IT department’s
authorization or knowledge.
4. Device Identification and Authentication – The Health System does not have policies and procedures
to identify and authenticate specific devices before establishing a connection with them.
8
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS (CONTINUED)
2015-003 Information Systems (Continued)
Cause and Effect
The above conditions were mainly due to a lack of a comprehensive risk assessment and creates risk to the
financial reporting process.
Recommendation
We recommended that the Health System perform an information technology comprehensive risk
assessment to identify risks associated with financial reporting, as well as, the Trust Principles and Criteria
for Security, Availability, Processing Integrity, Confidentiality, and Privacy. Furthermore we specifically
recommend considering the following as part of the risk assessment:
• Vulnerability Scanning – Develop policies and procedures, including consideration of using
specialized scanning tools and techniques, to regularly (e.g., bi-annual, quarterly, monthly) conduct
vulnerability scanning and document and resolve weaknesses noted.
• Data Storage and Portable Media Protection – Develop policies and procedures to include labels on
media to show sensitivity levels and handling requirements, rotation, retention and archival
schedules, and appropriate destruction/disposal of media and data.
• Device Identification and Authentication - Review the current practices and validate that the devices
can be remotely disabled through the use of Mobile Device Management (MDM) and rules can be
applied to all devices connecting to the network.
Views of Responsible Official
Management agrees that additional efforts can be performed with regard to the general controls over
security. The details of each of the three recommendations will need to be reviewed at a deeper level to
understand the implications to the current environment and work processes specifically around Data Storage
and Portable Media Protection and Device Identification and Authentication.
Two areas that have activity to respond include the Risk Assessment and Vulnerability Scanning. A full
risk assessment has been performed annually as part of the Meaningful Use Attestation process. Under the
HIPAA Security Rule, AHS is required to conduct an accurate and thorough analysis of the potential risks
and vulnerabilities to the confidentiality, integrity, and availability of ePHI. Each year of the last three years
AHS has completed the risk analysis and taken or identified additional “reasonable and appropriate” steps
to reduce identified risks as are required to reasonable and appropriate levels. The Meaningful Use
requirements are set forth in 45 CFR 164.308(a)(1)(ii)). This approach covers many of the issues as
identified in NIST SP 800-53 r4 but not all since they are different standards.
Penetration Testing or Vulnerability Scanning has been identified as a project that will be supported by
Internal Audit planned for first quarter of calendar 2016. It was delayed due to planned changes in the
network infrastructure that significantly changed the environment.
9
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS (CONTINUED)
2015-004 Alameda Hospital Pension Plan Trust
(Significant Deficiency)
Criteria
Article VIII, of the Alameda Hospital Pension Plan requires the following:
A. Trust Agreement
Contributions made by the Employer pursuant to Article IV hereof, and all other assets of this Plan
shall be held in trust under a Trust Agreement. The Employer shall enter into a Trust Agreement
with the Trustee for the administration of the Trust which shall contain the assets of the Plan. The
Trustee shall not be responsible for the administration of this Plan but only for the Trust established
pursuant to this Plan.
B. Trust Agreement Part of Plan
The Trust Agreement shall be deemed to be a part of this plan, and any rights or benefits accruing
to any person under this Plan shall be subject to all of the relevant terms and provisions of the Trust
Agreement, including any amendments. In addition to the powers of the Trustee set forth in the
Trust Agreement, the Trustee shall have any powers, express or implied, granted to it under the
Plan. In the event of any conflict between the provisions of the Trust Agreement and the provisions
of the Plan, the provisions of the Plan shall control, except for the duties and responsibilities of the
Trustee, in which case the Trust Agreement shall control.
Governmental Accounting Standards Board (GASB) Statement No. 40, Deposit and Investment Risk
Disclosures—an amendment of GASB Statement No. 3 (GASB 40), provides guidance on deposit and
investment risks and required disclosures to be included in the financial statements. Though GASB 40 does
not require governments to have investment policies address the risks identified, a government should
consider best practices that established policies can mitigate the risk of loss. Furthermore, investments of
pension plans are not subject to the restrictions of California Government Code §53600, et al., thus plans
should establish policies to mitigate risk.
Condition
In May 2015, management identified a bank account related to the Alameda Hospital Pension Plan that had
approximately $1.7 million held in trust for plan participants. During our audit we advised management
that this activity should be reported in a pension trust fund in the financial statements. Upon review for the
plan and trust documents we noted that these documents are not current for the Health System’s acquisition
of Alameda Hospital and related obligation and fiduciary responsibilities. Furthermore, we noted that the
investment agent agreement with the bank did not address policy/guidelines of certain key investment risk
factors directly impacting governments (e.g. authorized investment restrictions, maturity restrictions, credit
risk restrictions).
10
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS (CONTINUED)
2015-004 Alameda Hospital Pension Plan Trust (Continued)
Cause and Effect
This Alameda Hospital Pension Plan was not properly captured in the Health System’s accounting records
upon the acquisition of Alameda Hospital and legal documents were not reviewed and updated to ensure
the fiduciary responsibilities are adequately documented. Furthermore, the initial investment policy
guidance established by Alameda Hospital did not consider key investment risk factors and provides the
custodian bank to invest monies at its discretion.
Recommendation
We recommend that the Health System review and revise plan and trust documents of the Alameda Hospital
Pension Plan. We further recommend that the Health System review its investment agent agreement with
the bank and consider establishing more formative guidance to mitigate known investment risks.
Views of Responsible Officials
Management agrees with the finding. The Alameda Hospital Pension Plan, trust documents and investment
guidelines are being reviewed and revised. This will be completed by June 30, 2016.
2015-005 Employee Termination Process
(Control Deficiency)
Criteria
Health System owned devices and other access equipment should be returned and properly secured upon
employee termination to ensure the Health System’s sensitive access points and information remains secure
and the Health System does not incur unnecessary expense of replacement.
Condition
During our audit we inquired about the controls over the termination process of the employees, which
included the collection of Health System purchased devices, such as phones and tablets. We noted through
inquiries that several individuals retained Health System owned devices. During our follow-up inquiries
with the Human Resource and Information Technology Departments, we noted that department supervisors
are responsible for collecting keys, credit cards, employee identification badges, phones, laptops, tablets,
and other items belonging to the Health System. Information system related items are returned to the
Information Technology Department by the department supervisors.
It appears that employees are responsible for maintaining an inventory of issued items and the department
supervisors do not have a termination checklist or inventory of employee specific items that should be
collected.
11
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
CURRENT YEAR RECOMMENDATIONS (CONTINUED)
2015-005 Employee Termination Process (Continued)
Cause and Effect
There appears to be a lack of oversight over the employee termination process to ensure Health System
property is returned, all secure access points are disabled upon termination and costs are controlled for
equipment that can be re-issued to another employee.
Recommendation
We recommend that Human Resources and the Information Technology Department develop policies and
procedures to assist departments in tracking Health System property issued to employees for official use to
ensure all property is returned upon employee termination.
Views of Responsible Official
This process has been identified and is being tracked through the internal audit process. A project has been
identified and resourced to provide a process to enable greater employee on-boarding and off-boarding
practices. The new process, including new technology, will ensure access is fully enabled when a new
employee starts in a position, modifies access when an employee transfers positions, and access is disabled
and equipment is returned when an employee terminates. The targeted completed date for this project is
June 30, 2016.
12
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
STATUS OF PRIOR YEAR RECOMMENDATIONS
Ref No.
Description
Status
2014-001
Documentation of Patient Records
Significant Deficiency
In process –
During the fiscal year 2015 audit,
MGO identified 1 patient file in a
sample of 40 that did not have
insurance documentation available for
review. The patient was seen at
Alameda Hospital. It was noted that an
insurance provider did make payment
on this account.
2014-002
Resolve Outstanding Checks on a Timely Basis
Control Deficiency
Resolved. After further review of the
items noted, the Health System was
either able to reissue checks or voided
checks identified as duplicate
payments.
2013-01
Contract Management
Significant Deficiency
See Current Year Recommendation
2015-002
2013-02
Formal Entity-Wide Security Program
Significant Deficiency
See Current Year Recommendation
2015-003
2013-03
Inventory Management
Control Deficiency
Resolved.
2010-17
General Information Technology Controls
Significant Deficiency
See Current Year Recommendation
2015-003
13
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Report to the Board of Trustees
For the Year Ended June 30, 2015
SCHEDULE OF UNCORRECTED MISSTATEMENTS
#
1
2
3
4
5
6
7
8
9
10
11
Account Description
Debit
CASH AND CASH EQUIVALENTS
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
To reverse the outstanding checks that are passed the dormancy period.
$
Credit
170,741
$
PATIENT ACCOUNT RECEIVABLE
PATIENT SERVICE REVENUE
To properly recognize the revenue earned in FY2015
5,581,384
DUE TO THIRD PARTY PAYOR
PATIENT SERVICE REVENUE
To reverse the general reserve.
8,692,844
PATIENT ACCOUNT RECEIVABLE
PATIENT SERVICE REVENUE
PATIENT SERVICE REVENUE
NET POSITION
To record the adjustment related to revenue cut off
2,127,409
SELF-INSURANCE LIABILITY, DUE IN MORE THAN ONE YEAR
GENERAL AND ADMINISTRATIVE
To adjust self-insurance liabilities to agree to the actuary report.
4,000,000
170,741
5,581,384
8,692,844
2,127,409
3,237,978
3,237,978
NET POSITION
DEPRECIATION AND AMORTIZATION
To properly record depreciation expense for FY2015.
4,000,000
40,953
40,953
CURRENT PORTION OF SELF-INSURANCE LIABILITY
SELF-INSURANCE LIABILITY, DUE IN MORE THAN ONE YEAR
CURRENT PORTION OF SELF-INSURANCE LIABILITY
SELF-INSURANCE LIABILITY, DUE IN MORE THAN ONE YEAR
GENERAL AND ADMINISTRATIVE
SALARIES AND BENEFITS
To true up Workers Comp and Med Mal to Actuarial Report for FY2015
59,754
157,444
61,809
322,486
97,690
260,677
NET POSITION
GENERAL AND ADMINISTRATIVE
To correct the overstated expenses in FY2015.
49,748
GENERAL AND ADMINISTRATIVE
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
To true up the actual payments to AHSF for FY2015.
19,952
CASH AND CASH EQUIVALENTS
LOAN FROM COUNTY OF ALAMEDA
CASH AND CASH EQUIVALENTS
INTEREST EXPENSE
To adjust for the difference noted in County negative cash balance.
28,986
49,748
19,952
OTHER OPERATING REVENUE
DUE FROM COUNTY OF ALAMEDA
To adjust the due from the county for MAA based on the 2015 SEFA.
223,868
16
194,866
521,631
521,631
Effect of Prior Year Uncorrected Misstatements
PY1
PY2
PY3
PY4
PY5
PY7
NET POSITION
PATIENT SERVICE REVENUE
To reverse PY adjustment - To correct the HPAC amount booked to revenue.
NET POSITION
PURCHASED SERVICES
To reverse PY adjustment - To adjust the expense account.
17
17
5,631
5,631
NET POSITION
PATIENT SERVICE REVENUE
To reverse PY adjustment - To reverse unallocated payment/revenue that is unidentifiable from client.
PATIENT SERVICE REVENUE
NET POSITION
To reverse PY adjustment - To adjust the AHD's reserve amount for year end.
INTEREST AND INVESTMENT INCOME
NET POSITION
To reverse PY adjustment - To adjust the cash balance as of FY2014.
NET POSITION
PATIENT SERVICE REVENUE
To reverse PY adjustment - To properly reverse the amounts received in overpayment.
14
1,564,293
1,564,293
184,585
184,585
6,843
6,843
37,638
37,638
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
(A Component Unit of
County of Alameda, California)
Single Audit Reports
For the Year Ended June 30, 2015
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Table of Contents
Independent Auditor’s Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards ......................................................... 1
Independent Auditor’s Report on Compliance for Each Major Federal Program;
Report on Internal Control Over Compliance; and Report on the Schedule of
Expenditures of Federal Awards Required by OMB Circular A-133 and
Supplementary Schedule of State of California Emergency Management Agency
Grant Expenditures ................................................................................................................................. 3
Schedule of Expenditures of Federal Awards ............................................................................................... 6
Notes to the Schedule of Expenditures of Federal Awards........................................................................... 7
Schedule of Findings and Questioned Costs ................................................................................................. 9
Status of Prior Year’s Findings and Questioned Costs ............................................................................... 19
Supplementary Schedule of State of California Emergency Management Agency Grant
Expenditures ......................................................................................................................................... 20
Certified
Public
Accountants
Sacramento
Walnut Creek
Oakland
Los Angeles
Century City
Newport Beach
Independent Auditor’s Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards
San Diego
Board of Trustees
Alameda Health System
Oakland, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the business-type
activity, discretely presented component unit, and pension trust fund of the Alameda Health System (Health
System), a component unit of the County of Alameda, California, as of and for the year ended
June 30, 2015, and the related notes to the financial statements, which collectively comprise the Health
System’s basic financial statements, and have issued our report thereon dated November 24, 2015. Our
report contained emphasis-of-matter paragraphs that describe the Health System’s acquisitions of San
Leandro and Alameda Hospitals, liquidity matters, the implementation of Governmental Accounting
Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions – an
Amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for Contributions
Made Subsequent to the Measurement Date – an Amendment of GASB Statement No. 68, and the recognition
of the Health System’s obligation to the County related to pension obligation bonds.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Health System’s
internal control over financial reporting (internal control) to determine the audit procedures that are
appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but
not for the purpose of expressing an opinion on the effectiveness of Health System’s internal control.
Accordingly, we do not express an opinion on the effectiveness of Health System’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may
exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies
in internal control that we consider to be material weaknesses. However, material weaknesses may exist
that have not been identified. We did identify certain deficiencies in internal control, described in the
accompanying schedule of findings and questioned costs as items 2015-001 through 2015-04 that we
consider to be significant deficiencies.
Macias Gini & O’Connell LLP
4675 MacArthur Court, Suite 600
Newport Beach, CA 92660
1
www.mgocpa.com
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Health System’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be reported
under Government Auditing Standards.
We noted other matters that we reported to the Board of Trustees in a separate letter dated November 24,
2015.
Health System’s Response to Findings
The Health System’s responses to the findings identified in our audit are described in the accompanying
schedule of findings and questioned costs. The Health System’s responses were not subjected to the auditing
procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
Walnut Creek, California
November 24, 2015
2
Certified
Public
Accountants
Sacramento
Walnut Creek
Oakland
Los Angeles
Century City
Newport Beach
Independent Auditor’s Report on Compliance for Each Major Federal Program; Report on
Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards
Required by OMB Circular A-133 and Supplementary Schedule of State of California
Emergency Management Agency Grant Expenditures
San Diego
Board of Trustees
Alameda Health System
Oakland, California
Report on Compliance for Each Major Federal Program
We have audited the Alameda Health System’s (Health System) compliance with the types of compliance
requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and
material effect on each of the Health System’s major federal programs for the year ended June 30, 2015.
The Health System’s major federal programs are identified in the summary of auditor’s results section of
the accompanying schedule of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants
applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the Health System’s major federal
programs based on our audit of the types of compliance requirements referred to above. We conducted our
audit of compliance in accordance with auditing standards generally accepted in the United States of
America; the standards applicable to financial audits contained in Government Auditing Standards, issued
by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we
plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of
compliance requirements referred to above that could have a direct and material effect on a major federal
program occurred. An audit includes examining, on a test basis, evidence about the Health System’s
compliance with those requirements and performing such other procedures as we considered necessary in
the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal
program. However, our audit does not provide a legal determination of the Health System’s compliance.
Basis for Qualified Opinion on HIV Care Formula Grants
As described in the accompanying schedule of findings and questioned costs, the Health System did not
comply with requirements regarding CFDA number 93.917 HIV Care Formula Grants as described in
finding number 2015-002 for Eligibility. Compliance with such requirements is necessary, in our opinion,
for the Health System to comply with the requirements applicable to that program.
Macias Gini & O’Connell LLP
4675 MacArthur Court, Suite 600
Newport Beach, CA 92660
3
www.mgocpa.com
Qualified Opinion on HIV Care Formula Grants
In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, the
Health System complied, in all material respects, with the types of compliance requirements referred to
above that could have a direct and material effect on the HIV Care Formula Grants for the year ended June
30, 2015.
Unmodified Opinion on the Other Major Federal Program
In our opinion, the Health System complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on the other major federal
program identified in the summary of auditor’s results section of the accompanying schedule of findings
and questioned costs for the year ended June 30, 2015.
Other Matters
The Health System’s response to the noncompliance finding identified in our audit is described in the
accompanying schedule of findings and questioned costs. The Health System’s response was not subjected
to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on
the response.
Report on Internal Control Over Compliance
Management of the Health System is responsible for establishing and maintaining effective internal control
over compliance with the types of compliance requirements referred to above. In planning and performing
our audit of compliance, we considered the Health System’s internal control over compliance with the types
of requirements that could have a direct and material effect on each major federal program to determine the
auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on
compliance for each major federal program and to test and report on internal control over compliance in
accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness
of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the
Health System’s internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control over compliance
that might be material weaknesses or significant deficiencies and therefore, material weaknesses or
significant deficiencies may exist that were not identified. However, as discussed below, we identified
deficiencies in internal control over compliance that we consider to be a material weakness and a significant
deficiency.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a deficiency,
or combination of deficiencies, in internal control over compliance, such that there is a reasonable
possibility that material noncompliance with a type of compliance requirement of a federal program will
not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control
over compliance described in the accompanying schedule of findings and questioned costs as item 2014005 to be a material weakness.
4
A significant deficiency in internal control over compliance is a deficiency, or a combination of
deficiencies, in internal control over compliance with a type of compliance requirement of a federal program
that is less severe than a material weakness in internal control over compliance, yet important enough to
merit attention by those charged with governance. We consider the deficiency in internal control over
compliance described in the accompanying schedule of findings and questioned costs as item 2015-006 to
be a significant deficiency.
The Health System’s responses to the internal control over compliance findings identified in our audit are
described in the accompanying schedule of findings and questioned costs. The Health System’s responses
was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express
no opinion on the response.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing
of internal control over compliance and the results of that testing based on the requirements of OMB
Circular A-133. Accordingly, this report is not suitable for any other purpose.
Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 and
Supplementary Schedule of State of California Emergency Management Agency Grant Expenditures
We have audited the financial statements of the business-type activity, the discretely presented component
unit, and the pension trust fund of the Health System as of and for the year ended June 30, 2015, and the
related notes to the financial statements, which collectively comprise the Health System’s basic financial
statements. We issued our report thereon dated November 24, 2015, which contained unmodified opinions
on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial
statements that collectively comprise the basic financial statements. The accompanying schedule of
expenditures of federal awards and the supplementary schedule of State of California Emergency
Management Agency (CalEMA) grant expenditures are presented for purposes of additional analysis as
required by OMB Circular A-133 and CalEMA, respectively, and are not a required part of the basic
financial statements. Such information is the responsibility of management and was derived from and
relates directly to the underlying accounting and other records used to prepare the basic financial statements.
The information has been subjected to the auditing procedures applied in the audit of the financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements or to
the basic financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the schedule of expenditure
of federal awards is fairly stated in all material respects in relation to the basic financial statements as a
whole.
Walnut Creek, California
December 10, 2015
5
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2015
Federal Grantor/Pass-Through Grantor/Program Title
Catalog of Federal
Domestic Assistance
Number (CFDA)
Pass-Through
Identifying Number
16.575
16.575
RC12280010
RC13290010
Department of Justice, Office of Victims of Crime
Passed Through California Emergency Management Agency
Crime Victim Assistance
Crime Victim Assistance
Federal
Expenditures
$
Total Department of Justice, Office of Victims of Crime
7,215
172,587
179,802
U.S. Department of Health and Human Services
Direct Programs:
ARRA-Grants for Training in Primary Care Medicine and
Dentistry Training and Enhancement
Ryan White HIV/AIDS Dental Reimbursements Community
Based Dental Partnership
93.403
1 D5FHP20666-01-00
130,251
93.924
1 T22HA26478-01-00
23,517
Subtotal of direct programs
153,768
Passed Through Children's Hospital & Research Center at Oakland
Coordinated Services and Access to Research for
Women, Infants, Children, and Youth
93.153
12.8958_13-14 004
161,521
Passed Through Alameda County Health Care Services Agency
Mental Health Clinical and AIDS Service-Related
Training Grants
93.224
PHG01CH40500
158,604
Passed Through Johns Hopkins University
National Research Service Awards Health Services Research Training
93.225
2001376220
59,181
Passed Through RTI International
Mental Health Research Grants
93.242
2-312-0212795-50851L
28,939
Passed Through the Regents of the University of California
Allergy, Immunology and Transplantation Research
93.855
7655SC
14,398
Passed Through Alameda County Health Care Services Agency
Medical Assistance Program
93.778
MAA MOU 2012-2013
Passed Through Tri-City Health Center, California
Grants to Provide Outpatient Early Intervention Services
with Respect to HIV Disease
93.918
5 H76 HA 00160
570,678
Passed Through Alameda County Public Health Department,
Office of AIDS Administration
HIV Emergency Relief Project Grants
HIV Care Formula Grants
HIV Prevention Activities - Health Department Based
93.914
93.917
93.940
PHG08HA60200
PHG08HA60100
PHG08HA61000
48,243
517,578
63,208
1,978,460
Subtotal of pass-through programs
3,600,810
Total U.S. Department of Health and Human Services
3,754,578
$
Total Expenditures of Federal Awards
See accompanying notes to the Schedule of Expenditures of Federal Awards.
6
3,934,380
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2015
1. ORGANIZATION
Alameda Health System (Health System) is a Public Hospital Authority created originally under the
name of Alameda County Medical Center (Medical Center) on July 1, 1998 pursuant to California
Health and Safety Code Section 101850. The governance, management, administration, and control of
healthcare facilities were transferred from the County of Alameda (County) to the Medical Center in
1998. The Medical Center started doing business as the Health System on January 1, 2013. The Health
System is reflected in the County’s comprehensive annual financial report as a discretely presented
component unit.
The Health System provides a continuum of acute and long-term care to residents of the County. In
addition to offering general acute care, skilled nursing and rehabilitative care, the Health System
provides an adult day health center, and a trauma center. The Health System is currently staffed for 289
acute, 69 acute psychiatric, and 325 sub-acute, skilled nursing and rehab beds.
The Health System is governed by a thirteen-member board of trustees (Trustees), twelve members of
which have been appointed by a majority vote of the Board of Supervisors of the County. Trustees are
appointed for three-year terms and can be reappointed for up to three consecutive complete terms. The
remaining position on the Board of Trustees is filled by a representative of the Medical Staff of the
Health System, which is also appointed by the Board of Supervisors.
2. BASIS OF ACCOUNTING
The schedule of expenditures of federal awards (Schedule) includes the federal grant activity of the
Health System. All federal awards received directly from federal agencies as well as federal awards
passed through other entities are included in this Schedule except for assistance related to Medical
Assistance (Medi-Cal) and Medicare Hospital Insurance (Medicare) described in Note 4.
The Schedule is presented using the accrual basis of accounting, which is described in Note 2 to the
Health System’s basic financial statements. Expenditures reported include any property or equipment
acquisitions incurred under the federal program. Under the accrual basis of accounting, expenditures
are recognized when incurred, regardless of timing of cash flows.
3. RELATIONSHIP TO THE BASIC FINANCIAL STATEMENTS
The information in the accompanying Schedule is presented in accordance with the requirements of
OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Federal
expenditures agree or can be reconciled with the amounts reported in the Health System’s basic
financial statements.
4. MEDI-CAL AND MEDICARE PROGRAMS
Direct Medi-Cal and Medicare expenditures are excluded from the Schedule. These expenses represent
fees for services and are not included in the Schedule or in determining major programs. The Health
System provides Medi-Cal and Medicare services through its facilities.
The Health System participates in the California Medi-Cal Administrative Activities (MAA) program,
which offers reimbursement under the federal Medical Assistance Program (CFDA number 93.778) for
a portion of the costs related to specific, approved activities that are necessary for the proper and
efficient administration of the Medi-Cal program.
7
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Notes to the Schedule of Expenditures of Federal Awards (Continued)
For the Year Ended June 30, 2015
4. MEDI-CAL AND MEDICARE PROGRAMS (CONTINUED)
Prior to fiscal year 2015, the Health System reported the MAA program expenditures one year in
arrears, meaning the amounts reported on the Schedule were the prior year expenditures claimed. In
fiscal year 2015, the Health System revised its reporting methodology to align with the requirements
of OMB Circular A-133. The fiscal year 2015 Schedule includes the actual amount claimed and
expected to be reimbursed for fiscal year 2014 and an estimate of the amounts to be claimed for fiscal
year 2015 based on actual expenditures and time surveys performed for fiscal year 2015. Amounts
reported on the Schedule include the following:
Expenditures related to fiscal year 2014
Expenditures related to fiscal year 2015
Total
$801,152
1,177,308
$1,978,460
8
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2015
Section I – Summary of Auditor’s Results
Financial Statements:
Type of auditor’s report issued:
Unmodified
Internal control over financial reporting:
 Material weaknesses identified?
 Significant deficiencies identified?
No
Yes
Noncompliance material to financial statements noted?
No
Federal Awards:
Internal control over major programs:
 Material weaknesses identified?
 Significant deficiencies identified?
Yes
Yes
Type of auditor’s report issued on compliance for major
programs
Any audit findings disclosed that are required to be
reported in accordance with section 510(a) of
Circular A-133?
Unmodified for all major
programs except for the
eligibility requirement of the
HIV Care Formula Grants
(CFDA No. 93.917), which
was qualified.
Yes
Identification of major programs:
Name of Federal Program
Medical Assistance Program ..........................................................................
HIV Care Formula Grants ..............................................................................
CFDA
Number
93.778
93.917
Dollar threshold used to distinguish between Types A and B programs
$300,000
Auditee qualified as a low-risk auditee?
No
9
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section II – Financial Statement Findings
Finding Number 2015-001: Capital Assets Management
(Significant Deficiency)
Criteria
Management is responsible for accurately reporting account balances in the financial statements, which
include consideration of the existence and valuation of capital assets. Capital asset balances should
represent items owned or otherwise required to be reported (such as capital assets acquired through capital
lease or intangible assets required to be capitalized), considering the entity’s capitalization policies, as of
the end of the period. Capital assets and accumulated depreciation and amortization should be reported at
proper amounts and impaired assets should be reduced to the net carrying value of the asset for the amount
of the loss.
For equipment purchased with federal funds, a physical inventory shall be taken at least once every 2 years
and reconciled to the equipment records.
Condition
During our audit capital assets we evaluated the design of internal controls and noted that the Health System
does not conduct periodic physical inspections of capital assets to determine whether the accounting records
accurately reflect the existence and valuation of capital asset balances reported in the financial statements.
Furthermore, we noted that the Health System does not have a specific policy to evaluate and properly
account for asset impairments to ensure capital replacement plans are appropriate to sustain operations and
remove obsolete balances from the accounting records.
Cause and Effect
Current policies do not include a requirement to conduct inventories or evaluate impairment. The Health
System is at risk of misstating capital asset balances by including assets that may no longer be in its
possession or continuing to depreciate items no longer in service that should be written off as a loss. In
addition, performing periodic evaluations for impairment will assist management in its development of a
capital plan and budget for needed replacements to ensure the impact on operations is minimal.
Recommendation
We recommend that management establish a policy to conduct periodic inventories of capital assets and
reconcile results to the accounting records. Furthermore, we recommend that management establish
policies to evaluate assets for impairment and properly reflect losses timely in the accounting records and
incorporate results in its capital planning process.
Views of Responsible Officials
Management agrees with the finding and a physical asset inventory will be completed by June 30, 2016.
Management will assess the need for additional policies and future inventories in conjunction with the
implementation of a new bar coding system to track and manage assets in real time.
10
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section II – Financial Statement Findings (Continued)
Finding Number 2015-002: Contracts Management
(Significant Deficiency)
Criteria
A contracting process should be designed to ensure an organization is properly compensated for services
provided and to ensure timely, efficient, and economic procurement, within the guidelines of good business
practices. All purchases and procurements shall be reasonable and necessary (i.e., no unnecessary items or
services shall be purchased).
Condition
During our audit we tested controls over contracts management as part of our consideration of controls
over operating revenues and expenses. We noted the following:
 Operating Revenues – We selected 40 revenue transactions and identified 1 transaction where the
Health System provided services to another provider and billed based on a contract that expired in
2005. For fiscal year 2015, the total billing was $116 thousand and the provider reimburse the Health
System. In addition, a revised contract has been drafted and is pending approval based on this
observation.
 Operating Expenses – We selected 10 contracts and noted the following:
o For 1 provider contract, the contract terms were entered incorrectly into TractManager, the
Health Systems contracts management system:
•
The effective dates of the contract did not agree to the signed contract. TractManager
has the effective date range of 7/1/07 through 6/30/15 and the effective date range per
the actual signed contract is 7/1/2007 through 9/23/2009.
•
The maximum contract amount recorded in TractManager was $2.5 million, which
exceeded the actual contract of $1.8 million by $700 thousand. The amount paid to
the provider was during fiscal year 2015 was $2.3 million.
o For 1 provider contract, services were provided to the Health System, but the invoice was not
accrued for payment because there were no funds available on the purchase order. The services
were valued at $25 thousand.
We also noted during our inquiries with management that a full review of the contracting process is
currently being conducted to improve the accuracy of billings and payments and to ensure expired contracts
are reviewed and approved for timely renewal.
Cause and Effect
The Health System has experienced significant turn-over in many of its management and leadership
positions, including contracts management, thus the attention to or adequate assessment of existing policies
were not always enforced or reviewed for compliance. By not having adequate policies and oversight over
contracting the Health System is at risk of not being able to collect for services provided or paying for
unauthorized goods or services.
11
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section II – Financial Statement Findings (Continued)
Finding Number 2015-002: Contracts Management (Continued)
Recommendation
We recommend that management complete its review and update of policies and procedures over the
contract management process.
Views of Responsible Officials
Contract policy and procedures were restricted significantly during 2015 and additional resources provided
to this area; however, new processes were not in place the entire fiscal year. A project is under way to
review contracts and ensure that the contract database agrees with contract terms. This should be completed
by 6/30/16.
Finding Number 2015-003: Information Systems
(Significant Deficiency)
Criteria
An essential part of internal control of the Health System is its information and communication system. A
sound internal control environment includes effective design and implementation of its data processing
system to ensure the quality and efficiency of the financial accounting and reporting process.
Federal Information Security Management Act requires all federal agencies and those receiving federal
awards to perform a risk assessment in accordance with NIST SP 800-53 r4 to protect the integrity, security,
and confidentiality of data.
Condition
During our consideration of general controls over information systems we had the following observations:
1. Lack of Risk Assessment - The Information Technology Department has not performed a
comprehensive risk assessment study in accordance with NIST SP 800-53 r4.
2. Vulnerability Scanning – The Health System does not have a process employed to periodically scan
for system vulnerability and evaluate the configuration, patches, and services for known
vulnerabilities.
3. Data Storage and Portable Media Protection – The Health System does not have policies and
procedures to protect data on electronic storage media, including CDs, USB drives, and tapes.
External data storage media may be employed at various work stations without the IT department’s
authorization or knowledge.
4. Device Identification and Authentication – The Health System does not have policies and procedures
to identify and authenticate specific devices before establishing a connection with them.
Cause and Effect
The above conditions were mainly due to a lack of a comprehensive risk assessment and creates risk to
the financial reporting process.
12
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section II – Financial Statement Findings (Continued)
Finding Number 2015-003: Information Systems (Continued)
Recommendation
We recommended that the Health System perform an information technology comprehensive risk
assessment to identify risks associated with financial reporting, as well as, the Trust Principles and Criteria
for Security, Availability, Processing Integrity, Confidentiality, and Privacy. Furthermore we specifically
recommend considering the following as part of the risk assessment:
• Vulnerability Scanning – Develop policies and procedures, including consideration of using
specialized scanning tools and techniques, to regularly (e.g., bi-annual, quarterly, monthly) conduct
vulnerability scanning and document and resolve weaknesses noted.
• Data Storage and Portable Media Protection – Develop policies and procedures to include labels on
media to show sensitivity levels and handling requirements, rotation, retention and archival
schedules, and appropriate destruction/disposal of media and data.
• Device Identification and Authentication - Review the current practices and validate that the devices
can be remotely disabled through the use of Mobile Device Management (MDM) and rules can be
applied to all devices connecting to the network.
Views of Responsible Officials
Management agrees that additional efforts can be performed with regard to the general controls over
security. The details of each of the three recommendations will need to be reviewed at a deeper level to
understand the implications to the current environment and work processes specifically around Data Storage
and Portable Media Protection and Device Identification and Authentication.
Two areas that have activity to respond include the Risk Assessment and Vulnerability Scanning. A full
risk assessment has been performed annually as part of the Meaningful Use Attestation process. Under the
HIPAA Security Rule, AHS is required to conduct an accurate and thorough analysis of the potential risks
and vulnerabilities to the confidentiality, integrity, and availability of ePHI. Each year of the last three years
AHS has completed the risk analysis and taken or identified additional “reasonable and appropriate” steps
to reduce identified risks as are required to reasonable and appropriate levels. The Meaningful Use
requirements are set forth in 45 CFR 164.308(a)(1)(ii)). This approach covers many of the issues as
identified in NIST SP 800-53 r4 but not all since they are different standards.
Penetration Testing or Vulnerability Scanning has been identified as a project that will be supported by
Internal Audit planned for first quarter of calendar 2016. It was delayed due to planned changes in the
network infrastructure that significantly changed the environment.
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ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section II – Financial Statement Findings (Continued)
Finding Number 2015-004: Alameda Hospital Pension Plan Trust
(Significant Deficiency)
Criteria
Article VIII, of the Alameda Hospital Pension Plan requires the following:
A. Trust Agreement
Contributions made by the Employer pursuant to Article IV hereof, and all other assets of this Plan
shall be held in trust under a Trust Agreement. The Employer shall enter into a Trust Agreement
with the Trustee for the administration of the Trust which shall contain the assets of the Plan. The
Trustee shall not be responsible for the administration of this Plan but only for the Trust established
pursuant to this Plan.
B. Trust Agreement Part of Plan
The Trust Agreement shall be deemed to be a part of this plan, and any rights or benefits accruing
to any person under this Plan shall be subject to all of the relevant terms and provisions of the Trust
Agreement, including any amendments. In addition to the powers of the Trustee set forth in the
Trust Agreement, the Trustee shall have any powers, express or implied, granted to it under the
Plan. In the event of any conflict between the provisions of the Trust Agreement and the provisions
of the Plan, the provisions of the Plan shall control, except for the duties and responsibilities of the
Trustee, in which case the Trust Agreement shall control.
Governmental Accounting Standards Board (GASB) Statement No. 40, Deposit and Investment Risk
Disclosures—an amendment of GASB Statement No. 3 (GASB 40), provides guidance on deposit and
investment risks and required disclosures to be included in the financial statements. Though GASB 40 does
not require governments to have investment policies address the risks identified, a government should
consider best practices that established policies can mitigate the risk of loss. Furthermore, investments of
pension plans are not subject to the restrictions of California Government Code §53600, et al., thus plans
should establish policies to mitigate risk.
Condition
In May 2015, management identified a bank account related to the Alameda Hospital Pension Plan that had
approximately $1.7 million held in trust for plan participants. During our audit we advised management
that this activity should be reported in a pension trust fund in the financial statements. Upon review for the
plan and trust documents we noted that these documents are not current for the Health System’s acquisition
of Alameda Hospital and related obligation and fiduciary responsibilities. Furthermore, we noted that the
investment agent agreement with the bank did not address policy/guidelines of certain key investment risk
factors directly impacting governments (e.g. authorized investment restrictions, maturity restrictions, credit
risk restrictions).
Cause and Effect
This Alameda Hospital Pension Plan was not properly captured in the Health System’s accounting records
upon the acquisition of Alameda Hospital and legal documents were not reviewed and updated to ensure
the fiduciary responsibilities are adequately documented. Furthermore, the initial investment policy
guidance established by Alameda Hospital did not consider key investment risk factors and provides the
custodian bank to invest monies at its discretion.
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ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section II – Financial Statement Findings (Continued)
Finding Number 2015-004: Alameda Hospital Pension Plan Trust (Continued)
Recommendation
We recommend that the Health System review and revise plan and trust documents of the Alameda Hospital
Pension Plan. We further recommend that the Health System review its investment agent agreement with
the bank and consider establishing more formative guidance to mitigate known investment risks.
Views of Responsible Officials
Management agrees with the finding. The Alameda Hospital Pension Plan, trust documents and investment
guidelines are being reviewed and revised. This will be completed by June 30, 2016.
Section III – Federal Award Findings and Questioned Costs
Finding Number 2015-005: Eligibility Requirement
(Material Weakness and Material Noncompliance)
Federal Program Title:
Federal Catalog Number(s):
Federal Agency:
Pass-Through Entity:
Federal Award Number(s):
HIV Care Formula Grants
93.917
U.S. Department of Health and Human Services
Alameda County Public Health Department, Office of AIDS Administration
PHG08HA60100
Criteria:
In accordance with United States Code Title 42 Section 300ff-26(b), to be eligible to receive assistance
under this program, an individual must have a medical diagnosis of HIV/AIDS and be a low-income
individual, be a resident of the State and also be uninsured or underinsured, as defined by the State.
To comply with the federal requirements the Health Center developed 2 forms to document compliance
with the requirements:
 Ryan White Program Eligibility Verification Form – This form is completed by the eligibility clerk
and to indicate verification of eligibility criteria including income, residency, and insurance status.
The eligibility clerk also uses this form to document the eligibility period and must sign and date
the form.
 Ryan White Eligibility Form – This is a participant self-certification form indicating employment,
residency, financial dependency and insurance status. This form must be signed and dated by the
participant.
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ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section III – Federal Award Findings and Questioned Costs (Continued)
Finding Number 2015-005: Eligibility Requirement (Continued)
Condition:
During our audit of eligibility requirements for the HIV Care Formula Grants, we selected 60 program
participants for testing from a total population of 1,290. We tested 21 of the 60 samples and noted the
following:
 4 case files did not include the Ryan White Eligibility Verification Form and the Ryan White
Eligibility Form.
 6 case files did not include the Ryan White Eligibility Form.
 2 case files did not include the Ryan White Eligibility Form covering the period of the
encounter.
 4 case files had the Ryan White Eligibility Verification Form, but the form was not fully
completed and was not signed by the eligibility clerk.
Cause and Effect:
Similar issues were noted in the fiscal year 2014 audit and the Health System did not revise procedures and
retrain staff until September 2014, although only 6 of 16 exceptions were noted on encounters for visits
prior to September 2014 and many related to encounters at one of the Health System’s facilities. We also
noted that the eligibility clerk position at the Health System’s other facility turned over in February 2015.
Based on the results of our testing, the Health System did not maintain proper documentation to support
eligibility determination thus we cannot verify whether the participants were eligible for program services.
Questioned Cost:
Indeterminable. Program participants received services rather than monetary benefits.
Recommendation:
We recommend management continue emphasize the importance of obtaining and retaining documentation
to support participant eligibility.
Views of Responsible Officials and Planned Corrective Action:
Management agrees with the finding. The Health System will develop and implement a formal corrective
action plan to address training needs around eligibility clerk staff obtaining and maintaining acceptable
documentation to support Ryan White Program eligibility.
Corrective Action Plan: The training plan will support and strengthen training initiatives that began in
September of 2014, and will reestablish eligibility clerk familiarization in the
areas of the Ryan White Program, eligibility, documentation, and general grants
compliance. Upon completion of the training, eligibility clerk staff will document
their understanding of the Ryan White Program and eligibility process in their
personnel files.
The expected implementation date is February 2016.
16
ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section III – Federal Award Findings and Questioned Costs (Continued)
Finding Number 2015-006: Allowable Costs/Cost Principles
Federal Program Title:
Federal Catalog Number:
Federal Award Year(s):
Federal Agency:
Pass-Through Entity:
Medical Assistance Program (Medicaid; Title XIX)
93.778
2014 and 2015
U.S. Department of Health and Human Services
Alameda County Health Care Services Agency
Criteria
The California Department of Health Services requires Time Surveys to be completed in accordance with
the CMAA/TCM Implementation Plan (Plan) approved on May 3, 2013. California counties and their
subrecipients who receive funding for Medi-Cal Administrative Activities and Targeted Case Management
Programs are required to have participating employees complete a monthly Work Log Time Survey.
Section 7. The Components of a Worker Log Time Survey Document, of the Plan states the following:

Participants are required to complete, sign, and date the document on the last working day
of the time survey period and give the document to their supervisor.
o Any deviation to the signature requirement must be accompanied by a
documented justification.

By signing the completed Worker Log Time Survey documents, the participant is certifying
that they have read and understand requirements of the program in which they participate
(CMAA and/or TCM), they understand their role in the program in which they participate
(CMAA and/or TCM), and that all of the information contained in the Worker Log Time
Survey is true, accurate, and correct.
Condition
During our audit of the Health System’s Medi-Cal Administrative Activities Grant (MAA), we selected 27
Work Log Time Survey forms for review for the fiscal year 2015 grant period, and noted the following:
 1 form was signed and dated by the employee 15 days prior to month-end. Time was entered after
the date noted.
 1 form was not dated by the employee.
 1 form could not be located.
 20 forms were signed and dated by the employee after the last working day of the month.
We selected 26 Work Log Time Survey forms for review for the fiscal year 2014 grant period, and noted
the following:
 1 form was signed and dated by the employee and supervisor 3 days before month-end. Time was
entered after the date noted.
 1 form was signed and dated by the employee and supervisor 19 days before month-end. Time was
entered after the date noted.
 1 form was signed and dated by the employee and supervisor 20 days before month-end. Time was
entered after the date noted.
 1 form reported employee hours which agreed to the time report generated from Kronos, the time
entry system, but there was a manual note on the Kronos report reducing the number of approved
hours by 6.1 hours. There was no revisions made to the time survey form, thus hours appear
overstated.
 20 forms were signed and dated by the employee after the last working day of the month.
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ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2015
Section III – Federal Award Findings and Questioned Costs (Continued)
Finding Number 2015-006: Allowable Costs/Cost Principles (Continued)
Condition (Continued)
In addition we noted that 25 of the 53 forms reviewed were signed and dated by the reviewer over a month
after the respective month-end. Though the Plan does not appear to have a requirement relating to the
timing of the supervisor review and approval other than prior to invoice submission, it’s important that a
supervisor review and approve forms timely to ensure accuracy of reporting.
Our audit also included tracing the time surveys selected to the quarterly invoices claimed. We selected 6
of the 23 invoices submitted to the County of Alameda for reimbursement. We noted differences in the
allocation of time between the time survey summarization worksheets and the 2nd quarter invoice for the
Reimbursement department for fiscal year 2014 (October 1, 2013 through December 31, 2013). Though
the total hours were the same, there were differences on how hours were reported on 4 of the 5 line items.
Questioned Costs
Indeterminable related to the individual time survey documentation and cost pool composition - We did
not identify questioned costs in our sampling of the cost pool, although improper documentation could
have an impact on the allocation of program costs in the quarterly invoice.
$3,937 based on the differences in the hours allocation between the supporting worksheets and the invoice
for the 2nd quarter of fiscal year 2014.
Cause and Effect
The effort to coordinate the collection of the data appears to be cumbersome and employees may be unaware
of their responsibility to submit their Work Log Time Survey forms timely to their supervisors. Supervisors
do not appear to be timely reviewing the forms which may have an effect on accuracy of reporting and
directly impact the allocation of program costs in the invoices submitted to the County of Alameda.
Recommendation
We recommend that management remind participating employees and supervisors of the time survey
requirements, specifically the requirement to sign and date Work Log Time Survey forms on the last day
of the month or note reasoning for any deviations. We also recommend that policy be established to ensure
supervisors review the form timely. Furthermore, we recommend that management review the process of
accumulating data to complete the time survey analysis and consider ways to automate the process to
improve efficiency and mitigate risk of inaccurate reporting due to the manual process of data entry to
capture necessary information.
Views of Responsible Officials
Management agrees with the finding. The Health System will provide additional guidance to program
participants regarding timely completion and review of time studies. Additionally, Management will
evaluate means to improve the efficiency of the time survey process and a policy for time study
requirements will be developed and communicated to program participants by March 31, 2016.
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ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Status of Prior Year’s Findings and Questioned Costs
For the Year Ended June 30, 2015
Ref No.
Description
Status
2014-001
Documentation of Patient Records
Significant Deficiency
In process –
During the fiscal year 2015
audit, MGO identified 1 patient
file in a sample of 40 that did
not have insurance
documentation available for
review. The patient was seen at
Alameda Hospital. It was noted
that an insurance provider did
make payment on this account.
2014-002
Eligibility Requirement
Federal Program Title: HIV Care Formula Grants
CFDA#:
93.917
Material Weakness
See Finding Number 2015-005
2013-01
Contract Management
Significant Deficiency
See Finding Number 2015-002
2013-02
Formal Entity-Wide Security Program
Significant Deficiency
See Finding Number 2015-003
2010-17
General Information Technology Controls
Significant Deficiency
See Finding Number 2015-003
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ALAMEDA HEALTH SYSTEM
A PUBLIC HOSPITAL AUTHORITY
Supplementary Schedule of State of California
Emergency Management Agency Grant Expenditures
For the Year Ended June 30, 2015
The following schedule represents expenditures for U.S. Department of Justice grants passed through the
State of California, Emergency Management Agency (CalEMA), as well as CalEMA-funded grant
expenditures for the year ended June 30, 2015. This information is included in the Health System’s single
audit report at the request of CalEMA.
Program Title and
Expenditure Category
Cumulative
Actual 7/1/14-6/30/15
through
1
Match
June 30, 2014 Non-match
Cumulative
through
June 30, 2015 Variance
Grant No. /
Grant Period
Budget
Personnel Services
RC12280010 /
$ 330,333
$ 265,232
-
$ 275,173
$ 55,160
Operating Expenses
09/01/13 to
25,227
23,595
-
-
23,595
1,632
-
-
-
-
-
-
$ 355,560
$ 288,827
$
-
$ 298,768
$ 56,792
$ 342,820
$
Rape Crisis Program
Equipment
08/31/14
Total
$
9,941
9,941
$
$
Rape Crisis Program
Personnel Services
RC13290010 /
Operating Expenses
09/01/14 to
Equipment
Total
1
08/31/15
-
$ 245,626
$ 38,001
$ 283,627
$ 59,193
20,736
-
12,963
-
12,963
7,773
-
-
-
-
-
-
-
$ 258,589
$ 38,001
$ 296,590
$ 66,966
$ 363,556
$
Non-match amounts include federal expenditures in the Schedule under CFDA number 16.575 Crime Victim Assistance
for $14,912 in grant number RC12280010 and $63,900 in grant number RC13290010.
20