hospital service district no. 1 of terrebonne parish ... · the hospital and changes in them....

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HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH.STATE OF LOUISIANA

MANAGEMENTS DISCUSSION AND ANALYSIS ANDFINANCIAL STATEMENTS

MARCH 31,2007

•Jnder provisions of state law, this report is a publicdocument. Acopy of the report has been submitted tothe entity and other appropriate public officials. Thereport is available for public inspection at the BatonRouge office of the Legislative Auditor and, whereappropriate, at the office of the parish clerk of court.

Release Date

C O N T E N T S

Page

Independent Auditors' Report 1-2

Management's Discussion and Analysis 3-18

Financial Statements

Balance Sheets 19-20

Statements of Revenues, Expenses, and Changes in Net Assets 21

Statements of Cash Flows 22-23

Notes to the Financial Statements 24-38

Report on Compliance and Internal Control 39-40

P&NPostlethwaite & Netterville

A Professional Accounting CorporationAssociated Offices in Principal Cities of the United Slates

www.pncpa.com

INDEPENDENT AUDITORS' REPORT

The Board of CommissionersHospital Service District No. 1 of Terrebonne Parish,State of LouisianaTerrebonne General Medical Center

We have audited the accompanying balance sheet of Hospital Service District No. 1 of Terrebonne Parish, State ofLouisiana (d/b/a Terrebonne General Medical Center) (the Hospital) as of March 31, 2007, and the relatedstatement of revenues, expenses, and changes in net assets and cash flows for the year then ended. These financialstatements are the responsibility of the Hospital's management. Our responsibility is to express an opinion on thesefinancial statements based on our audit. The financial statements of the Hospital as of and for the year endedMarch 31, 2006, were audited by other auditors whose report dated June 23, 2006, expressed an unqualified opinionon those statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of Americaand the standards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement. We were notengaged to perform an audit of the Hospital's internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theHospital's internal control over financial reporting. Accordingly, we express no such opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financialposition of the Hospital as of March 31, 2007, and the results of its operations and its cash flows for the year thenended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated August 9, 2007, on ourconsideration of the Hospital's internal control over financial reporting and our tests of its compliance with certainprovisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is todescribe the scope of our testing of internal control over financial reporting and compliance and the results of thattesting and not to provide an opinion on the internal control over financial reporting or on compliance. That reportis an integral part of an audit performed in accordance with Government Auditing Standards and should beconsidered in assessing the results of our audit.

8550 United Plaza Blvd, Suite 1001-1 -

Baton Rouge, LA 70809 Tel: 225.922.4600 Fax: 225.922.4611

The management's discussion and analysis on pages 3 through 18 is not a required part of the basic financialstatements but is supplementary information required by the Governmental Accounting Standards Board. We haveapplied certain limited procedures, which consisted principally of inquiries of management regarding the methodsof measurement and presentation of the required supplementary information. However, we did not audit theinformation and express no opinion on it.

Baton Rouge, LouisianaAugust 9, 2007

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P&N

Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana(d/b/a Terrebonne General Medical Center)

Management's Discussion and Analysis

March 31,2007

This section of the Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana(d/b/a Terrebonne General Medical Center) (the Hospital) annual financial report presentsbackground information and management's analysis of the Hospital's financial performanceduring the fiscal year that ended on March 31, 2007. Please read it in conjunction with thefinancial statements in this report.

Required Financial Statements

The Basic Financial Statements of the Hospital report information about the Hospital usingGovernmental Accounting Standards Board (GASB) accounting principles. These statementsoffer short-term and long-term financial information about its activities. The Balance Sheetsinclude all of the Hospital's assets and liabilities and provide information about the nature andamounts of investments in resources (assets) and the obligations to Hospital creditors (liabilities).It also provides the basis for computing rate of return, evaluating the capital structure of theHospital, and assessing the liquidity and financial flexibility of the Hospital. All of the reportingperiod's revenues and expenses are accounted for in the Statements of Revenues, Expenses andChanges in Net Assets. This statement measures changes in the Hospital's operations over thepast two years and can be used to determine whether the Hospital has been able to recover all ofits costs through its net patient service revenue and other revenue sources. The final requiredfinancial statement is the Statement of Cash Flows. The primary purpose of this statement is toprovide information about the Hospital's cash from operations, investing, and financing activitiesand to provide answers to such questions as where did cash come from, what was cash used for,and what was the change in the cash balance during the reporting period.

Financial Analysis of the Hospital

The Balance Sheets and the Statements of Revenues, Expenses and Changes in Net Assetsreport information about the Hospital's activities. These two statements report the net assets ofthe Hospital and changes in them. Increases or decreases in the Hospital's net assets are oneindicator of whether its financial health is improving or deteriorating. However, othernonfinancial factors such as changes in the health care industry, changes in Medicare andMedicaid regulations, and changes in managed care contracting should also be considered.

Financial Highlights for the Year Ended March 31, 2007

• The Hospital's assets increased by approximately $14,689,000, or 5%. Cash from the 2003bond issue was used to construct the Women's Center, which was completed in May 2006.

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Management's Discussion and Analysis (continued)

• During the year, the Hospital's total operating revenues increased $8,977,000, or 6%, to$162,707,000 from prior year while operating expenses increased $10,914,000, or 8%, to$151,636,000. The Hospital has a gain from operations of $11,071,000, which is 7% of totaloperating revenue and represents a decrease from the prior fiscal year's income from operationsof $13,008,000, or 9% of total operating revenue. Net revenue increased due to prior year costreport settlements, price increases and an increased in outpatient activity. Expenses increased at ahigher rate than revenues thus decreasing net operating revenue.

• During the fiscal year, the Hospital settled several prior year cost reports with Medicareregarding additional reimbursement for Disproportionate Share and Bad Debt Reimbursement.These prior year settlements were responsible for approximately $4,700,000 of the operatingincome generated for the year.

• During the fiscal year, the Hospital made significant capital acquisitions including thefollowing totaling $12,608,000:

• Completion of Women's Center Building and Equipment• Various Rental Building and Parking Projects• Flood Protection Projects• Continuation of Various Information Technology Projects including PACS Upgrade• Continued Replacement of MRI and purchase of 64 Slice Cat Scan• Start-up of Renovation Projects• PCA Pumps• Lab Equipment

The source of the funding for these projects was derived from operations and bond fundsrestricted for capital acquisitions.

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Net Assets

A summary of the Hospital's Balance Sheets are presented in Table 1 below.

TABLE 1Condensed Balance Sheets

March 312007

$46,514137,486

134,402

$318,402

$20,125

74,54894,673

66,9193,202

153,608

$318,402

2006(In Thousands)

$39,585137,862

126,266

$303,713

$18,733

75,58094,313

68,7293,184

137,487

$303,713

DollarChange

$6,929(376)

8,136

$14,689

$1,392

(1,032)360

(1,810)18

16,121

$14,689

PercentageChange

18%0%

6%

5%

7%

-1%0%

(3%)1%

11%5%

Total Current AssetsCapital Assets

Other Assets, including boarddesignated investments

Total Assets

Current Liabilities

Long-term debt outstanding andother long-term liabilitiesTotal Liabilities

Invested in capital assets, net ofrelated debtRestricted net assetsUnrestricted net assets

Total liabilities and net assets

As can be seen in Table 1, total assets increased by $14,689,000 to $318,402,000 at March 31,2007, up from $303,713,000 at March 31, 2006. The change in total assets results primarily fromthe positive results of operations and increases in the investment portfolio.

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Summary of Revenue and Expenses

The following table presents a summary of the Hospital's revenues and expenses for each of theyears ended March 31, 2007 and 2006.

TABLE 2Condensed Statements of Revenue and Expenses

Net patient service revenue

Other revenue, netTotal operating revenue

Salaries and employee benefitsSupplies and materialsPurchased servicesProfessional feesOther operating expensesDepreciation and amortizationTotal operating expenses

Income from operations

Nonoperating revenue, net

Change in Net Assets

Net assets:Beginning of period

End of period

March 312007 2006

Dollar PercentageChange Change

(In

$157,601

5,106162,707

75,01940,77812,505

1,9048,343

13,087151,63611,071

3,258

14,329

209,400

Thousands)

$148,910

4,820153,730

69,21637,16311,8402,0478,115

12,341140,72213,008

(1,476)

11,532

197,868

$8,691

2868,977

5,8033,615

665(143)

228746

10,914(1,937)

4,734

2,797

6%

6%6%

8%10%6%

-7%3%6%8%

-15%

321%

24%

$223,729 $209,400

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Sources of Revenue

Operating Revenue

During fiscal year 2007, the Hospital derived the majority of its total revenue from patientrevenues. Patient revenues include revenues from the Medicare and Medicaid programs andpatients, or their third-party insurers, who pay for care in the Hospital's facilities.Reimbursement for the Medicare and Medicaid programs and the third-party insurers is basedupon established contracts. The difference between the covered charges and the expectedpayment is recognized as a contractual allowance. Other revenue represents earnings from meals,rental income, and other miscellaneous services.

Table 3 presents the relative percentages of gross charges billed for patient services by payor forthe fiscal years ended March 31, 2007 and 2006.

TABLESPayor Mix

2007 2006

Medicare 47% 52%Medicare Advantage Plan 4 0

Managed Care 33 32Medicaid 12 12Self-pay and other 4 4

Total patient revenues 100% 100%

Other Operating Revenue

The Hospital also generated other operating income of $5,106,000 in 2007 and $4,820,000 in2006. This income does not relate to patient revenues and consists primarily of rental income,cafeteria and vending income, and other departmental income. The majority of income comesfrom rental, vending, and cafeteria income that totaled $3,001,000 and $2,962,000 in 2007 and2006, respectively.

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Management's Discussion and Analysis (continued)Nonoperating Income

The Hospital holds designated and restricted funds in its balance sheets that are investedprimarily in money market iunds and securities issued by the U.S. Treasury and its agencies andother federal agencies. These investments earned $5,442,000 and $4,268,000 during fiscal year2007 and 2006, respectively. These earnings were increased by an additional $1,841,000 in2007, or a 1.6%, increase in the fair value gain on investments due primarily to changes in theinterest rates and market conditions.

Operating and Financial Performance

The following summarizes the Hospital's Statements of Revenue, Expenses, and Changes in NetAssets between 2007 and 2006:

Overall activity at the Hospital as measured by patient discharges decreased by 5% to 11,771 in2007 compared to 12,409 in 2006. Patient days decreased by 4% over prior year from 57,087 in2006 to 54,941 in 2007. As a result, the average length of stay for the Hospital increased by 3%with the stay length at 4.67 days in 2007 compared to 4.60 days in 2006.

Outpatient revenue increased in fiscal year 2007 due to price increases which occurred inDecember 2006 and an increase in diagnostic procedure volume. The outpatient volumeincreased in overall Cath Lab procedures by only 1% while diagnostics increased byapproximately 4-7%. Outpatient visits were flat increasing only .5%. Outpatient surgeriesincreased by 3.5% over 2006 levels. Net patient service revenue increased $8,691,000, or 6%, in2007 as a result of changes in Hospital's pricing structure, an increase in outpatient volume, andsome prior year cost report issues related to disproportionate share reimbursement. Contractualallowances increased to 61% of charges in 2007 from 60% in 2006.

In addition to indigent care provided by a local charity hospital, net patient service revenuesexcludes charges forgone for patient services falling under the Hospital's charity care policy.Based on established rates, gross charges of $1,884,000 were forgone during 2007, compared to$1,235,000 in 2006, or a 53% increase over the prior fiscal year. Provision for bad debtsdecreased by $410,000, or 5%, compared to the prior year. This decrease occurred due to theimplementation of a self-pay discount program that offsets the related bad debt expense from thispatient population. Write offs from self pay discounts increased from $1,881,000 in 2006 to$2,191,000 in 2007.

During fiscal years 2007, management focused resources on employee retention and maintainingand increasing staffing especially in clinical and nursing areas. As a result, a market increasewas awarded in September 2006 in order to adjust to the changing employment environment inLouisiana. Employee wages and compensation increased by $6,062,000 over the prior year as aresult. FTEs increased from 1,180 in 2006 to 1,250 in 2007, an increase of 6% over prior year.



The hospital opened the Women's Center and increased staffing as a result of increased volumeand service. The increase in staffing also increased employee benefits and caused a 4% increasein benefits expense. Salaries and benefits were 46% of total operating revenue in 2007 and 45%in 2006.

The cost of supplies and materials increased by $3,615,000, or 10%. The increase occurred dueto general inflation in medical supplies and an increase in implant volume. Implants are moreexpensive supplies and are related in increases in orthopedic, cardiology, and neurosurgerycases. Purchased services increased by $665,000 due to increases in maintenance contracts andlicensing fees.

Depreciation and amortization increased by $746,000 due to the Women's Center Buildingopening. Total operating expenses increased by $10,914,000, or 8%, for the year ended March31,2007.

Nonoperating revenue consists of interest earnings on funds designated by the Board ofCommissioners and funds held by trustee under bond resolution. The changes in fair value ofthese investments is also included in this amount. Nonoperating revenue increased over the prioryear due to the fact that there was a higher yield in the current year than in the previous year.Nonoperating expenses consist of interest expense, which was stable from 2006 to 2007.

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Capital Assets

During fiscal year 2007, the Hospital invested in a broad range of capital assets included in Table4 below.

TABLE 4Capital Assets

March 312007 2006

Dollar PercentageChange Change

Land and land improvementsBuildingEquipmentSubtotal

$21,250

130,340117,949

$19,783111,464

109,375

$1,467

18,8768,574

269,539 240,622 28,917

7%17%8%

12%

Less: Accumulated depreciationConstruction-in progressNet capital assets

136,9034,850

124,69521,935

$137,486 $137,862

12,208(17,085)

($376)

10%(78%)

Total cost of capital assets have increased as the Hospital has enhanced existing facilities andcompleted new space to accommodate improved women services facilities. The Hospital also hasa strategic plan that incorporates a master facility plan for future expansion. The timing andpriorities of the plan are available as a separate document.

In Table 5, the Hospital's fiscal year 2008 capital budget projects spending up to $7,372,000 forcapital projects, of which 32% is for replacement or regulatory/maintenance items. Theseprojects will be financed from operations. This spending does not include the master facility planprojects that will be funded from operations and designated investments. More information aboutthe Hospital's capital assets is presented in the notes to basic financial statements.

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TABLE 5Fiscal Year 2008 Capital Budget

(In Thousands)

Replacement equipment $2,383Contingency 1,062New technology/revenue growth 3,255Regulatory, improved efficiency, and construction and renovation 672

Total $7,372

Long-Term Debt

At year-end, the Hospital had $71,802,000 in short-term and long-term debt, net of a discount of$708,000. More detailed information about the Hospital's long-term liabilities is presented in thenotes to basic financial statements. Total debt outstanding represents 23% of the Hospital's totalassets at March 31, 2007.

Financial Highlights for the Year Ended March 31,2006

• The Hospital's assets increased by approximately $10,936,000, or 4%. Cash from the 2003bond issue is being used to construct the Women's Center, which was completed in May 2006.

• During the year, the Hospital's total operating revenues increased $14,107,000, or 10%, to$153,730,000 from prior year while operating expenses increased $6,292,000, or 5%, to$140,722,000. The Hospital has a gain from operations of $13,008,000, which is 9% of totaloperating revenue and compares favorably to the prior fiscal year's operating income of$5,193,000, or less than 1% of total operating revenue. Net revenue increased due to improvedpayor mix and an increase in outpatient activity. Expenses did not increase at the same rate asrevenues thus increasing net operating revenue.

During the fiscal year, the Hospital made significant capital acquisitions including the followingtotaling $12,909,000:

• Various Rental Building and Parking Projects• Completion of the Generator and Utility Loop Replacement and Elevation of the

Generators

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• Continuation of Various Information Technology Projects• New Radiology Equipment• Continuation of Women's Center Building and Equipment• Began Replacement of MRI• Start-up and Completion of Relocation Projects

The source of the funding for these projects was derived from operations, funded depreciationfund, and bond funds restricted for capital acquisitions.

Net Assets

A summary of the Hospital's Balance Sheets are presented in Table 1 below.

TABLE 6Condensed Balance Sheets

Total Current AssetsCapital Assets

Other Assets, including boarddesignated investments

Total Assets

Current Liabilities

Long-term debt outstanding andother long-term liabilitiesTotal Liabilities

Invested in capital assets, net ofrelated debtRestricted net assetsUnrestricted net assets

Total liabilities and net assets

March

2006

$39,585137,862

126,266

$303,713

$18,733

75,58094,313

68,7293,184

137,487

$303,713

312005

$33,463137,139

122,175

$292,777

$18,702

76,20794,909

75,5313,124

119,213

$292,777

DollarChange

$6,122723

4,091

$10,936

$31

(627)(596)

(6,802)

6018,274

$10,936

PercentageChange

18%1

14

-

(1)0)

92

15

4

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As can be seen in Table 6, total assets increased by $10,936,000 to $303,713,000 at March 31,2006, up from $292,777,000 at March 31, 2005. The change in total assets results primarily fromthe positive results of operations and increases in the investment portfolio.

Summary of Revenue and Expenses

The following table presents a summary of the Hospital's revenues and expenses for each of theyears ended March 31, 2006 and 2005.

TABLE?Condensed Statements of Revenue and Expenses

Net patient service revenue

Other revenue, netTotal operating revenue

Salaries and employee benefitsSupplies and materialsPurchased servicesProfessional feesOther operating expensesDepreciation and amortizationTotal operating expensesIncome from operations

Nonoperating revenue, netOtherChange in Net AssetsNet assets:

Beginning of periodEnd of period

March 312006

(In

$148,910

4,820153,730

69,21637,16311,8402,0478,115

12,341140,72213,008

(1,476)-

11,532

197,868$209,400

2005Thousands)

$135,208

4,415139,623

68,96533,33010,8952,2486,373

12,619134,430

5,193

(3,059)1,1813,315

194,553$197,868

DollarChange

$13,702

40514,107

2513,833

945(201)1,742(278)6,2927,815

1,5830,181)

8,217

PercentageChange

10%

910

-129

(9)27(2)

5151

52(100)

248

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Sources of Revenue

Operating Revenue

During fiscal year 2006, the Hospital derived the majority of its total revenue from patientrevenues. Patient revenues include revenues from the Medicare and Medicaid programs andpatients, or their third-party insurers, who pay for care in the Hospital's facilities.Reimbursement for the Medicare and Medicaid programs and the third-party insurers is basedupon established contracts. The difference between the covered charges and the expectedpayment is recognized as a contractual allowance. Other revenue represents earnings from meals,rental income, and other miscellaneous services.

Table 8 presents the relative percentages of gross charges billed for patient services by payor forthe fiscal years ended March 31, 2006 and 2005.

TABLESPayor Mix

2006 2005

Medicare 52% 53%Managed Care 32 30Medicaid 12 12Self-pay and other 4 5

Total patient revenues 100% 100%

Other Operating Revenue

The Hospital also generated other operating income of $4,820,000 in 2006 and $4,415,000 in2005. This income does not relate to patient revenues and consists primarily of rental income,cafeteria and vending income, and other departmental income. The majority of income comesfrom rental, vending, and cafeteria income that totaled $2,962,000 and $2,704,000 in 2006 and2005, respectively.

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Nonoperating Income

The Hospital holds designated and restricted funds in its balance sheets that are investedprimarily in money market funds and securities issued by the U.S. Treasury and its agencies andother federal agencies. These investments earned $4,268,000 during fiscal year 2006.

These earnings were reduced by a $1,554,000, or 1.4%, decrease in the fair value loss ofinvestments due primarily to changes in the interest rates and market conditions. Nonoperatingexpenses consist of interest expense which was fairly consistent year over year.

Operating and Financial Performance

The following summarizes the Hospital's Statements of Revenue, Expenses, and Changes in NetAssets between 2006 and 2005:

Overall activity at the Hospital as measured by patient discharges decreased by 7% to 12,409 in2006 compared to 12,705 in 2005. Patient days increased by 3% over prior year from 55,227 in2005 to 57,087 in 2006. As a result, the average length of stay for the Hospital increased by 11 %with the stay length at 4.60 days in 2006 compared to 4.35 days in 2005.

Outpatient revenue increased in fiscal year 2006 due to increased volume, particularly indiagnostics, and a realized rate increase that occurred during the fiscal year. Outpatient visitsincreased from 2005 levels by 9%. Outpatient surgeries increased by 10% over 2005 levels. Netpatient service revenue increased $2,094,000, or 17%, in 2006 as a result of changes inHospital's payor mix and increases in product lines. Contractual allowances remained stable at60% of charges in 2006 and 2005.

Excluded from net patient service revenue are charges forgone for patient services falling underthe Hospital's charity care policy. Based on established rates, gross charges of $1,235,000 wereforgone during 2006, compared to $955,000 in 2005, or a 29% increase over the prior fiscal year.Provision for bad debts decreased by $1,050,000, or 10%, compared to the prior year. Thisdecrease occurred due to the implementation of a self-pay discount program that offsets therelated bad debt expense from this patient population.

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During fiscal years 2005 and 2006, management focused resources on reducing expenses inmany areas, particularly salaries and purchased services. Productivity measures wereimplemented and other cost-cutting reviews were performed. Employee wages and benefitcompensation remained flat at approximately $69,000,000 over the prior year as a result ofproductivity measures and changes in product lines. FTEs decreased from 1,237 in 2005 to 1,180in 2006, a decrease of 1.5% over prior year. Employee benefits also decreased and caused a 4%decrease in benefits overall. Salaries and benefits were 43% of total operating revenue in 2006and 46% in 2005.

The cost of supplies and materials increased by $3,833,000, or 12%. The increase occurred dueto general inflation in medical supplies and an increase in implant volume. Implants are moreexpensive supplies and are related in increases in orthopedic, cardiology, and neurosurgerycases. Professional fees and purchased services declined by $744,000 due to certainrenegotiations resulting in cost savings to the Hospital.

Depreciation and amortization remained flat for the year since no significant new projects werecompleted during the year. Total operating expenses increased by $6,292,000, or 5%, for theyear ended March 31, 2006.

Nonoperating revenue consists of interest earnings on funds designated by the Board ofCommissioners and funds held by trustee under bond resolution. The changes in fair value ofthese investments is also included in this amount. Nonoperating revenue increased over the prioryear due to the fact that there was a higher yield in the current year than in the previous year.Nonoperating expenses consist of interest expense, which was stable from 2005 to 2006.

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Capital Assets

During fiscal year 2006, the Hospital invested in a broad range of capital assets included in Table4 below.

TABLE 9Capital Assets

March 31 Dollar Percentage2006 2005 Change Change

(In Thousands)

Land and land improvements $19,783 $19,725 $58Building 111,464 108,482 2,982 3%Equipment 109,375 105,305 4,070 4Subtotal 240,622 233,512 7,110 3

Less: Accumulated depreciation 124,695 113,642 11,053 10%Construction-in progress 21,935 17,269 4,666 27

Net capital assets $137,862 $137,139 $723 1

Net capital assets have increased as the Hospital has enhanced existing facilities and completednew space to accommodate ancillary services such as emergency services, laboratory, andcatherization labs. The Hospital also has a strategic plan that incorporates a master facility planfor future expansion. The timing and priorities of the plan are available as a separate document.

In Table 10, the Hospital's fiscal year 2007 capital budget projects spending up to $7,942,000 forcapital projects, of which 52% is for replacement or regulatory/maintenance items. Theseprojects will be financed from operations. This spending does not include the master facility planprojects that will be funded from operations and designated investments. More information aboutthe Hospital's capital assets is presented in the notes to basic financial statements.

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TABLE 10Fiscal Year 2007 Capital Budget

(In Thousands)

Replacement equipment $4,125Contingency 1,197New technology/revenue growth 1,557Regulatory, improved efficiency, and construction and renovation 1,063Total $7,942

Long-Term Debt

At year-end, the Hospital had $72,948,000 in short-term and long-term debt, net of a discount of$771,000. More detailed information about the Hospital's long-term liabilities is presented in thenotes to basic financial statements. Total debt outstanding represents 25% of the Hospital's totalassets at March 31, 2006.

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HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANA(d/b/a TERREBONNE GENERAL MEDICAL CENTER)

BALANCE SHEETSMARCH 31, 2007 AND 2006

A S S E T S

fin thousands)

CURRENT ASSETSCash and cash equivalents $Patient accounts receivable, net of allowances for uncollectible

accounts of $22,469 in 2007 and $19,001 in 2006Estimated net receivables under government programsInventoriesPrepaid expensesOther current assetsFunds held by trustee under bond resolution

Total current assets

CAPITAL ASSETSLand and land improvementsBuildings and fixed equipmentEquipmentConstruction-in-progress

Less accumulated depreciation and amortizationNet capital assets

INVESTMENTS AND ACCRUED INTERESTFunds designated by board of commissioners for plant

replacement and expansion, including accrued interestof $994 in 2007 and $725 in 2006

Funds held by trustee under bond resolution, includingaccrued interest of $17 in 2007 and $31 in 2006,less current portion

Total investments and accrued interest

OTHER ASSETSOther assets

Total other assets

TOTAL ASSETS $

2007

14,461

12,9359,3003,6521,7001,2643,202

46,514

21,250130,340117,949

4,850274,389136,903137,486

125,691

1,325127,016

7,3867,386

318,402

2006

$ 9,354

14,2176,5962,8431,6011,7903,184

39,585

19,783111,464109,37521,935

262,557124,695137,862

115,064

3,907118,971

7,2957,295

$ 303,713

The accompanying notes are an integral part of these statements.

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L I A B I L I T I E S A N D N E T A S S E T S

fin thousands) 2007 2006

CURRENT LIABILITIESAccounts payable and accrued liabilities $ 7,566 $ 6,805Salaries and employee benefit liabilities 4,471 3,895Accrued interest payable 1,915 1,943Self-insurance reserves 4,903 4,880Current maturities of long-term debt 1,270 1,210

Total current liabilities 20,125 18,733

LONG-TERM LIABILITIESHospital revenue bonds, less current portion (net of

discount of $708 in 2007 and $771 in 2006 70,532 71,738Other accrued liabilities, less current portion 4,016 3,842

Total long-term debt 74,548 75,580

Total liabilities 94,673 94,313

NET ASSETSInvested in capital assets, net of related debt 66,919 68,729Restricted net assets 3,202 3,184Unrestricted net assets 153,608 137,487

Total net assets 223,729 209,400

TOTAL LIABILITIES AND NET ASSETS $ 318,402 $ 303,713

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HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANA(d/b/a TERREBONNE GENERAL MEDICAL CENTERS

STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETSYEARS ENDED MARCH 31,2007 AND 2006

(in thousands)

OPERATING REVENUESNet patient service revenueOther revenue, net

Total operating revenues

OPERATING EXPENSESSalaries and employee benefitsSupplies and materialsPurchased servicesProfessional feesOther operating expensesDepreciation and amortization

Total operating expenses

INCOME FROM OPERATIONS

NONOPERATING REVENUES (EXPENSES)Investment income:

Funds held by trustee under bond resolutionOther, including net unrealized gains/losses on investments

Interest expenseOther expenses

Total nonoperating revenues (expenses)

CHANGE IN NET ASSETS

Net assets - beginning of year

NET ASSETS - END OF YEAR

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2007

157,6015,106

162,707

75,01940,77812,5051,9048,343

13.087151,636

11.071

2006

148,9104.820

153.730

69,21637,16311,8402,0478,115

12.341140,722

13,008

2387,110

(3,835)(255)

3,258

14,329

209,400

$ 223,729 3

3532,360

(3,872)(317)

(1.476)

11,532

197,868

I 209.400


HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANA(d/b/a TERREBONNE GENERAL MEDICAL CENTER)

STATEMENTS OF CASH FLOWSYEARS ENDED MARCH 31. 2007 AND 2006

(in thousands)

Operating activitiesCash collected from patients and third-party payersCash payments to employees and for employee-related costsCash payments for operating expenses

Net cash provided by operating activities

Capital and related financing activitiesPurchases of capital assetsPrincipal payments on bondsInterest payments on debt

Net cash (used in) capital and related financing activities

Investing activitiesInterest received on investmentsPurchases of investmentsProceeds on disposal or maturity of investments

Net cash used in investing activities

Noncapital financing activityProceeds on sale of product line

Net cash provided by noncapital financing activity

2007

161,103(74,443)(62,768)23,892

(12,608)(1,301)(3,863)

(17,772)

6,698(165,266)157,490

(1,078)

6565

2006

152,939(68,880)(60,102)23,957

(13,004)(1,246)(3,917)

(18,167)

1,963(123,932)120,623

(1,346)

Net change in cash and cash equivalentsCash and cash equivalents at beginning of yearCash and cash equivalents at end of year

5,1079,354

14,461

4,4444,9109,354


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IIIIIIIIIIIIIIIIIII

HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANAfd/b/a TERREBONNE GENERAL MEDICAL CENTERS

STATEMENTS OF CASH FLOWS (continued)YEARS ENDED MARCH 31, 2007 AND 2006

(in thousands)

Reconciliation of operating income to net cash provided byoperating activitiesIncome from operationsAdjustments to reconcile income from operations to net cash

provided by operating activities:Depreciation and amortizationProvision for bad debtsLoss on sale of equipmentChanges in operating assets and liabilities:

Patient accounts receivable, netGovernment program receivablesOther assetsAccounts payable and accrued liabilitiesNet cash provided by operating activities

2007 2006

11,071

13,08710,215

47

(8,933)(2,703)

(518)1.626

13.008

12,3418,751

95

(11,326)(508)964632

23,892 23,957


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Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana(d/b/aTerrebonne General Medical Center)

Notes to Basic Financial Statements

March 31,2007

1. Summary of Significant Accounting Policies

Organization

Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana, a political subdivision of thestate of Louisiana, owns and operates Terrebonne General Medical Center (the Hospital). TheHospital is a 321-bed acute care facility providing comprehensive medical services to Residents ofsoutheast Louisiana.

Basis of Accounting

The Hospital uses the accrual basis of accounting for proprietary funds. Under GovernmentalAccounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting forProprietary Funds and Other Governmental Activities That Use Proprietary Fund Accounting, theHospital has elected not to apply Financial Accounting Standards Board pronouncements issued afterNovember 30,1989.

Cash and Cash Equivalents

Cash and cash equivalents include investments in money market funds and highly liquid investmentswith maturities of three months or less when purchased, excluding amounts whose use is limited byboard of commissioners' designation or under trust agreements.

Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market.

Investments

Investments are stated at fair value. Investments and the associated accrued interest are classified asnoncurrent due to these funds being designated by the board of commissioners for expenditure in theacquisition or construction of capital assets.

Investment income is reported as nonoperating income. Unrealized gains and losses reflected in othernonoperating income were an unrealized gain of $1,841,000 in 2007 and an unrealized loss of$1,554,000 in 2006.

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1. Summary of Significant Accounting Policies (continued)

Other Assets

Other assets include deferred financing costs, various investments held in connection with a formeremployee's retirement plan, investment in a purchasing group, and certificates of deposit that arepledged as security under various insurance plans. The deferred financing costs are amortized over thelife of the bonds using the interest method.

Capital Assets

Property is recorded at acquisition cost. Depreciation is provided using the straight-line method basedon the estimated useful lives of the assets, which range from 5 to 39 years. Depreciation expense was$12,936,000 and $12,187,000 for the years ended March 31, 2007 and 2006, respectively.

Net Assets

The Hospital classifies net assets into three components: invested in capital assets, net of related debt;restricted; and unrestricted. These components are defined as follows:

• Invested in capital assets, net of related debt - This component of designated cash andinvestments consists of capital assets, including restricted capital assets, net of accumulateddepreciation and reduced by the outstanding balances of any bonds that are attributable to theacquisition, construction or improvement of those assets. Additionally, approximately$1,325,000 and $3,907,000 of unspent proceeds from the 2003 bond issuance remains atMarch 31, 2007 and 2006, respectively. This portion of the debt has been excluded from thiscomponent of net assets.

• Restricted - This component reports those net assets with externally imposed constraintsplaced on their use by creditors (such as through debt covenants), grantors, contributors, orlaws or regulations of other governments or constraints imposed by law through constitutionalprovisions or enabling legislation.

• Unrestricted - This component of net assets consists of net assets that do not meet thedefinition of "restricted" or "invested in capital assets, net of related debt."

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Revenue and Expenses

For purposes of display, transactions deemed by management to be ongoing, major, or central to theprovision of health care services are included in operating income; all peripheral transactions arereported as a nonoperating revenue and expense. Operating expenses are all expenses incurred toprovide health care services, other than financing costs.

Net Patient Service Revenue

The Hospital has entered into agreements with third-party payors, including government programs,health insurance companies, and managed care health plans, under which the Hospital is paid basedupon established charges, the cost of providing services, predetermined rates per diagnosis, fixed perdiem rates, or discounts from established charges.

Revenues are recorded at estimated amounts due from patients and third-party payors for the hospitalservices provided. Settlements under reimbursement agreements with third-party payors are estimatedand recorded in the period the related services are rendered and are adjusted in future periods as finalsettlements are determined.

Accounts Receivable

The Hospital provides credit in the normal course of operations to patients located primarily insoutheast Louisiana and to insurance companies conducting operations in this area.

The Hospital maintains allowances for contractual adjustments, doubtful accounts, and charity carebased on management's assessment of collectibility, current economic conditions, and priorexperience. The Hospital determines if patient accounts receivable are past-due based on the dischargedate; however, the Hospital does not charge interest on past-due accounts. The Hospital charges offpatient accounts receivable if management considers the collection of the outstanding balances to bedoubtful.

Charity Care

The Hospital provides care to patients who meet certain criteria under its charity care policy withoutcharge or at amounts less than its established rates. Because the Hospital does not pursue collection ofamounts determined to qualify as charity care, they are not reported as revenue. Records of chargesforegone for services and supplies furnished under the charity care policy are maintained to identifyand monitor the level of charity care provided (see footnote #9).

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Income Taxes

The Hospital is exempt from federal and state income taxation as a political subdivision of the state ofLouisiana and, accordingly, the accompanying financial statements do not include any provision forincome taxes.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.

Compensated absences

The Hospital's employees earn vacation days at varying rates depending on years of service.Generally, any days not used by the employees anniversary date expire. Employees also earn sickleave benefits; however, sick leave does not vest and is not accrued.

Reclassifications

Certain amounts on the March 31, 2006 financial statements have been reclassified to conform withthe March 31, 2007 financial statement presentation.

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2. Designated Cash and Investments

The composition of designated cash and investments at March 31, 2007, is set forth below:

March 31,2007Cash and

Cash Fixedequivalents Income Total

Board-designated

1998 bond issue:Interest expense fundPrincipal fund

Total 1998 bond issue

2003 supplemental bond issue:Interest expense fundPrincipal fundConstruction fund

Total 2003 supplemental bond issueTotal designated cash and investments

(in thousands)$ 11,595 $ 114,096

1,2761,1952,471

65675

1,3252,056

$ 16,122 $ 114,096

The composition of designated cash and investments at March 3 1 , 2006, is set

Board-designated

1998 bond issue:Interest expense fundPrincipal fund

Total 1 998 bond issue

2003 supplemental bond issue:Interest expense fundPrincipal fundConstruction fund

Total 2003 supplemental bond issueTotal designated cash and investments

March 31, 2006Cash and

Cash Fixedequivalents Income

(in thousands)$ 10,809 $ 104,255

1,3181,1352,453

65675

3,9074,638

$ 17,900 $ 104,255

$ 125,691

1,2761,1952,471

65675

1,3252,056

$ 130,218

forth below

Total

$ 115,064

1,3181,1352,453

65675

3,9074,638

$ 122,155

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2. Designated Cash and Investments (continued)

Investment IncomeThe composition of investment income on designated cash and investments at March 31,2007 and2006, is set forth below:



(in thousands)Board-designated $ 192 $ 5,012 $ 5,204

1998 bond issue:Interest expense fund 29 - 29Principal fund 28 - 28

Total 1998 bond issue 57 - .57

2003 supplemental bond issue:Interest expense fund 15 - 15Principal fund 1 - 1Construction fund 165 - 165

Total 2003 supplemental bond issue 181 - 181Total designated cash and investments $ 430 $ 5,012 $ 5,442



(in thousands)Board-designated $ 300 $ 3,614 $ 3,914

1998 bond issue:Interest expense fund 20 - 20Principal fund 19 - 19

Total 1998 bond issue 3 9 - 3 9

2003 supplemental bond issue:Interest expense fund 10 - 10Principal fund 1 - 1Construction fund 303 - 303

Total 2003 supplemental bond issue 314 - 314Total designated cash and investments $ 653 $ 3,614 $ 4,267

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Investment Income (continued)

In 2006, the Hospital adopted GASB Statement No. 40 (GASB 40), Deposit and Investment RiskDisclosures., which requires additional disclosures of investment risks related to credit risk,concentration of credit risk, interest rate risk, and foreign currency risk associated with interestbearing investments. Such disclosures required by GASB 40 and applicable to the Hospital arereflected below.

Louisiana state statutes authorize the Hospital to invest in obligations of the U.S. Treasury and otherfederal agencies, time deposits with state banks and national banks having their principal offices in thestate of Louisiana, guaranteed investment contracts issued by highly rated financial institutions, andcertain investments with qualifying mutual or trust fund institutions. The Hospital does not have aformal policy that limits the types of investments. During the years ended March 31, 2007 and 2006,the Hospital invested primarily in securities issued by the U.S. Treasury and other federal agencies.

Credit Risk — Investments

Obligations of the U.S. government or explicitly guaranteed by the U.S. government are notconsidered to have credit risk and do not require disclosure of credit quality. The Hospital hadinvestments in obligations of the U.S. government or explicitly guaranteed by the U.S. governmentwith a fair value of $49,572,000 at March 31, 2007.

Louisiana statutes authorize the Hospital to invest in obligations of the U.S. Treasury, agencies, andinstrumentalities, commercial paper rated A-l by Standard & Poor's Corporation or P-l by Moody'sCommercial Paper Record, and banker's acceptances. As of March 31, 2007 and 2006, the Hospital'sinvestments in Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB)and Federal Home Loan Mortgage Corporation (FHLMC) were rated AAA by Standard and Poor'sand Fitch Ratings and Aaa by Moody's Investor Services.

Custodial Credit Risk - Deposits

Custodial credit risk for deposits is the risk that in the event of a bank failure, the Hospital's depositsmay not be returned to it. Louisiana state statutes require that all of the deposits of the Hospital beprotected by insurance or collateral. The fair value of the collateral pledged must equal 100% of thedeposits not covered by insurance.

As of March 31, 2007, $23,119,949 of the Hospital's bank balance of $23,637,185 was exposed tocredit risk as uninsured and collateralized with securities held by the pledging financial institution.The remaining $517,236 of the Hospital's bank balance is insured by FDIC.

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Concentration of Credit Risk

Per GASB 40, concentration of credit risk is defined as the risk of loss attributed to the magnitude of agovernment's investment in a single issuer. GASB 40 further defines an at-risk investment to be onethat represents more than five percent (5%) of the fair value of the total investment portfolio andrequires disclosure of such at-risk investments. GASB 40 specifically excludes investments issued orexplicitly guaranteed by the U.S. government and investments in mutual funds, external investmentpools, and other pooled investments from the disclosure requirement. The Hospital places no limit onthe amount it may invest in any one issuer. More than 5% of the Hospital's investments at March 31,2007 and 2006 are invested in the Federal National Mortgage Association (FNMA), Federal HomeLoan Bank (FHLB) and Federal Home Loan Mortgage Corporation (FHLMC) as follows:

2007 2006

FNMA 23.4% 20.0%FHLB 7.5% 6.3%FHLMC 19.5% 18.4%

Custodial Credit Risk - Investments

Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, theHospital will not be able to recover the value of its investments or collateral securities that are in thepossession of an outside party. As of March 31, 2007, the Hospital was not exposed to custodial creditrisk for its investments as all were registered in the name of the Hospital.

Interest Rate Risk - Investments

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value ofan investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fairvalue to changes in market interest rates. The Hospital does not have a formal investment policy thatlimits investment maturities as a means of managing its exposure to fair value losses arising fromchanging interest rates.

-31-




Interest Rate Risk - Investments (continued)

Interest rate risk inherent in the portfolio is measured by monitoring the segmented time distributionof the investments in the portfolio. The table below summarizes the Hospital's segmented timedistribution investment maturities in years by investment type as of March 31, 2007.

YearsInvestment Type Fair Value 5

(In Thousands)U.S. Treasuries $Federal National Mortgage AssociationFederal Home Loan BankFederal Home Loan Mortgage CorporationFederal Farm Credit BanksGovernment National Mortgage AssociationSmall Business AssociationU.S. Department of Housing and Urban DevelopmentSecurities guaranteed by the U.S. Government

$

19,073 $28,20510,39924,322

1,3787,452

12,4462,4328,389

114,096 $

627 $2,1711,1901,788

-3

-995-

6,774 $

12,669 $4,0317,9406,868

37373

1,874697840

35,365 $

5,77722,003

1,26915,6661,0057,376

10,572740

7,54971,957

The table below summarizes the Hospital's segmented time distribution investment maturities in yearsby investment type as of March 31, 2006.

YearsInvestment Type Fair Value 5

(In Thousands)U.S. Treasuries $Federal National Mortgage AssociationFederal Home Loan BankFederal Home Loan Mortgage CorporationFederal Farm Credit BanksGovernment National Mortgage AssociationSmall Business AssociationU.S. Department of Housing and Urban DevelopmentSecurities guaranteed by the U.S. Government

$

17,876 $24,309

6,15221,048

1,36111,75910,8482,0178,885

104,255 $

- $992

1,248325---

647-

3,212 $

13,384 $10,5914,6376,825

37294

1,842687351

38,783 $

4,49212,726

26713,898

98911,6659,006

6838,534

62,260

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IIIIIIIIIIIIIIIIIII



3. Capital Assets

The Hospital's investment in capital assets consisted of the following as of March 31,2007:

Beginning Additions/ Retirements/ EndingBalance Transfers Transfers Balance

Land and landimprovements

BuildingsEquipmentConstruction in progress

Less accumulateddepreciation

Net Capital assets

(in thousands)

$19,783 $ 1,469 $ (2) $ 21,250111,464 18,876 - 130,340109,375 9,348 (774) 117,94921,935 9,612 (26,697) 4,850

262,557 39,305 (27,473) 274,389

124,695 12,937 (729) 136,903$ 137,862 $ 26,368 $(26,744) $ 137,486

The Hospital's investment in capital assets consisted of the following as of March 31, 2006:

Beginning Additions/ Retirements/ EndingBalance Transfers Transfers Balance

Land and landimprovements

BuildingsEquipmentConstruction in progress

Less accumulateddepreciation

Net Capital assets

(in thousands)

$19,725 $ 0 $ (72) $ 19,783108,482 3,088 (106) 111,464105,305 5,120 (1,050) 109,37517,269 10,980 (6,314) 21,935

250,78 1 1 9,3 1 8 (7,542) 262,557

113,642 12,188 (1,135) 124,695$137,139 $7,130 $(6,407) $137,862

-33-



4. Debt

The following table summarizes the Hospital's outstanding debt: at

March 312007 2006

(in thousands)Hospital Revenue Bonds, Series 2003, 2.0% to 5.25% $ 24,855 $ 24,930Hospital Revenue Bonds, Series 1998, 4.5% to 5.4% 47,655 48,790

Less unamortized discount

Less amounts due within one yearLong-term portion of debt $

72,510708

71,8021,27070,532 $

73,720112

72,9481,210

71,738

The 1998 bonds are serial bonds with semiannual interest payments due April 1 and October 1 of eachyear. The bonds mature in varying installments through 2029 and are subject to mandatory redemptionthrough a sinking fund that requires the Hospital to fund debt service of approximately $3,700,000annually through the year 2028. The bonds are secured by a pledge and assignment of all revenue, afteroperating expenses, derived by the Hospital.

Under the terms of the bond agreement, certain maturities of principal due on the bonds, as well asinterest accruing on the bonds, must be funded to the trustee prior to actual payment to the bondholders.

The 2003 bonds are serial bonds with semiannual interest payments due April 1 and October 1 of eachyear. The bonds mature in varying installments through 2034 and are subject to extraordinary specialredemption through a sinking fund that requires the Hospital to fund debt service of approximately$5,000,000 annually, beginning in 2030 through the year 2034. The bonds are secured by a pledge andassignment of all revenue, after operating expenses, derived by the Hospital. The bonds are also securedby a mortgage and security agreement of the land on which the Hospital is located. Under the terms of thebond agreement, certain maturities of principal due on the bonds, as well as interest accruing on thebonds, must be funded to the trustee prior to the actual payment to the bondholders.

-34 -



4. Debt (continued)

The scheduled maturities of the long-term debt are as follows (in thousands):Principal Interest

2008 $ 1,270 $ 3,8012009 1,330 3,7402010 1,395 3,6752011 1,460 3,6062012 1,535 3,5322013-2017 8,980 16,3602018-2022 11,695 13,6412023-2027 15,290 10,0492028-2032 19,950 5,3912033 - 2034 9,605 536Total S 72,510 $ 64,331

The Hospital was in compliance with all covenants of its outstanding bond issues at March 31, 2007 and2006.

5. Third-Party Payer Arrangements

The Hospital receives payment from federal and state agencies (under Medicare and Medicaid Programs)for services rendered to program beneficiaries. A summary of the percentage of the Hospital's net patientrevenue related to patients participating in the Medicare and Medicaid Programs is as follows for theyears ended March 31, 2007 and 2006:

2007 2006Medicare 41% 41%Medicaid 5% 5%

Laws and regulations governing the Medicare and Medicaid programs are complex and subject tointerpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by amaterial amount in the near term. The Hospital believes that it is in compliance with all applicable lawsand regulations and is not aware of any pending or threatened investigations involving allegations ofpotential wrongdoing. While no such regulatory inquiries have been made, compliance with such lawsand regulations can be subject to future government review and interpretation as well as significantregulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs.

-35-

iiiiiiiiiiii



5. Third-Party Payor Arrangements (continued)

Regulations in effect require annual retroactive settlements for costs reimbursed under these federalprograms based upon cost reports filed by the Hospital. The difference between the estimate of thesesettlements and the final determination of amounts earned under cost reimbursement and prospectivepayment activities is subject to review by the appropriate governmental authority or its agents. As a result,there is at least a reasonable possibility that recorded estimates will change by a material amount in thenear term. These adjustments resulted in a decrease to net patient service revenue of $45,100 in 2006 andan increase to net patient service revenue of $4,784,000 in 2007. Estimated settlements through March 31,2005, for the Medicare program and through March 31, 2002, for the Medicaid program have beenreviewed by program representatives, and adjustments have been recorded to reflect any revisions to therecorded estimates required. The settlement of these cost reports provides the Hospital with updatedinformation that serves as the basis to adjust estimated settlement amounts. Management believes thatadequate provision has been made for adjustments that may result from the final determination ofamounts earned under these programs.

6. Net Patient Service Revenue

Net patient service revenue is comprised of the following:Years Ended March 31

2007 2006(in thousands)

Total gross patient service charges, excluding charity care $ 430,779 $ 396,903

Contractual and other allowances:Medicare 152,161 142,220Medicaid 44,715 39,869Managed care organizations 58,444 51,497Other 7,643 5,656Provisions for bad debts 10,215 8,751

Total contractual and other allowances 273,178 247,993Net patient services revenue $ 157,601 $ 148,910

7. Retirement Plan

The Hospital has a contributory money accumulation pension plan covering all of its full-time employees.Plan participants may contribute to the pension plan. The Hospital contributes amounts from 4% to 5% ofeach participant's salary to the plan depending upon length of service. Pension expense wasapproximately $2,091,000 in 2007 and $2,120,000 in 2006.

-36-



8. Commitments and Contingencies

The Hospital participates in the State of Louisiana Patients' Compensation Fund (the Fund) forprofessional liability coverage. As a participant, the Hospital receives professional liability coverage on aclaims-made basis for claims up to the $500,000 statutory limitation per occurrence. However, theHospital is self-insured with respect to the first $100,000 of each claim.

The Hospital is self-insured for workers' compensation up to $350,000 per claim and for employee healthinsurance up to $175,000 per claim. A liability is recorded when it is probable that a loss has beenincurred and the amount of that loss can be reasonably estimated. Liabilities for claims incurred arereevaluated periodically to take into consideration recently settled claims, frequency of claims, and othereconomic and social factors.

The Hospital purchased commercial insurance that provides coverage for professional liability, workers'compensation, and employee health claims in excess of the self-insured limits.

Changes in the Hospital's aggregate claims liability for medical malpractice, workers' compensation, andemployee health insurance in fiscal years 2007 and 2006 were as follows (in thousands):

Current-Year BalanceBeginning of Claims and at Fiscal

Year Ended Fiscal Year Changes in Claim Year-March 31 Liability Estimates Payments End2007

2006

$ 4,881

4,255

1,272

1,613

1,250

987

4,903

4,881

Insurance coverage for other loss and liability exposures is maintained at levels considered appropriate bymanagement. The Hospital has been named as a defendant in various legal actions arising from normalbusiness activities, in which damages in various amounts are claimed. The amount of ultimate liability, ifany, with respect to such matters cannot be determined, but management believes that any such liabilitywould not have a material effect on the Hospital's financial position.

As of March 31, 2007, the Hospital has committed approximately $1,500,000 for new equipment,building renovations, and other acquisitions, all of which is expected to be funded in fiscal 2008.

In addition, the Hospital has a two year physician loan agreement with a physician. The aggregate totalprincipal amount of the compensation loans shall not exceed $530,000. The physician has only drawn$96,700 on this agreement. The remaining commitment to the physician by the hospital is $321,000. Thelast monthly compensation loan payment is to be made in May of 2008.

-37-

I

I


Notes to Basic Financial Statements (continued)

9. Community Benefits (Unaudited)

Services provided to the indigent and benefits provided to the broader community by the Hospital for theyears ended March 31, 2007 and 2006, are summarized below:

2007 2006(in thousands)

Benefits for the indigent:Traditional charity care $ 1,884 $ 1,542

Benefits for the broader community:Unpaid cost of government programs 16,504 14,656Other community benefits 1,518 1,505

Total quantifiable benefits for the broader community 18,022 16,161Total quantifiable community benefits J 19,906 $ 17,703

The amount reported as benefits for the indigent represents billings for services provided based on theHospital's charge rates to persons who cannot afford health care because of unavailable resources or whoare uninsured. Benefits for the broader community include the unpaid cost of treating Medicare andMedicaid beneficiaries in excess of government payments and services provided to other needypopulations that may not qualify as indigent but that require special services and support. Examplesinclude the cost of health promotion and education, an assistance program for the elderly, and healthclinics and screenings, all of which benefit the broader community.

-38-

P&NPostlethwalte & Netterville

A Professional Accounting CorporationAssociated Offices in Principal Cities of the United States

www.pncpa.com

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCEAND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN

ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS

The Board of CommissionersHospital Service District No. 1 Terrebonne Parish,State of LousianaTerrebonne General Medical Center:

We have audited the financial statements of the Hospital Service District No. 1 of Terrebonne Parish, State ofLouisiana (d/b/a Terrebone General Medical Center) (the Hospital) as of and for the year ended March 31,2007,and have issued our report thereon dated August 9, 2007. We conducted our audit in accordance with auditingstandards generally accepted in the United States of America and the standards applicable to financial auditscontained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the Hospital's internal control over financial reporting as abasis for designing our auditing procedures 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 Hospital's internal control over financialreporting. Accordingly, we do not express an opinion on the effectiveness of the Hospital's internal control overfinancial reporting.

A control deficiency exists when the design or operation of a control does not allow management or employees, inthe normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. Asignificant deficiency is a control efficiency, or combination of control deficiencies, that adversely affects theentity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generallyaccepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity'sfinancial statements that is more than inconsequential will not be prevented or detected by the entity's internalcontrol.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more thana remote likelihood that a material misstatement of the financial statements will not be prevented or detected by theentity's internal control.

Our consideration of the internal control over financial reporting was for the limited purpose described in the firstparagraph of this section and would not necessarily identify all deficiencies in the internal control that might besignificant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are alsoconsidered to be material weaknesses. We did not identity any deficiencies in internal control over financialreporting that we consider to a material weakness, as defined above.

39

8550 United Plaza Bivd, Suite 1001 • Baton Rouge, LA 70809 • Tel: 225.922.4600 • Fax: 225.922.4611

11

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the financial statements of the Hospital are free of materialmisstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant

I agreements, noncompliance with which could have a direct and material effect on the determination of financialstatement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of

I•

IIIIIIIIIIIi

noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information and use of the Board of Commissioners, federal and state awardingagencies, and the Louisiana Legislative Auditor and is not intended to be and should not be used by anyone otherthan these specified parties. However, under Louisiana Revised Statute 24:513, this report is distributed by theLegislative Auditor as a public document.*~^ /) ' X" — " /7 4^O^^mcAXi^ J /V^^x^crc^VBaton Rouge, Louisiana 'August 9, 2007

40

^^^^^^^^•1 P&N 1

hospital service district no. 1 of terrebonne parish ... · the hospital and changes in them....

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