Costing and Cost Allocation , Financial Statement Analysis
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OverlakeHospitalAssociation_Financialstatements.PDF
OVERLAKE HOSPITAL ASSOCIATION
Consolidated Financial Statements and Consolidating Information
June 30, 2019 and 2018
(With Independent Auditors’ Report Thereon)
Independent Auditors’ Report
The Board of Directors
Overlake Hospital Association:
We have audited the accompanying consolidated financial statements of Overlake Hospital Association and
subsidiaries, which comprise the consolidated balance sheets as of June 30, 2019 and 2018, and the related
consolidated statements of operations and changes in net assets and cash flows for the years then ended, and
the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Overlake Hospital Association and subsidiaries as of June 30, 2019 and 2018, and the
results of their operations and their cash flows for the years then ended in accordance with U.S. generally
accepted accounting principles.
KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG LLP Suite 2900 1918 Eighth Avenue Seattle, WA 98101
2
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, in 2019 Overlake Hospital Association adopted
Financial Accounting Standards Board Accounting Standards Update (ASU) 2014-09, Revenue from Contracts
with Customers (Topic 606), requiring a change in the presentation of the provision for uncollectible accounts
and enhanced financial statement disclosures, and ASU 2016-14, Presentation of Financial Statements for
Not-for-Profit Entities, requiring a change in the presentation of net assets and enhanced financial statement
disclosures. Our opinion is not modified with respect to these matters.
Other Matters
Our audit was performed for the purpose of forming an opinion on the consolidated financial statements as a
whole. The consolidating information in Schedules 1 and 2 is presented for the purposes of additional analysis
and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures
applied in the audit of the consolidated financial statements and certain additional procedures, including
comparing and reconciling such information directly to the underlying accounting and other records used to
prepare the consolidated financial statements or to the consolidated financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United States of
America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated
financial statements as a whole.
October 28, 2019
OVERLAKE HOSPITAL ASSOCIATION
Consolidated Balance Sheets
June 30, 2019 and 2018
(In thousands)
Assets 2019 2018
Current assets: Cash and cash equivalents $ 20,770 29,730 Receivables, net 68,667 60,787 Current portion of pledges receivable 2,691 2,158 Current portion of assets whose use is limited 6,654 6,946 Supplies inventory 9,968 9,744 Prepaid expenses 11,218 10,722 Other current assets 5,043 5,519
Total current assets 125,011 125,606
Assets whose use is limited: Restricted by donors 11,547 10,657 Management designated 4,180 4,041 Funds held under bond indenture and collateral agreements 80,868 118,939 Less current portion (6,654) (6,946)
Total assets whose use is limited, net of current portion 89,941 126,691
Investments 498,491 466,515 Long-term portion of pledges receivable, net 6,142 4,743 Other long-term receivables, net 1,566 3,043 Land, buildings, and equipment, net 290,680 253,178
Other assets: Investments in joint ventures 2,901 2,740 Other assets 1,786 1,917
Total other assets 4,687 4,657
Total assets $ 1,016,518 984,433
3 (Continued)
OVERLAKE HOSPITAL ASSOCIATION
Consolidated Balance Sheets
June 30, 2019 and 2018
(In thousands)
Liabilities and Net Assets 2019 2018
Current liabilities: Current portion of long-term debt $ 5,449 5,245 Accounts payable 23,694 21,576 Accrued liabilities 50,606 56,168 Accrued interest payable 5,427 5,699 Payable to third-party agencies 7,862 7,229
Total current liabilities 93,038 95,917
Long-term debt, net of current portion 300,460 307,653 Pension liability — 5,438 Other long-term liabilities 10,890 11,454
Total liabilities 404,388 420,462
Net assets: Without donor restrictions 592,061 546,792 With donor restrictions 20,069 17,179
Total net assets 612,130 563,971
Total liabilities and net assets $ 1,016,518 984,433
See accompanying notes to consolidated financial statements.
4
OVERLAKE HOSPITAL ASSOCIATION
Consolidated Statements of Operations and Changes in Net Assets
Years ended June 30, 2019 and 2018
(In thousands)
2019 2018
Operating revenue: Patient service revenue $ 559,660 540,109 Provision for uncollectible accounts — (11,013)
Net patient service revenue 559,660 529,096
Other operating revenue 11,317 27,997 Contribution revenue 3,167 2,190
Net operating revenue 574,144 559,283
Operating expenses: Salaries 247,016 231,374 Registry 8,799 10,337 Employee benefits 58,613 54,191 Supplies 98,818 90,910 Purchased services 54,869 49,818 Interest and amortization 8,784 8,794 Depreciation and amortization 33,555 33,742 Rent, leases, and utilities 12,783 12,080 Hospital taxes and assessments 17,359 17,655 Marketing, insurance, and other 16,458 18,359
Total operating expenses 557,054 527,260
Excess of revenue over expenses from operations 17,090 32,023
Nonoperating revenue (expense), net: Investment income 10,858 13,552 Loss on refinancing — (8,627) Nonoperating expenses (13,090) (2,219)
Total nonoperating revenue (expense), net (2,232) 2,706
Excess of revenue over expenses 14,858 34,729
Other changes in net assets without donor restrictions:: Net assets released for capital acquisitions 4,876 6,924 Change in pension liability 14,902 (4,746) Change in net unrealized gains on investments 10,389 6,810 Other 244 343
Increase in net assets without donor restrictions 45,269 44,060
Changes in net assets with donor restrictions: Contributions 10,114 5,561 Investment income 431 616 Change in net unrealized gains on investments 83 24 Net assets released from restrictions (7,738) (8,626)
Increase (decrease) in net assets with donor restrictions 2,890 (2,425)
Increase in net assets 48,159 41,635
Net assets, beginning of year 563,971 522,336
Net assets, end of year $ 612,130 563,971
See accompanying notes to consolidated financial statements.
5
OVERLAKE HOSPITAL ASSOCIATION
Consolidated Statements of Cash Flows
Years ended June 30, 2019 and 2018
2019 2018
Cash flows from operating activities: Change in net assets $ 48,159 41,635 Adjustments to reconcile change in net assets to net cash provided by operating activities:
Depreciation and amortization 31,811 32,768 Provision for uncollectible accounts — 11,013 (Gain) loss on disposal of assets (34) 3 Loss on refinancing — 8,627 Restricted contributions received for capital and permanently restricted purposes (5,908) (1,054) Net realized and unrealized losses (gains) on investments and management designated assets
whose use is limited 10,913 (6,600) Equity earnings in joint ventures (161) (2,213) Changes in operating assets and liabilities:
(Increase) decrease in: Receivables, net (7,880) (16,817) Pledges receivable (1,932) (2,943) Supplies inventory (224) (715) Prepaid expenses (496) (2,568) Other current assets 476 279 Other long-term receivables 1,477 355 Prepaid pension — 1,946
(Decrease) increase in: Accounts payable 847 3,308 Accrued liabilities (5,562) 6,976 Deferred revenues — (14,029) Accrued interest payable (272) 1,970 Payable to third-party agencies 633 1,629 Pension liability (5,438) 5,438 Other long-term liabilities (564) 612
Net cash provided by operating activities 65,845 69,620
Cash flows from investing activities: Purchase of land, buildings, and equipment (69,671) (45,262) Proceeds from disposal of assets 50 5 Proceeds from sale of investments and management designated assets whose use is limited 68,192 81,701 Purchase of investments and management designated assets whose use is limited (74,039) (239,145) Distributions from joint ventures — 2,564
Net cash used in investing activities (75,468) (200,137)
Cash flows from financing activities: Restricted contributions received for capital and restricted purposes 5,908 1,054 Principal payments on long-term debt (5,245) (8,640) Proceeds from issuance of new debt — 249,215 Refunding of old debt from new debt — (98,153) Financing fees paid — (1,633)
Net cash provided by financing activities 663 141,843
Net (decrease) increase in cash and cash equivalents (8,960) 11,326
Cash and cash equivalents, beginning of year 29,730 18,404
Cash and cash equivalents, end of year $ 20,770 29,730
Supplemental disclosures of cash flow information: Cash paid for interest, net of amounts capitalized $ 9,056 6,824 Purchase of land, buildings, and equipment included in accounts payable 5,214 3,942
See accompanying notes to consolidated financial statements.
(In thousands)
6
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
7 (Continued)
(1) Description of Organization and Summary of Significant Accounting Policies
(a) Organization
Overlake Hospital Association (the Association) is a 501(c)(3) not-for-profit corporation located in
Bellevue, Washington. The purpose of the Association is to promote and conduct health-related
activities through its affiliation with other health-related organizations. The Association owns buildings
adjacent to the Overlake Hospital Medical Center campus and currently leases space for mixed office
use.
Overlake Hospital Medical Center (the Hospital) is a 501(c)(3) not-for-profit corporation located in
Bellevue, Washington. The Hospital’s primary service area is from Bothell to Black Diamond and from
the Cascade Mountains to Lake Washington, including Mercer Island. The Hospital provides inpatient,
outpatient, and emergency care services. The Hospital is controlled by the Association.
The Hospital is affiliated with other healthcare related organizations including the following:
Overlake Medical Clinics, LLC (the Clinics) was formed to establish, own, and operate primary care
clinics and other outpatient healthcare entities. The Hospital is the sole member of the Clinics.
Overlake Hospital Foundation (the Foundation) is a 501(c)(3) not-for-profit corporation. The purpose
of the Foundation is to: (a) receive grants, bequests, donations, and contributions on behalf of;
(b) provide fund-raising and other support to; and (c) make contributions to the Hospital and its
related tax-exempt corporations. The Foundation is controlled by the Hospital.
Overlake Hospital Auxiliaries (the Auxiliaries) is a 501(c)(3) not-for-profit corporation. The purpose
of the Auxiliaries is to promote, support, and advance the well-being of the Hospital through a
variety of ways including serving as goodwill ambassadors to the community, conducting
fund-raising activities, maintaining membership strength, and providing services to the Hospital for
the benefit of its patients and their families. The Auxiliaries are controlled by the Hospital.
Overlake Medical Tower LLC (the Medical Tower) was formed to acquire, own, develop, and
operate a medical office building and garage complex on the Hospital’s campus. The Association is
the sole member of the Medical Tower.
The consolidated financial statements of the Association include the accounts of the Association and all
of the above listed affiliates.
(b) Reclassifications
Certain prior year amounts have been reclassified to conform with the fiscal year 2019 presentation.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
8 (Continued)
(c) Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted
accounting principles 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 consolidated financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Significant items subject to such
estimates include the provision for contractual allowances and uncollectible accounts, fair value of
financial instruments, reserves for employee benefit obligations, and self-insurance reserves for
professional liability and workers’ compensation.
(d) Basis of Presentation
The consolidated financial statements include the accounts of the Association and its affiliates. All
significant intercompany transactions between the Association and its affiliates have been eliminated in
consolidation.
(e) Cash and Cash Equivalents
The Association maintains cash on deposit at financial institutions, which at times exceed the limits
insured by the Federal Deposit Insurance Corporation. This exposes the Association to potential risk of
loss in the event the financial institution becomes insolvent.
(f) Allowance for Uncollectible Accounts
As a result of adopting Financial Accounting Standards Board (FASB) Accounting Standards Update
(ASU) 2014-09 as described in Note 1, the Hospital and the Clinics continue to maintain an allowance
for uncollectible accounts related to performance obligations satisfied prior to July 1, 2019. The
Hospital estimates this allowance based on the aging of accounts receivable, historical collection
experience, and other relevant factors. The Clinics estimate this allowance based on the historical
collection experience by the clinic and other relevant factors. There are various factors that can impact
the collection trends, such as changes in the economy, which in turn have an impact on unemployment
rates and the number of uninsured and underinsured patients, the increased burden of co-insurance,
and deductibles to be made by patients with insurance and business practices related to collection
efforts. These factors continuously change and can have an impact on collection trends and the
estimation process.
(g) Pledges Receivable
Pledges of financial support are recorded at fair value by the Association when a donor’s unconditional
promise to give has sufficient definition with respect to the amount and planned timing of the donation.
Conditional promises to give and intentions to give are reported at fair value at the earlier of when the
contingency is met or the date the gift is received. An allowance for uncollectible pledges is recorded
based on an estimated percentage of pledges that may not be collectible based on historical
experience. The Association anticipates collection of net pledges receivable over the next one to
ten years. Pledges over $250 not scheduled to be collected within one year are discounted using a
discount factor based upon an estimate of the risk factor and duration of each pledge.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
9 (Continued)
(h) Assets Whose Use is Limited
Certain assets of the Association are held in trust under indenture agreements, are restricted by donor
stipulations, or are management designated. Assets that have been management designated are
subject to change in the future. These assets consist primarily of cash, accrued interest, money market
funds, bond mutual funds, and equity mutual funds, and are recorded at fair value.
(i) Investments
Investments consist primarily of cash, accrued interest, money market funds, bond mutual funds, and
equity mutual funds, and are recorded at fair value. Investments are classified as other-than-trading
with unrealized gains and losses included in changes in net assets unless the losses are considered
other-than-temporary.
(j) Other-Than-Temporary Impairment
The Association reviews investments each period and assesses whether an other-than-temporary
impairment has occurred. Each investment within the portfolio is evaluated individually. Major factors
that are considered are: 1) fair value of the investment is below cost, 2) loss has been sustained over
an extended period of time, and 3) whether the Association intends to sell or could be required to sell
the investment security, or, if not, whether it has the ability to hold an investment for a reasonable
period of time sufficient for a forecasted recovery of fair value up to or beyond the cost of the
investment. Additional factors that might be considered include, but are not limited to: 1) credit risk of
the investment, 2) decline attributable to adverse conditions specifically related to the investment, its
industry, or geography, 3) investment has been downgraded by a rating agency, 4) dividends have
been reduced or eliminated or scheduled interest has not been paid, 5) changes in the value of the
investment after the close of the period, 6) trading in the investment has been suspended, and
7) discussion with investment advisor.
A decline in the market value of any other-than-trading security below cost that is deemed to be
other-than-temporary results in an impairment to reduce the carrying amount to fair market value. The
impairment is charged against nonoperating revenue and a new cost basis for the security is
established.
(k) Liquidity
Cash and cash equivalents and accounts receivable are the primary liquid resources used by the
Association to meet expected expenditure needs within the next year. Although intended to satisfy
long-term obligations and capital needs, management estimates that approximately 87% of
investments and virtually all of its current assets, as stated at June 30, 2019, could be utilized within a
year if needed while continuing to satisfy bond covenants.
(l) Land, Buildings, and Equipment
Land, buildings, and equipment acquisitions over $3 with a useful life of at least two years are recorded
at cost. Improvements and replacements of buildings and equipment are capitalized; maintenance and
repairs are expensed. The cost of land, buildings, and equipment sold or retired and the related
accumulated depreciation are removed from the records and any resulting gain or loss is recorded.
Depreciation is computed using the straight-line method over the estimated useful lives of the related
assets or lease term if shorter.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
10 (Continued)
The fair value of a long-lived asset may change due to a number of factors such as a significant
decrease in the market price of a long-lived asset, a significant adverse change in the manner in which
the asset is used, a significant adverse change in legal factors or the business climate that could affect
the value of the asset, or a change in expected useful life due to changes regarding obsolescence,
planned replacement, or disposal. When management becomes aware of a situation that causes the
fair value of a long-lived asset to be lower than the book value, management records an impairment
and revises the estimated useful life as needed.
(m) Deferred Financing Costs
The Association defers the costs of obtaining financing and amortizes these costs over the term of the
related debt using the effective-interest method. Deferred financing costs are included in long-term
debt.
(n) Net Assets with Donor Restrictions
Net assets with donor restrictions are those whose use by the Association have been limited by donors
to a specific time period or purpose or restricted by donors to be maintained by the Association in
perpetuity.
(o) Net Patient Service Revenue
The Association is paid for services to Medicare inpatients under the Prospective Payment System,
which provides for reimbursement based on diagnosis-related groupings (DRGs). Such DRG payments
are prospectively established and may be greater or less than the Association’s actual charges for its
services. The majority of Medicare outpatient services are reimbursed based on ambulatory payment
classifications (APCs). APC payments are prospectively established and may be greater or less than
the Association’s actual charges for its services. Payments for Medicare outpatient laboratory services
and certain therapeutic services are based on a fee schedule.
The Association is paid for services provided to Medicaid inpatients under a DRG-based system.
Payments for Medicaid outpatient services are reimbursed on a percentage of actual charges or a fee
schedule.
The Association has agreements with third-party payors that provide for payments at amounts different
from its established rates. Payment arrangements include prospectively determined rates per
discharge, reimbursed costs, discounted charges, per diem payments, and risk sharing agreements.
Net patient service revenue is reported at the estimated transaction price the Association expects to
collect as a result of satisfying it’s performance obligations, including estimated retroactive adjustments
under reimbursement agreements with third-party payors.
For services that are paid under cost-reimbursed contractual arrangements with Medicare, the
Association is paid at an interim rate during the year. The difference between the interim rate and the
actual reimbursement based on defined allowable costs results in a receivable from or a payable to
third-party agencies.
The Medicare program’s administrative procedures preclude final determination of amounts receivable
from or payable to the Medicare program until after the Association’s annual cost reports have been
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
11 (Continued)
audited or otherwise reviewed and settled by Medicare. The estimated settlement receivable/payable
for unsettled cost reports is included in the accompanying consolidated financial statements.
Net patient service revenues are recognized at the time the services are provided to patients. Revenue
is recorded in the amount which the Association expects to collect. Retroactive adjustments are
accrued on an estimated basis in the period the performance obligations are satisfied and adjusted in
future periods as final settlements are determined. The Association’s net patient service revenue
increased by $1,073 and $1,799 as a result of retroactive adjustments under reimbursement
agreements with third-party payors during 2019 and 2018, respectively, which are now considered
variable consideration in 2019 under Topic 606.
(p) Charity Care
The Association provides service to eligible patients at reduced or no cost based upon the individual
patient’s financial resources. The Association’s policy provides for 100% charity to patients with income
up to 200% of the federal poverty guidelines and from 65% to 98% charity to patients with income from
201% to 400% of the federal poverty guidelines. Records are kept to identify, approve, and monitor
those costs that are incurred under the charity care policy. Because the Association does not expect
payment, estimated charges for charity care are not included in revenue. In addition to the approved
charity care described above, the Association believes that other uncollected accounts would be
approved under its charity care policy if information about the patient’s financial resources were shared
with the Association. Such amounts are not considered charity care.
(q) Private Pay Discounts
The Association offers patients with no insurance prompt pay discounts for medically necessary
services. A 30% prompt pay discount is granted for full payment within 30 days of the first billing
statement. Prompt pay discounts are recorded as an adjustment to patient service charges.
(r) Donor-Restricted Gifts
Gifts received from or pledged by donors are reported as contributions with donor restrictions if they
are received with donor stipulations that limit the use of the donated assets or contain a time restriction.
When a donor restriction expires, that is, when a stipulated time restriction ends or restricted purpose is
accomplished, net assets with donor restrictions are reclassified as net assets without donor
restrictions.
(s) Excess of Revenue over Expenses
The consolidated statements of operations and changes in net assets include excess of revenue over
expenses. Changes in net assets that are excluded from excess of revenue over expenses include net
assets released for capital acquisitions, certain changes in pension liability, change in net unrealized
gains on investments that are other-than-trading, contributions to net assets with donor restrictions, and
investment income from donor-designated endowments.
(t) Federal Income Taxes
The Association is an organization exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code (IRC) and is generally not subject to federal income taxes. However, the Association is
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
12 (Continued)
subject to income taxes on any net income that is derived from a trade or business, regularly carried
on, and not in furtherance of the purposes for which it was granted exemption.
(u) Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires
an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. The ASU replaces most existing revenue recognition
guidance in U.S. generally accepted accounting principles (GAAP) upon implementation. The
Association adopted this standard on July 1, 2018 under the cumulative effect transition method.
Results for reporting periods beginning on or after July 1, 2018 are presented under Topic 606, while
prior period amounts continue to be presented in accordance with the Association’s historical
accounting under Revenue Recognition (Topic 605). The adoption of the standard resulted in a change
in presentation on the statement of operations and changes in net assets for the provision for
uncollectible accounts and enhanced footnote disclosures. The adoption did not result in a significant
impact on the recognition of net patient service revenue.
In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements of Not-for-Profit
Entities, which, among other things requires a not-for-profit to: 1) present on the face of the
consolidated balance sheet amounts for two classes of net assets at the end of the period, rather than
for the previously required three classes. The two classes are net assets with donor restrictions and net
assets without donor restrictions; 2) present on the face of the consolidated statement of operations
and changes in net assets the amount of the change in each of the two classes of net assets;
3) continue to present on the face of the consolidated statement of cash flows the net amount for
operating cash flows using either the direct or indirect method; 4) provide various enhanced
disclosures; 5) report investment return net of external and direct internal investment expenses and no
longer require disclosure of those netted expenses; and 6) use, in the absence of explicit donor
stipulations, the placed-in-service approach for reporting expirations of restrictions on gifts of cash or
other assets to be used to acquire or construct a long-lived asset and reclassify any amounts from net
assets with donor restrictions to net assets without donor restrictions for such long-lived assets that
have been placed in service as of the beginning of the period of adoption. The Association adopted
ASU 2016-14 effective July 1, 2018. ASU 2016-14 was applied using a retrospective basis. As a result
of adoption, temporarily restricted and permanently restricted net assets of $11,334 and $5,845,
respectively, were combined to create net assets with donor restrictions in the 2018 consolidated
financial statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for the
Association on July 1, 2019. The Association is currently evaluating the effects this standard will have
on the Association’s consolidated financial statements and accompanying disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases, which, among other things, requires
lessees to recognize most leases on-balance sheet. This will increase the reported assets and
liabilities. Lessor accounting remains substantially the same as current U.S. GAAP. ASU 2016-02
supersedes Topic 840, Leases. ASU 2016-02 is effective for the Association on July 1, 2019. The
inventory of leases has been finalized. Adoption of this standard is expected to have an impact
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
13 (Continued)
between $30,000 and $35,000 in an additional liability and right of use asset on the consolidated
balance sheet.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets
and Financial Liabilities. The ASU, among other things, requires equity securities classified as other
than trading to be measured at fair value with changes in fair value recognized in excess of revenues
over expenses and updates certain disclosure requirements related to financial instruments.
ASU 2016-01 is effective for the Association for annual and interim periods beginning on or after July 1,
2019; however, the Association early adopted the option to remove the fair value of debt disclosure as
of June 30, 2018 as permitted under the provisions of the ASU. When the remaining provisions of this
ASU are adopted, a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal
year of adoption is required. The Association is currently evaluating the effects this standard will have
on the Association’s consolidated financial statements and accompanying disclosures.
(2) Net Patient Service Revenue
(a) Disaggregation of Revenue
The mix of net patient service revenue by payor for the years ended June 30, 2019 and 2018 is as
follows:
2019 2018
Medicare $ 97,299 96,501
Medicaid 2,401 4,325
Kaiser Permanente/Group Health 124,827 112,940
Premera 97,009 89,562
Regence 77,309 83,954
Other third-party payors and private pay 160,815 141,814
Total $ 559,660 529,096
(b) Hospital Safety Net Program
Under the Hospital Safety Net program, Washington State nongovernmental hospitals are assessed a
fee on all non-Medicare patient days, up to a maximum of fifty-four thousand days per year. This fee is
collected by the state and the state uses these funds to obtain federal Medicaid matching funds. Each
state fiscal year, the state uses the assessment and Medicaid matching funds to make supplemental
payments to Washington hospitals. The law sunsets on July 1, 2021.
Safety net revenue recognized under the program in the consolidated statements of operations is
$13,483 and $14,091 for the years ended June 30, 2019 and 2018, respectively and is classified in net
patient service revenue. Safety net expenses recognized under the program in the consolidated
statements of operations are $12,381 and $12,977 for the years ended June 30, 2019 and 2018,
respectively and were classified in hospital taxes and assessments.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
14 (Continued)
Safety net revenue recognized and not yet received as of June 30, 2019 and 2018 totaled $3,558 and
$3,253, respectively. Safety net expenses recognized and not yet paid as of June 30, 2019 and 2018
totaled $3,095 and $3,244, respectively.
(c) Charity Care and Community Benefit
The Association provides care without charge or at reduced rates to patients who qualify for charity
care according to the Association’s policy. The Association determines the cost of charity care using a
cost to charge ratio following the regulatory guidelines. Total expenses are reduced by bad debt, other
operating revenue, the hospital safety net assessment, and community benefit expense and patient
charges are reduced by community benefit revenue in determining the cost to charge ratio. The ratio is
then applied to the charges that were written off for charity to determine the cost of charity. For the
years ended June 30, 2019 and 2018, the cost of providing charity was estimated at approximately
$5,687 and $7,057, respectively.
The Association provides care to Medicaid patients at rates below the cost of providing services. For
the years ended June 30, 2019 and 2018, payments were less than estimated cost by approximately
$17,816 and $15,971, respectively.
The Association is also involved in an array of activities that benefit the broader community.
Community education classes are offered in a wide range of health-related topics including preparing
for childbirth, positive parenting, infant and child safety, adult first aid, CPR, women’s health, smoking
cessation, weight loss, diabetes, balance, dementia, living wills, long-term care insurance, cholesterol,
caregiver support, dealing with cancer, and depression. In addition to classes, the Association has a
cancer resource center that coordinates support groups, counseling, and provides access to the latest
information on cancer at no cost. The Association assists patients that need help enrolling in Medicaid.
Education is part of the Association’s mission and is evidenced by the Association’s participation in
several residency programs or by providing a clinical setting for college-based programs including
nursing, pharmacy technicians, medical imaging technicians, respiratory therapists, lab assistants, and
cancer counselors. The Association operates a senior care clinic at a loss for the benefit of the
community. The Association participates in clinical research projects. As a community member, the
Association participates and helps sponsor many community events in the area it serves. The
estimated net unreimbursed expenditures on community benefit programs were $5,620 and $5,701 in
2019 and 2018, respectively.
The Association works in partnership with a number of community agencies and provides volunteer
support for programs and events that benefit the community. It is the Association’s belief that giving
back to the community is an integral part of its mission.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
15 (Continued)
(d) Concentrations of Credit Risk
The Association grants credit without collateral to its patients, most of whom are local residents and are
insured under third-party payor agreements. The mix of receivables from patients and third-party
payors at June 30 is as follows:
2019 2018
Medicare 21 % 18 %
Medicaid 2 3
Kaiser Permanente 14 16
Premera 13 13
Regence 8 9
Other third-party payors 34 31
Private pay 8 10
Total 100 % 100 %
(e) Allowance for Uncollectible Accounts
The Association records a provision for uncollectible accounts in the period of services on the basis of
past experience, which has historically indicated that many patients are unresponsive or are otherwise
unwilling to pay the portion of their bill for which they are financially responsible. As a result of adopting
ASU 2014-09 as described in Note 1(u), the Hospital and the Clinics continue to maintain an allowance
for uncollectible accounts related to performance obligations satisfied prior to July 1, 2019. Any
provision for uncollectible accounts in 2019 was considered an implicit price concession and is
recorded directly to net patient service revenue. The estimates made and changes affecting those
estimates for the years ended June 30, 2019 and 2018 are summarized below and relate solely to
revenues recorded prior to July 1, 2018:
2019 2018
Changes in allowance for uncollectible accounts:
Allowance for uncollectible accounts at beginning of year $ 9,465 9,009
Write-off of uncollectible accounts, net of recoveries (7,840) (10,557)
Provision for uncollectible accounts — 11,013
Allowance for uncollectible accounts at end of year $ 1,625 9,465
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
16 (Continued)
(3) Assets Whose Use is Limited and Investments
Assets whose use is limited and investments, which are stated at fair value based primarily on quoted
market prices, consisting of the following as of June 30, 2019 and 2018:
2019 2018
Assets whose use is limited:
Cash and accrued interest receivable $ 6,152 5,921
Money market funds 76,651 114,407
Bond mutual funds 5,582 5,237
Equity mutual funds 8,210 8,072
Assets whose use is limited $ 96,595 133,637
Investments:
Cash and accrued interest receivable $ 2,382 2,080
Money market funds 28 12
Bond mutual funds 247,473 228,335
Equity mutual funds 248,608 236,088
Total investments $ 498,491 466,515
Components of unrestricted investment income (which is included in other nonoperating revenue
(expense), net) for the years ended June 30, 2019 and 2018 are as follows:
2019 2018
Interest and dividends $ 32,242 14,041
Net realized (losses) gains on investments (21,384) (489)
Total investment income $ 10,858 13,552
Components of temporarily restricted investment income for the years ended June 30, 2019 and 2018 are
as follows:
2019 2018
Interest and dividends $ 431 361
Net realized gains on investments — 255
Total investment income $ 431 616
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
17 (Continued)
The following tables summarize the composition of the Association’s assets whose use is limited and
investments with unrealized losses as of June 30, 2019 and 2018:
2019
Unrealized losses existing
Less than 12 m onths 12 Months or longer Total
Unrealized Unrealized Unrealized
Description of securities Fair value loss Fair value loss Fair value loss
Bond mutual funds $ — — 53,309 (351) 53,309 (351)
Equity mutual funds 7,833 (493) 36 (5) 7,869 (498)
$ 7,833 (493) 53,345 (356) 61,178 (849)
2018
Unrealized losses existing
Less than 12 m onths 12 Months or longer Total
Unrealized Unrealized Unrealized
Description of securities Fair value loss Fair value loss Fair value loss
Bond mutual funds $ 132,645 (3,578) 49,494 (2,908) 182,139 (6,486)
Equity mutual funds 13,998 (430) — — 13,998 (430)
$ 146,643 (4,008) 49,494 (2,908) 196,137 (6,916)
The Association recognized $21,389 and $607 of other-than-temporary impairment on assets whose use is
limited and investments during the years ended June 30, 2019 and 2018, respectively.
The majority of the Association’s investments and assets whose use is limited are in bond and equity
mutual funds. Unrealized losses on these investments and assets whose use is limited are due to the
economic environment.
(4) Disclosure about Fair Value of Financial Instruments
Generally Accepted Accounting Principles established a framework for measuring fair value that provides a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under Accounting Standards Codification (ASC) 820-10-50, Fair
Value Measurement – Overall, are described below:
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. At
June 30, 2019 and 2018, Level 1 securities include primarily money market funds and mutual funds.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model based valuation techniques
for which all significant assumptions are observable in the market. At June 30, 2019 and 2018, Level 2
securities include an unregistered mutual fund.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
18 (Continued)
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions reflect the Association’s estimates of
assumptions that market participants would use in pricing the asset or liability. Valuation techniques
include use of discounted cash flow models and similar techniques. At June 30, 2019 and 2018, there
were no Level 3 securities.
Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The Association maximizes the
use of observable inputs and minimizes the use of unobservable inputs when developing fair value
measurements. Fair value measurements for assets and liabilities where there is limited or no observable
market data and, therefore, are based primarily upon estimates calculated by the Association, are based on
the economic and competitive environment, the characteristics of the asset or liability, and other factors.
Therefore, the results cannot be determined with precision and may not be realized upon an actual
settlement of the asset or liability. There may be inherent weaknesses in any calculation technique, and
changes in the underlying assumptions used, including discount rates and estimates of future cash flows,
that could significantly affect the results of the current or future values.
Following is a description of valuation methods and assumptions used for assets recorded at fair value and
for estimating fair value for financial instruments not recorded at fair value but required to be disclosed:
(a) Cash
The carrying amounts, at cost, equal fair value.
(b) Marketable Securities
The tables below present the balances of assets measured at fair value on a recurring basis as of
June 30, 2019 and 2018:
2019
Investments at estimated fair value
Valuation
Quoted techniques
prices in Valuation incorporating
active techniques information
markets based on other than
for identical observable observable
assets market data market data
(Level 1) (Level 2) (Level 3) Total
Cash and accrued interest $ 6,152 — — 6,152
Money market funds 76,651 — — 76,651
Bond mutual funds 5,582 — — 5,582
Equity mutual funds 8,210 — — 8,210
Total assets whose
use is limited $ 96,595 — — 96,595
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
19 (Continued)
2019
Investments at estimated fair value
Valuation
Quoted techniques
prices in Valuation incorporating
active techniques information
markets based on other than
for identical observable observable
assets market data market data
(Level 1) (Level 2) (Level 3) Total
Cash and accrued interest $ 2,382 — — 2,382
Money market funds 28 — — 28
Bond mutual funds 247,473 — — 247,473
Equity mutual funds 224,975 23,633 — 248,608
Total investments $ 474,858 23,633 — 498,491
2018
Investments at estimated fair value
Valuation
Quoted techniques
prices in Valuation incorporating
active techniques information
markets based on other than
for identical observable observable
assets market data market data
(Level 1) (Level 2) (Level 3) Total
Cash and accrued interest $ 5,921 — — 5,921
Money market funds 114,407 — — 114,407
Bond mutual funds 5,237 — — 5,237
Equity mutual funds 8,072 — — 8,072
Total assets whose
use is limited $ 133,637 — — 133,637
Cash and accrued interest $ 2,080 — — 2,080
Money market funds 12 — — 12
Bond mutual funds 228,335 — — 228,335
Equity mutual funds 213,313 22,775 — 236,088
Total investments $ 443,740 22,775 — 466,515
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
20 (Continued)
(5) Land, Buildings, and Equipment
The Association’s land, buildings, and equipment accounts, and related accumulated depreciation
accounts, as of June 30, 2019 and 2018 are set forth below:
2019 2018
Assets:
Land $ 7,601 7,601
Land improvements 5,011 4,957
Buildings and improvements 287,187 285,236
Equipment:
Fixed 46,831 46,474
Movable 232,296 220,763
Construction in progress 84,939 37,482
Total land, buildings, and equipment 663,865 602,513
2019 2018
Accumulated depreciation:
Land improvements $ 4,361 4,261
Buildings and improvements 155,116 144,217
Equipment:
Fixed 34,717 32,823
Movable 178,991 168,034
Total accumulated depreciation 373,185 349,335
Total land, buildings, and equipment, net $ 290,680 253,178
The Association recorded $33,424 and $33,484 of depreciation expense in 2019 and 2018, respectively.
The following is a summary of asset lives used for calculating depreciation:
Asset lives
Land improvements 5–40 years
Buildings and improvements 2–40 years
Fixed equipment 3–30 years
Movable equipment 2–20 years
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
21 (Continued)
(6) Sale of Interest in PacLab, LLC
In May 2017, the Association entered into an agreement to sell its interest in PacLab, LLC to a third party.
The Association was paid $14,339 for its interest in PacLab upon entering the agreement. This amount less
the value of the interest was recorded as deferred revenue until the sale closed on April 6, 2018 at which
time it was recorded as other operating revenues.
(7) Financing
(a) Long-Term Debt
Long-term debt, as of June 30, 2019 and 2018, is as follows:
2019 2018
Revenue bonds, Series 2014, 4.00% to 5.00%, due in
annual principal installments ranging from $1,360 to
$3,370, until 2038, including a premium of $3,112 and
$3,397, and net of deferred financing cost of $556 and
$607 as of June 30, 2019 and 2018, respectively,
callable on or after July 2024. $ 47,276 48,800
Revenue bonds, Series 2017A/B, 4.00% to 5.00%, due in
annual principal installments ranging from $2,625 to
$16,215, from 2023 until 2043, including a premium of $19,893
and $21,554, and net of deferred financing cost of $1,340 and
$1,441 as of June 30, 2019 and 2018, respectively, callable 195,339 196,897
on or after January 2028.
Revenue bonds, Series 2017C, variable rate, due in annual
principal installments ranging from $14,180 to $18,185, from
2043 until 2045, net of deferred financing cost of $110 and $142
as of June 30, 2019 and 2018, respectfully. Principal may be
prepaid in whole or in part at each Rate Reset Date and is
subject to a mandatory tender date of December 21, 2022 unless
the Bank (or other owner) elects the right to retain the bonds. 49,890 49,858
Note payable to a financial institution, 3.34%, secured
by a deed of trust on land, building, and rental
income due in monthly payments including interest
of $373 until August 2022, net of deferred financing cost
of $25 and $42 as of June 30, 2019 and 2018,
respectively. 13,404 17,343
Total long-term debt 305,909 312,898
Less current portion (5,449) (5,245)
Long-term debt, net of current portion $ 300,460 307,653
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
22 (Continued)
In fiscal year 2018, the Hospital received proceeds from the Washington Health Care Facilities
Financing Authority, Revenue Bonds, Series A, B and C with total proceeds of approximately $249,215.
The 2017 Series C bonds, in the amount of approximately $49,890 as of June 30, 2019, are variable
rate revenue bonds which were all purchased in a private placement by a financial institution. They will
be held by that financial institution until December 2022 unless an election is made by the financial
institution to retain the 2017 Series C Revenue Bonds for a longer period. If the financial institution
does not elect to retain the 2017 Series C bonds, the bonds will be remarketed and it is possible that if
the remarketing is not successful they will become due and payable in December 2022. The debt
maturity table includes the expected principal payments for the 2017 Series C Revenue Bonds
according to the original contractual maturity schedule at the time of issuance.
The principal amounts due by year are as follows:
Fiscal year:
2020 $ 5,449
2021 5,652
2022 5,866
2023 6,503
2024 6,815
Thereafter 254,650
284,935
Add net unamortized bond premiums 23,005
Less unamortized deferred financing
costs (2,031)
$ 305,909
The obligated group for the revenue bonds (the bonds) consists of the Hospital and the Association. As
security for the payment of the bonds, the Hospital has granted the Trustee a security interest in the
Hospital’s gross revenue and the moneys in the trust funds as described below. Trust funds have been
established for the regular deposit of interest and principal payments of the bonds and is reflected
within assets whose use is limited on the accompanying consolidated balance sheet.
Under the terms of the loan agreements, the Hospital has agreed to maintain certain financial ratios
and comply with certain other covenants.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
23 (Continued)
(8) Retirement Program
The Hospital’s retirement program consists of a Cash Account Plan (the Plan), a Voluntary Employee Tax
Deferred Plan 403(b) (the Voluntary Plan), and a Contribution Plan 401(a) (the Contribution Plan).
(a) The Plan
The Plan is a defined benefit, noncontributory plan with a defined contribution feature. The Plan covers
all qualified employees hired prior to September 1, 2008, including employees of the Hospital’s
controlled affiliates, complies with the Employee Retirement Income Security Act of 1974 and is
accounted for in accordance with ASC 715-20-50, Compensation – Retirement Benefits – Defined
Benefit Plans – General. The measurement date of the Plan is June 30.
On April 25, 2018, the Finance Committee of the Board of Trustees of the Hospital approved a plan to
terminate the Plan on July 15, 2018 pursuant to the criteria outlined in the plan document. All
participant balances that were not fully vested became fully vested as of July 15, 2018 due to the plan
termination.
On February 1, 2019, plan participants were given the option to elect from the following methods to
receive the value of their benefits: 1) immediate lump sum payment calculated as of May 1, 2019 which
may be rolled over to the Overlake Hospital Medical Center 403(b) Retirement Plan (if the participant is
an active employee), an Individual Retirement Account (IRA), or another eligible retirement plan; 2)
immediate lump sum payment calculated as of May 1, 2019 taken in cash subject to applicable taxes
and penalties; 3) immediate monthly annuity payment as of May 1, 2019; 4) as a deferred benefit under
the normal terms of the Plan, from an insurance company selected by the Plan. Participants had until
March 18, 2019 to make an election. Participants that did not make an election were considered to
have elected the deferred benefit.
On April 30, 2019, benefit payments were made to participants that had elected an immediate lump
sum. On June 28, 2019, funds were transferred to Principal Life Insurance Company to satisfy the
liabilities of the immediate monthly annuity payments and the deferred benefits.
The Plan received approval of the plan termination from the IRS on June 4, 2019.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
24 (Continued)
A summary of the change in benefit obligation and change in plan assets for the years ended June 30,
2019 and 2018 is as follows:
2019 2018
Benefit obligation at beginning of year $ 64,966 58,787
Service cost 960 2,803
Interest cost 2,000 1,971
Benefits paid (1,028) (4,591)
Expenses paid (1,233) (326)
Actuarial (gain) loss (2,029) 3,346
Plan amendments — 757
Plan settlements (63,030) —
Benefits and expense payable (606) —
Special termination benefits — 2,219
Benefit obligation at end of year — 64,966
Fair value of plan assets at beginning of year 59,528 60,733
Actual return on plan assets 869 2,168
Employer contribution 5,500 1,544
Benefits paid (1,028) (4,591)
Expenses paid (1,233) (326)
Plan settlements (63,030) —
Benefits and expense payable (606) —
Fair value of plan assets at end of year — 59,528
Funded status — (5,438)
Net amount recognized in the consolidated
balance sheets $ — (5,438)
2019 2018
Amounts recognized in unrestricted net assets consist of:
Accumulated loss $ — (14,902)
Net actuarial loss $ — (14,902)
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
25 (Continued)
A summary of the components of net periodic benefit cost for the years ended June 30, 2019 and 2018
is as follows:
2019 2018
Service cost $ 960 2,803
Interest cost 2,000 1,971
Expected return on plan assets (1,317) (3,285)
Amortization of loss — 608
Amortization of prior service cost — (109)
Amortization of net loss (gain) 231 (25)
Settlement loss recognized 13,090 —
Special termination benefit recognized — 2,219
Net periodic benefit cost $ 14,964 4,182
Weighted average assumptions used to determine benefit obligations at June 30, 2019 and 2018 were
as follows:
2019 2018
Discount rate N/A 4.08 %
Rate of compensation increase N/A 5.75
Measurement date June 30, 2019 June 30, 2018
Weighted average assumptions used to determine net benefit cost for the years ended June 30, 2019
and 2018 were as follows:
2019 2018
Discount rate 4.08%/4.02% 3.54 %
Long-term rate of return on assets 3.02% 5.61
Rate of compensation increase N/A 5.75
The objectives of the Plan’s investment policy are to protect the funded status of the Plan by reducing
the investment risk to align with the reduced timeline to pay out plan assets, secondarily maximize
returns within reasonable and prudent levels of risk, and maintain sufficient liquidity to meet benefit
payment obligations on a timely basis. At June 30, 2019 and 2018 100% of plan assets were in money
market funds.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
26 (Continued)
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as
of June 30, 2019:
Investments at estimated fair value
Investments
at fair Valuation
as value techniques
determined Valuation incorporating
by quoted techniques information
prices in based on other than
active observable observable
markets market data market data
(Level 1) (Level 2) (Level 3) Total
Mutual funds:
Money market funds $ 606 — — 606
Total investments $ 606 — — 606
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as
of June 30, 2018:
Investments at estimated fair value
Investments
at fair Valuation
as value techniques
determined Valuation incorporating
by quoted techniques information
prices in based on other than
active observable observable
markets market data market data
(Level 1) (Level 2) (Level 3) Total
Mutual funds:
Money market funds $ 59,528 — — 59,528
Total investments $ 59,528 — — 59,528
(b) The Voluntary Plan
The Voluntary Plan is a 403(b) plan. The Voluntary Plan is entirely employee funded. All employees
may participate in the program and have a choice of investments with varying levels of risk and return.
New employees are automatically enrolled in the Voluntary Plan.
(c) The Contribution Plan
Plan eligibility commences on the date of hire. Employees are divided into two groups. Group I
employees include those hired prior to September 1, 2008, who had attained at least 41 years of age
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
27 (Continued)
on December 31, 2008, and elected to continue to accrue benefits under the Overlake Hospital Medical
Center Cash Account Plan. Group II employees include those hired after August 31, 2008 and
employees hired prior to September 1, 2008 who did not attain at least 41 years of age on
December 31, 2008 or otherwise elected to become a Group II employee. Employees who were
eligible to elect between coverage as a Group I or a Group II employee but did not make an election
were treated as a Group I employee under the Contribution Plan.
As of July 1 2018, all Group I employees become Group II employees due to the Cash Account Plan
termination.
Participants must be credited with 1,000 hours of service during the calendar year in order to receive
employer contributions. Each year the Hospital makes matching contributions to the Plan based on a
percentage of employee contributions to the Voluntary Plan up to a specified maximum percent of the
employee’s eligible compensation. The Hospital’s matching contributions are summarized as follows:
Group I employees receive 50% of employee contributions to the Voluntary Plan up to 3% of
eligible compensation.
Group II Employees receive 100% of employee contributions to the Voluntary Plan, up to a
maximum of 4% of the employee’s eligible compensation for participants with less than five years
of service or up to a maximum of 6% of the employee’s eligible compensation for participants with
five or more years of service at the start of the plan year, respectively.
In addition, the Hospital makes a nonelective service contribution equal to 2% of eligible compensation
for each Group II employee subject to certain limitations imposed under the IRC. The Hospital
contributed approximately $12,497 and $10,618 in matching and service contributions for the years
ended June 30, 2019 and 2018, respectively, and is reflected in employee benefits in the consolidated
statements of operations and changes in net assets.
(9) Commitments
The Association and its affiliates lease certain equipment and office space that are accounted for as
operating leases. Total rental expense for all operating leases for the years ended June 30, 2019 and 2018
was approximately $7,974 and $7,377, respectively. The following is a schedule of future noncancelable
operating lease payments as of June 30, 2019:
Fiscal year:
2020 $ 5,712
2021 5,591
2022 4,934
2023 4,721
2024 4,774
Thereafter 12,669
Operating lease obligations $ 38,401
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
28 (Continued)
The Association has outstanding construction contract commitments of $130,642 and $32,946 as of
June 30, 2019 and 2018, respectively.
(10) Professional Liability Insurance, Workers’ Compensation, and Health Benefits
The Association maintains claims-made professional liability insurance coverage through a commercial
carrier. The policy for the years ended June 30, 2019 and 2018 has a $500 deductible per occurrence. The
Association also carries excess coverage policies for its professional liability program.
Based upon actuarial valuations, the Association has recorded an estimated liability (undiscounted) for
claims incurred but not reported as well as claims reported and not paid of $9,464 and $11,684 and a
reinsurance receivable of $1,774 and $4,392 as of June 30, 2019 and 2018, respectively.
The Association is self-insured for workers’ compensation. The accrued liabilities for the self-insured
components of this plan include the unpaid portion of claims that have been reported and estimates for
claims that have been incurred but not reported. The Association also carries an excess coverage policy for
its workers’ compensation program. The Association has recorded an undiscounted liability for workers’
compensation claims based on actuarial estimates of approximately $3,198 and $2,610 and a reinsurance
receivable of $287 and $243 as of June 30, 2019 and 2018, respectively.
The Association is self-insured for medical, dental, and prescription drugs. The accrued liabilities for the
self-insured components of this plan include the unpaid portion of claims that have been reported and
estimates for claims that have been incurred but not reported. The Association also carries an excess
coverage policy for its medical, dental, and prescription program. The Association has recorded an
undiscounted liability for medical, dental, and prescription drugs claims based on actuarial estimates of
approximately $1,276 and $1,383 as of June 30, 2019 and 2018, respectively.
(11) Litigation and Compliance with Laws and Regulations
The Association is involved in litigation and regulatory investigations arising in its normal course of
business. After consultation with legal counsel, management estimates that these matters will be resolved
without material adverse effect on the Association’s future financial position or results from operations.
The healthcare industry is subject to numerous laws and regulations of federal, state, and local
governments. These laws and regulations include, but are not necessarily limited to, matters such as
licensure, accreditation, government healthcare program participation requirements, reimbursement for
patient services, and Medicare and Medicaid fraud and abuse. Governmental activity includes
investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by
healthcare providers. Violations of these laws and regulations could result in expulsion from government
healthcare programs, together with the imposition of significant fines and penalties, as well as significant
repayments for patient services previously billed. Compliance with such laws and regulations can be
subject to future government review and interpretation as well as regulatory actions unknown or unasserted
at this time.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
29 (Continued)
(12) Functional Expenses
The Association provides healthcare services to residents within its geographic service area. Expenses
related to providing these services for the years ended June 30, 2019 and 2018 are as follows:
2019
Healthcare General and
Services administrative Fundraising Total
Salaries and benefits $ 257,297 47,554 778 305,629
Purchases and other 73,928 35,953 387 110,268
Supplies 93,529 5,089 200 98,818
Interest, depreciation and
amortization 33,430 8,909 — 42,339
Total operating
expenses $ 458,184 97,505 1,365 557,054
2018
Healthcare General and
Services administrative Fundraising Total
Salaries and benefits $ 240,187 44,703 675 285,565
Purchases and other 76,473 31,383 393 108,249
Supplies 86,096 4,605 209 90,910
Interest, depreciation and
amortization 33,487 9,049 — 42,536
Total operating
expenses $ 436,243 89,740 1,277 527,260
(13) Net Assets with Donor Restrictions
Net assets with donor restrictions as of June 30, 2019 and 2018 are assets whose use has been limited to
a specific period, in perpetuity and/or for a designated purpose.
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
30 (Continued)
Net assets with donor restrictions subject to expenditure for specified purposes as of June 30, 2019 and
2018:
2019 2018
Donor restricted endowments subject to spending policy
for specified purposes:
Endowment Purpose:
Family Resource Coordinator $ 442 442
Senior Care Outreach 40 40
Surgical Services 527 527
Oncology Clinical Education 162 162
Nursing Clinical Education 260 260
Intensive Care Unit 2,572 2,572
Charity Care/Uncompensated Care 257 257
General Hospital Support 1,174 1,114
Heart & Vascular 116 116
Reigert Chest Pain Center 114 114
Cardiac Care 145 145
Clinic Oncology Medical Director 96 96
5,905 5,845
OVERLAKE HOSPITAL ASSOCIATION
Notes to Consolidated Financial Statements
June 30, 2019 and 2018
31
2019 2018
Subject to expenditure for specified purposes:
Health care services $ 4,395 4,587
Purchase of building improvements and equipment 9,374 6,371
Health education 264 247
Indigent care 131 129
14,164 11,334
Total net assets with donor restrictions $ 20,069 17,179
(14) Endowments
The Foundation’s endowments consist of 19 individual funds established for a variety of purposes, but
primarily supporting various forms of healthcare services, including both donor-restricted endowment funds
and funds designated by management to function as endowments. Quasi endowment net assets
associated with endowment funds, including funds designated by management, are classified and reported
based on the existence or absence of donor-imposed restrictions.
(15) Subsequent Events
The Association has performed an evaluation of subsequent events through October 28, 2019, which is the
date these consolidated financial statements were issued.
P Schedule 1 OVERLAKE HOSPITAL ASSOCIATION
Consolidating Information – Balance Sheets
June 30, 2019 and 2018
(In thousands)
Medical Eliminating Association Hospital Tower entries Total 2019 Total 2018
Current assets: Cash and cash equivalents $ 90 19,467 1,213 — 20,770 29,730 Receivables, net — 68,667 — — 68,667 60,787 Current portion of pledges receivable — 2,691 — — 2,691 2,158 Current portion of assets whose use is limited — 6,654 — — 6,654 6,946 Supplies inventory — 9,968 — — 9,968 9,744 Prepaid expenses 56 10,978 184 — 11,218 10,722 Other current assets 60 4,867 116 — 5,043 5,519
Total current assets 206 123,292 1,513 — 125,011 125,606
Assets whose use is limited, net of current portion — 89,941 — — 89,941 126,691 Investments — 496,109 2,382 — 498,491 466,515 Long-term portion of pledges receivables, net — 6,142 — — 6,142 4,743 Other long-term receivables, net — 1,566 — — 1,566 3,043 Land, buildings, and equipment, net 5,525 262,709 22,446 — 290,680 253,178
Other assets: — Investments in joint ventures — 2,901 — — 2,901 2,740 Other assets — 1,786 — — 1,786 1,917 Interest in net assets of consolidated affiliates 606,453 — — (606,453) — —
Total other assets 606,453 4,687 — (606,453) 4,687 4,657
Total assets $ 612,184 984,446 26,341 (606,453) 1,016,518 984,433
Current liabilities: Current portion of long-term debt and capital leases $ — 1,360 4,089 — 5,449 5,245 Accounts payable 9 23,345 340 — 23,694 21,576 Accrued liabilities 10 50,586 10 — 50,606 56,168 Accrued interest payable — 5,390 37 — 5,427 5,699 Payable to third-party agencies — 7,862 — — 7,862 7,229
Total current liabilities 19 88,543 4,476 — 93,038 95,917
Long-term debt, net of current portion — 291,144 9,316 — 300,460 307,653 Pension liability — — — — — 5,438 Other long-term liabilities 34 10,856 — — 10,890 11,454
Total liabilities 53 390,543 13,792 — 404,388 420,462
Net assets: Without donor restrictions 612,131 573,834 12,549 (606,453) 592,061 546,792 With donor restrictions — 20,069 — — 20,069 17,179
Total net assets 612,131 593,903 12,549 (606,453) 612,130 563,971
Total liabilities and net assets $ 612,184 984,446 26,341 (606,453) 1,016,518 984,433
See accompanying independent auditors’ report.
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P Schedule 2 OVERLAKE HOSPITAL ASSOCIATION
Consolidating Information – Operations and Changes in Net Assets
Years ended June 30, 2019 and 2018
(In thousands)
Medical Eliminating Association Hospital Tower entries Total 2019 Total 2018
Operating revenue: Patient service revenue $ — 561,285 — — 561,285 540,109 Provision for uncollectible accounts — (1,625) — — (1,625) (11,013)
Net patient service revenue — 559,660 — — 559,660 529,096
Other operating revenue 1,646 7,199 9,793 (7,321) 11,317 27,997 Contribution revenue — 3,167 — — 3,167 2,190
Net operating revenue 1,646 570,026 9,793 (7,321) 574,144 559,283
Operating expenses: Salaries — 247,016 — — 247,016 231,374 Registry — 8,799 — — 8,799 10,337 Employee benefits — 58,613 — — 58,613 54,191 Supplies 7 98,738 73 — 98,818 90,910 Purchased services 152 53,516 1,201 — 54,869 49,818 Interest — 8,258 526 — 8,784 8,794 Depreciation and amortization 316 31,771 1,468 — 33,555 33,742 Rent, leases, and utilities 717 18,784 603 (7,321) 12,783 12,080 Hospital taxes and assessments — 17,359 — — 17,359 17,655 Marketing, insurance, taxes, and other 68 15,750 640 — 16,458 18,359
Total operating expenses 1,260 558,604 4,511 (7,321) 557,054 527,260
Excess of revenue over expenses from operations 386 11,422 5,282 — 17,090 32,023
Nonoperation revenue, net: Investment income — 10,856 2 — 10,858 13,552 Loss on refinancing — — — — — (8,627) Nonoperating expenses — (13,090) — — (13,090) (2,219)
Total nonoperating revenue, net — (2,234) 2 — (2,232) 2,706
Interest in net assets of consolidated affiliates 48,687 — — (48,687) — —
Excess of revenue over expenses 49,073 9,188 5,284 (48,687) 14,858 34,729
Other changes in net assets without donor restrictions: Net assets released for capital acquisitions — 4,876 — — 4,876 6,924 Change in pension liability — 14,902 — — 14,902 (4,746) Change in net unrealized gains on investments — 10,389 — — 10,389 6,810 Appropriation of endowment assets for expenditure — 244 — — 244 343 Intercompany transfers (913) 3,200 (2,287) — — —
Increase in unrestricted net assets 48,160 42,799 2,997 (48,687) 45,269 44,060
Other changes in net assets with donor restrictions: Contributions — 10,114 — — 10,114 5,561 Investment income — 431 — — 431 616 Change in net unrealized gains on investments — 83 — — 83 24 Net assets released from restrictions — (7,738) — — (7,738) (8,626)
(Decrease) increase in restricted net assets — 2,890 — — 2,890 (2,425)
Increase in net assets 48,160 45,689 2,997 (48,687) 48,159 41,635
Net assets, beginning of year 563,971 548,214 9,552 (557,766) 563,971 522,336
Net assets, end of year $ 612,131 593,903 12,549 (606,453) 612,130 563,971
See accompanying independent auditors’ report.
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